80 CCC. Contributin to Pension Funds

Deduction in respect of contribution to certain pension funds.

80CCC. (1) Where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India ⁷⁰[or any other insurer] for receiving pension from the fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of ten thousand rupees in the previous year.

(2) Where any amount standing to the credit of the assessee in a fund, referred to in sub-section (1) in respect of which a deduction has been allowed under sub-section (1), together with the interest or bonus accrued or credited to the assessee’s account, if any, is received by the assessee or his nominee—

             (a)   on account of the surrender of the annuity plan whether in whole or in part, in any previous year, or

             (b)   as pension received from the annuity plan,

an amount equal to the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in that previous year in which such withdrawal is made or, as the case may be, pension is received, and shall accordingly be chargeable to tax as income of that previous year.

(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section, a rebate with reference to such amount shall not be allowed under section 88.]

The following sub-section (3) shall be substituted for the existing sub-section (3) of section 80CCC by the Finance Act, 2005, w.e.f. 1-4-2006 :

(3) Where any amount paid or deposited by the assessee has been taken into account for the purposes of this section,—

              (a)   a rebate with reference to such amount shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;

              (b)   a deduction with reference to such amount shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.

A short note on section 80CCC of Income Tax Act 1961

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Section 80CCC of Income Tax Act 1961 deals with the deductions and income in respect of contributions to certain Pension funds by an individual assessee. Here below the relevant provisions of section 80CCC are discussed.

 

To whom the deduction is available u/s 80CCC: The deduction u/s 80CCC is available to an individual assessee only as the wording of section 80CCC(1) starts as “Where an assessee being an individual…..”. Thus its only the individual who is eligible for deduction u/s 80CCC. The deduction under this section is also available to a non resident individual.

 

The amount must have been paid out of income chargeable to tax: Another condition for claiming deduction u/s 80CCC is that the amount of contribution paid in respect of which deduction has to be claimed, must have been paid out of the income chargeable to tax of the concerned individual assessee.

 

Deduction is available in respect of contributions made towards annuity plan for receiving pension: The deduction u/s 80CCC is available only in respect of contributions made to effect or keep in force a contract for any annuity plan of Life insurance Corporation of India or any other insurer for receiving pension from the fund referred to in clause 23AAB of section 10.

 

Thus in simple words contributions made towards pension plans of LIC or other insurers are eligible for deduction u/s 80CCC.

 

Amount of Deduction: The amount of deduction u/s 80CCC together with deduction available u/s 80C, 80CCD cannot exceed more than Rs. 1 Lakh. Where deduction has been allowed u/s 80CCC, deduction u/s 80C will not be available in respect of the payment towards such annuity plan.

 

Pension received from or amount received on surrender of such annuity pension plan is taxable: Section 80CCC(2) provides  if the assessee or his nominee receives any amount (including Interest or bonus), standing to the credit of the assessee in respect of which deduction u/s 80CCC has been allowed to him:

 

(a)on account of the surrender of the annuity plan, whether in whole or in part in any previous year; or

 

(b)   as pension from the annuity plan; such amount shall be included in the total income of the assessee or his nominee in the year of receipt.

 

Thus there is no exemption available on the amount received as pension or on surrender in case of such annuity plans of pension in respect of which deduction u/s 80CCC(1) has been allowed.

80 C. Items at a Glance

Investments Comes Under Section 80C

Below given is the list of investments that falls under section 80C. This will help you to chose the best one that better suites your needs.

1. Life Insurance Premium
2. Unit Linked Insurance Plans (ULIP)
3. Equity Linked Savings Schemes (ELSS)
4. Public Provident Fund (PPF)
5. Provident Fund (Contribution by the Employee)
6. NSC - National Savings Certificate
7. Fixed Deposit for 5 years
8. Home Loan Repayment (Principal)
9. Stamp Duty and Registration Charges
10. Tuition Fee Payment
11. Post Office Time Deposit Account
12. Infrastructure Bonds
13. Senior Citizen's Savings Scheme

Life Insurance premium

Life insurance is an important aspect of life; it helps you to cover the uncertainty of life. Every earning person having dependents should have adequate life insurance coverage. Any contributions made as a premium of Life Insurance policies are eligible for income tax deduction under Section 80C. Apart from premium of your own policy, premium paid on behalf of your spouse or your children is also eligible for exemption under Section 80C. If you and your spouse (husband/wife) both have Life Insurance policies, and your spouse's taxable income doesn’t come under the tax bracket, you can show both of your Insurance premium and get more benefit of deduction under Section 80C. Premium in excess of 20% of sum assured is not eligible for deduction in other words; to get the full tax exemption on the premium paid your sum assured should be atleast 5 times of the premium paid.  

ULIPs

Unit Linked Insurance Plans (ULIPS) are a combination of Life Insurance as well as mutual fund investment. Money invested in ULIPs is eligible for deduction under Section 80C. ULIPs give you life cover as well as exposure to stock market.

ELSS

Equity Linked Savings Schemes (ELSS) are specially designed Mutual Funds for offering you tax savings. All the investments made in ELSS are eligible for deduction under Sec 80C. Remember that not all mutual fund investments qualify for 80C deduction. All ELSS have a lock-in period of 3 years. ELSS are also knows as tax saving Mutual Funds.

Provident Fund (PF)

Provident Fund is the fund which is made out of the contributions made the employee along with an equal contribution by employer during the time he has worked his employers. PF calculated as a percentage of his salary, say 12% and is returned to him on his retirement with interest. Current annual interest is set at 8.5%. Any contribution made to Provident Fund can be deducted from your taxable income according to Section 80C.

Public Provident Fund (PPF)

You can open a Public Provident Fund (PPF) account and any amount invested in your PPF account qualifies for deduction under section 80C while the maximum investment allowed is Rs. 70000. By investing in a Public Provident Fund the increased contribution also qualifies for deduction. PPF accounts can be opened in most of the well known banks and the minimum with a minimum investment of Rs. 500.

National Saving Certificate (NSC)

Amount that you are investing in National Saving Certificate (NSC) is eligible for tax deduction under Section 80C. For all the investments made in National Saving Certificate there is a lock in period of 6 years. Under this scheme the initial investment plus the total interest accrued is also eligible for deduction.  

Fixed deposits

Any amount invested in Fixed Deposits with a term greater than or equal to 5 years is eligible for tax exemption under section 80C. This is a recent amendment and is one of the best risk free saving options where you can save money as well as get benefit of Section 80C.

Home Loan Repayment (Principal)

Repayment of Home Loan Principal is also eligible for deduction under section 80C. If you have bought a new house and have a housing loan for that, you can get benefited from Section 80C deduction. Here the point to note is that Equated Monthly Installment (EMI) of housing loan has two components – ‘Principal’ and ‘Interest’. Only the principal part is exempted under Section 80C. Even the interest part is eligible for tax deduction but not under Section 80C, it is under Section 24.

Stamp Duty and Registration Charges

Stamp duty charges and registration charges paid while purchasing new house is eligible for tax deduction under Section 80C.

Tution Fees

Amount paid as tution fees for education of one or two of your children are exempt from Income Tax and you can claim the deduction under Section 80C.

Post Office Time Deposit Account

A Post-Office Time Deposit Account is a banking service offered by Department of post it is similar to a Bank Fixed Deposit. One can open this account in any post office in the country. Interest on Post Office Time Deposit Account is free from tax.

Infrastructure Bonds

Infrastructure Bonds are popularly called as Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds is also exempt from tax under Sec 80C.

Senior Citizen's Savings Scheme

Senior Citizens Savings Scheme (SCSS) is a Government of India Product. It is one of the safest investment options. An Individual who attained the age of 60 can open this account. Under this scheme there is lock in period of 5 years, on the option of depositor it can be extended for another 3 years. This scheme offers 9% interest to the depositors. Interest earned from the investments is not exempt from tax.

HRA Calculations

House Rent Allowance (HRA) taxability and working/calculation of taxable HRA

Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax.

An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies.

The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options:

1. Actual house rent allowance received from your employer
2. Actual house rent paid by you minus 10% of your basic salary
3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro

This minimum of above is allowed as income tax exemption on house rent allowance.

Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.

Meaning of Salary for calculation the exemption of HRA

• Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
• Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.

Examples for calculation of exemption/deduction of HRA

X has received following amount during the previous year.

1. Basic Salary – Rs. (5000*12) – Rs. 60,000/-
2. Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/-
3. House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/-
4. Actual Rent Paid – Rs.(2000*12) – Rs. 24000/-

Calculation

The minimum of the following amount shall be exempt

• Actual HRA received (2000*12) – Rs. 24000/-
• Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800
• 40% of Salary – Rs. 28800/-

Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary.

Frequently Asked Questions:-

How is HRA accounted for in the case of a salaried individual and a self-employed professional?
HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.
What are the dependent factors in calculating HRA for the salaried individual?
When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.
Can I pay rent to my parents or spouse to avail HRA benefits?
You can pay rent to your parents, however, they need to account for the same under ‘Income from other sources’ and will be entitled to pay tax for the same.
On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these.
Do I need to submit any proof for my HRA claim?
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
Can I simultaneously avail tax benefits on my home loan and HRA?
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

80 D. Mediclaim Premium

Deduction U/s 80D for Mediclaim Premium to Individual, HUF and Senior Citizens

Deduction in respect of Medical Insurance Premium (Mediclaim) paid to keep in force insurance by individual either on his own health or on the health of spouse, dependent parents and children or HUF on the health of any members of the family. A Mediclaim policy is a must because should you fall sick or meet with an accident, your medical bills could wipe out your savings.

Features of Mediclaim policy

1. Premium based on Age: - As in term insurance, the premium rates will vary among the insurers and will also depend on your age. The older you are, the heftier the premium. For instance, Mediclaim policy from General Insurance Corporation has a fixed premium till 35 years and then it changes in 10-year slabs.

2.    Who is it available to?

• Individual (resident or non resident, Indian Citizen or foreign citizen):- In case an individual is taking the deduction, the medical insurance policy can be taken in the name of any of the following: the taxpayer or the spouse, parents or dependent children* of the taxpayer.
• HUF(Hindu undivided Family may be resident or non resident) :- In case a HUF is taking the deduction, the medical insurance policy can be taken in the name of any member of the family.

Note

• Dependent Children (i.e. legitimate or legally adopted children).  Children above 18 years, if employed, can not be covered. Male children, if not employed, but a bonafide student can be covered upto age of 25 years. Female children, if not employed, can be covered until the time she is married.
• parents need bot be dependent on the Assessee.
• parents of Individual or Spouse both are covered.

3. Entry Age: This insurance is available to a person between the age of 18 to 59 years.  However, the Policy can be renewed upto the age of 80 years.

a) Children above the age of 3 months can be covered provided parents are covered concurrently and suitable premium is paid. If the child above 18 years is employed or if the girl child is married, he or she shall cease to be covered under the policy. However male child can be covered upto the age of 25 years if he is a bonafide regular student and fully dependent on primary insured. Female child can be covered upto the time, she is unmarried.

b) If the insured has taken continuous Mediclaim insurance policy with us for at least 5 years prior to attaining the  age of 80 years the policy can be renewed beyond the age of 80 upto  the age of 90 years as a special case with the approval of Regional Incharge on case to case basis. The premium chargeable shall be 10% of the premium for 75-80 years age slabs for  proposers above 85 and 20% of the premium for 75-80 age slabs for proposers above 90.

c) No inclusion of family member during currency of policy is permissible except for a new born child between the ages of 3 months to 6 months and newly married spouse within 60 days of marriage.  Otherwise inclusion of family member shall be allowed only at the time of renewal. Prorata premium shall be charged for such inclusion during the currency of the policy for the unexpired period.

4. Sum Insured: Minimum sum insured shall be Rs 50,000/- and can be increased in multiples of Rs 25,000/-upto Rs 5 lacs.  The sum insured must be identical for primary insured and the dependents. However, the children may be covered for 50% Sum Insured as per 4 above.

5. Payment of Mediclaim Premium out of taxable Income:- The amount must have been paid using the taxpayer’s income chargeable to tax.

6.     In addition to deduction u/s, 80C, 80CC and 80CCD,:- This is an additional deduction available which do not include deduction  u/s 80C, 80CCC and 80CCD for which overall limit is  is Rs. 1,00,000.

7. Partly contribution: If part payment is done by you and part payment by the parent, both can claim deduction to the extent of their contribution subject to maximum allowed but amount should be paid directly to insurance company and paid through mode other than by cash.

8. Mode of payment: The premium may be paid by any mode of payment other than cash. Note prior to 1st April 2009, premium payment was required to be done only by cheque. Credit card or other online payment mechanism where not allowed. Now all payment modes except cash payment are accepted.

9. Which Mediclaim Premium is allowed? : - Mediclaim premium paid under Medical insurance scheme of General Insurance Corporation approved by the Central Government, or any other insurer approved by the Insurance Regulatory & Development Authority (IRDA).

10.  Proposer of the policy is not must: The premium is to be paid to effect or keep in force insurance policy  ,there is no condition that assessee should be the proposer of the policy ,

11.  Part contribution: Assessee can  partly contribute the premium amount but amount should be paid directly to insurance company and paid through mode other than by cash (see example)

12.  What is the amount of the deduction?

For Individual

• Basic deduction: Mediclaim premium paid for Self, Spouse or dependant children. Maximum deduction Rs 15,000. In case any of the persons specified above is a senior citizen (i.e. 65 years or more as of end of the year up to F.Y. 2010-11 and 60 years from F.Y. 2011-12) and Mediclaim Insurance premium is paid for such senior citizen, deduction amount is enhanced to Rs. 20,000.
• Additional deduction: Mediclaim premium paid for parents. Maximum deduction Rs 15,000. In case any of the parents covered by the Mediclaim policy is a senior citizen, deduction amount is enhanced to Rs. 20,000.

For HUF

• Mediclaim premium paid for any member of the HUF. Maximum deduction Rs 15,000. In case any member of the HUF covered by the Mediclaim policy is a senior citizen, deduction amount is enhanced to Rs. 20,000.

EXAMPLE- 1
1. An individual assessee pays (through any mode other than cash) during the previous year medical insurance premia, out of his taxable income, as under:

(i) Rs 12,000/- to keep in force an insurance policy on his health and on the health of his wife and dependent children;

(ii) Rs 17,000/- to keep in force an insurance policy on the health of his parents.

Under the new provisions he will be allowed a deduction of Rs 27,000/- (Rs. 12,000/- + Rs. 15,000/-) if neither of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be allowed a deduction of Rs 29,000/- (Rs.12,000/- + Rs.17,000/). Whether the parents are dependent or not, is not a consideration for deciding the deduction under the new provisions.

Further, in the above example, if cost of insurance on the health of the parents is Rs 30,000/-, out of which Rs 17,000/- is paid (by any non-cash mode) by the son and Rs 13,000/- by the father ( who is a senior citizen), out of their respective taxable income, the son will get a deduction of Rs 17,000/- ( in addition to the deduction of Rs 12,000/- for the medical insurance on self and family) and the father will get adeduction of Rs 13,000/-.

EXAMPLE 2

An individual assessee pays through credit card during the previous year health insurance premium as under:

1. Rs. 12,000 to keep in force an insurance policy on his health and on the health of his wife and children
2. Rs. 17,000 to keep in force an insurance policy on the health of his parents.

Under the proposed new provisions, he will be allowed a deduction of Rs. 27,000 (Rs. 12,000 + Rs. 15,000) if neither of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be allowed a deduction of Rs. 29,000 (Rs. 12,000 + Rs. 17,000). Whether the parents are dependent or not, is not a consideration for deciding the deduction under Section 80D.

EXAMPLE- 3

Question:- In the last budget, the finance minister announced exemptions for Mediclaim charges paid for senior citizens. However, I am not sure if it has yet been notified and effective. I need to take medical insurance for both my parents, who are senior citizens. I would appreciate if you can let me know.
Answer:-  Earlier Sec 80D deduction in respect of medical insurance premium was Rs 15,000 for an individual and Rs 20,000 for a senior citizen. However, from this year, if someone were to buy medical insurance for his parent/s, an additional deduction of Rs 15,000 (over and above Rs 15,000) will be available. If such parent/s were senior citizen, the additional deduction would be Rs 20,000. So a person insuring himself, his spouse, children and parents could potentially get a deduction of Rs 35,000. This provision is effective from 1.4.08.
EXAMPLE- 4
Can I pay mediclaim on behalf of my mother-in-law and claim deduction under Section 80D of the Income Tax Act?
An individual is allowed to claim deduction under Section 80D when the policy is taken on the health of the assessee, his spouse, parents (dependent or not) and dependent children. Accordingly, you cannot claim the deduction under Section 80D in respect of mediclaim paid for your mother-in-law.

Appendix: Section 80D of the Income Tax Act

Deduction in respect of medical insurance premium.

80D. (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted such sum, as specified in sub-section (2) or sub-section (3), payment of which is made by any mode, other than cash, in the previous year out of his income chargeable to tax.

(2) Where the assessee is an individual, the sum referred to in sub-section (1) shall be the aggregate of the following, namely:

(a) the whole of the amount paid to effect or to keep in force an insurance on the health of the assessee or his family as does not exceed in the aggregate fifteen thousand rupees; and

(b) the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents of the assessee as does not exceed in the aggregate fifteen thousand rupees.

Explanation.For the purposes of clause (a), family means the spouse and dependant children of the assessee.

(3) Where the assessee is a Hindu undivided family, the sum referred to in sub-section (1) shall be the whole of the amount paid to effect or to keep in force an insurance on the health of any member of that Hindu undivided family as does not exceed in the aggregate fifteen thousand rupees.

(4) Where the sum specified in clause (a) or clause (b) of sub-section (2) or in sub-section (3) is paid to effect or keep in force an insurance on the health of any person specified therein, and who is a senior citizen, the provisions of this section shall have effect as if for the words fifteen thousand rupees, the words twenty thousand rupees had been substituted.

Explanation.For the purposes of this sub-section, senior citizen means an individual resident in India who is of the age of sixty-five years or more at any time during the relevant previous year.

(5) The insurance referred to in this section shall be in accordance with a scheme made in this behalf by

(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government in this behalf; or

(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).]

FAQ on Mediclaim-

1.Why is deduction u/s 80D allowed?
The deduction is allowed for
1. buying medical insurance , popularly known as Mediclaim policy.
2. Keeping in effect a medical insurance already bought.
2. How much deduction available?
1. If Mediclaim is bought for any person other than person having 65 years , then Rs 15,000.
2. If Mediclaim is for person having 65 years or more , Rs 20,000.
3. Who can claim deduction?
Individual and HUF making payments for medical insurance.
1. Individual can claim for self, wife, children and parents.
2. HUf can claim for Mediclaim policy on members.
4. What should be mode of payment of insurance premium?
Any mode other than cash will make one eligible for deduction u/s 80D.
5. If office deducts salary for medical insurance for employee and his family , whether the employee can claim deduction u/s 80D?
Yes, for the fact that
the mode of payment is any ,other than cash, and
It is employee who paid for himself or his family’s insurance.
Get a certificate from the employer regarding deduction of amount for medical insurance purpose.You can claim to the extent the dedcution has been made by the employer for medical insurance subject to maximum RS 15,000
6.If an individual buys Mediclaim for himself and for his parents exceeding 65 years, how much can he claim as deduction?
Good question. Subsection 2 of section provides as under
(2) Where the assessee is an individual, the sum referred to in sub-section (1) shall be the aggregate of the following, namely:
(a) the whole of the amount paid to effect or to keep in force an insurance on the health of the assessee or his family as does not exceed in the aggregate fifteen thousand rupees; and
(b) the whole of the amount paid to effect or to keep in force an insurance on the health of the parent or parents of the assessee as does not exceed in the aggregate fifteen thousand rupees.
It is clear that an individual can claim deduction up to Rs 35,000 for medicalim insurance , if he makes insurance for his family and any parents exceeding 65 years.
7. Can somebody having invested the amount from income exempt from tax or by taking loan , claim deduction u/s 80 D?
No as per opening line in the section 80D , the payment should be only out of income chargeable to tax . Read the opening line :
80D. (1) In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted such sum, as specified in sub-section (2) or sub-section (3), payment of which is made by any mode, other than cash, in the previous year out of his income chargeable to tax.
8. Can you get deduction u/s 80D for Overseas Mediclaim policy?
Yes, in author opinion , there in nothing in the provision u/s 80D which prohibits claim of deduction u/s 80D for medical insurance for overseas journey. The only requirement, as given in section 80D(5) is that the insurance companies issuing such overseas insurance should be one of these
(5) The insurance referred to in this section shall be in accordance with a scheme made in this behalf by
(a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).

80 C. Public PF

Public Provident Fund (PPF) scheme  Investment Limit, Income tax benefit, Features

The Public Provident Fund is the darling of all tax saving investments. No wonder! You invest in it and you get a deduction on your income. Besides, the interest you earn on it is tax-free. Since it is a scheme run by the Government of India, it is also totally safe. You can be sure no one is going to run away with your money. Here, we summarise the scheme, tell you how to open a PPF account and what to expect.

PPF refers to Public Provident Fund and is a Long Term Debt Scheme of the Govt. of India on which regular interest is paid. Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme and can earn a handsome tax-free return on the same which is usually higher than the return offered by Banks on Fixed Deposits.

1. Where You can open a PPF Account and How?

a . To open a PPF account, drop  by a State Bank of India branch. SBI’s subsidiary banks can also open accounts. A list of these subsidiary banks is available on the bank’s Web site.You can even visit the nationalised bank in your neighbourhood. Selected branches of nationalised banks can also open accounts.The head post office or selection grade sub-post offices also open PPF accounts.

b. You will have to fill up a form. You can take a look or download the form from SBI’s web site. Along with the form, attach a photograph and submit your Permanent Account Number. If you do not have a PAN, then furnish an attested copy of either your ration card, voter’s identity card or passport. When you open an account, you will be given a passbook (just like a bank pass book) in which all subscriptions, interest accrued, withdrawals and loans are recorded.

2.  Who can and who cannot not open PPF Account?

a. Who Can Open PPF Account - Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme. HUfs are no more allowed to open any PPF account

b. Who Can Not open PPF Account-NRI’s are not allowed to subscribe to PPF Account. However, if someone opens a PPF Account while he is a Resident of India but subsequently becomes a NRI, he shall be allowed to continue investing in his account. Earlier  NRIs were not even allowed to make contributions into existing PPF accounts, that is, accounts opened before they became NRIs. However, in 2003, a notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003) was issued permitting NRIs to continue investing in existing PPF accounts till maturity. An NRI can now invest up to Rs 70,000 per financial year in an existing account, that is, an account that he opened prior to becoming an NRI. If someone  inadvertently opened an account after becoming an NRI, it is best to close it before it comes to the attention of the concerned authorities in India.

3. You can have only one PPF account in your name. If, at any point, it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.

4. You cannot open a joint account with another individual. The account can only be opened in one person’s name. You are free to nominate one or more individuals. On the death of the account holder, nominees cannot keep the account going by making contributions. If there are no nominees, the legal heirs get the money. You can open one account for yourself and others for your child/ children. But, on your death, your children cannot make any additional contributions.

5.   Minimum and maximum deposit limit

A minimum deposit of Rs. 500 must be made during one whole financial year. The maximum that could be deposited is Rs. 70,000 in a financial year.  The interest you will earn is 8% per annum. Deposits could be in either one go, or in flexible instalments (in multiples of Rs. 10). You could vary the amount and the number of instalments, as per your convenience, provided you do not exceed 12 instalments in one financial year. Failing to deposit the minimum requirement, would lead to your account being discontinued. Interest would however continue to accrue. You could regularize the account again on paying the prescribed default fee along with subscription arrears.

6.  Continuing PPF after the 15 year period-  The PPF account is valid for 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account. So, if you opened it in FY 2006-07 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2007 (end of this financial year). That means your PPF matures on April 1, 2022. It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Once your account expires, you can open a new one. The only limitation is that you cannot withdraw it until seven years are completed, after which 50% of your deposits can be withdrawn, if needed.

PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.

If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.

7. Deposit date in Cheque payments :-Till recently, in case of a PPF when a subscriber used to make deposits by local cheque or demand draft, the date of tender of cheque or draft at the accounting office was treated as the date of deposit of PPF, provided the said cheque was duly honoured on presentation for encashment. 

In contrast, in case of other small savings schemes like Post Office Savings Scheme (POSS), Senior Citizen Savings Scheme 2004 (SCSS) any money deposited in these accounts by means of a cheque, the date of encashment of the cheque is treated as the date of deposit.

Thus, in order to remove inconsistency between PPF and other small savings schemes and to bring in uniformity in the reckoning of the date of deposit of all the schemes, the government has issued necessary instructions through the circular to banks / other intermediaries which hold PPF accounts for the individuals to treat the date of realisation of the cheque or demand draft by the subscriber as the date of deposit.

This issue becomes particularly relevant in respect of deposits made towards the end of the financial year by cheque / demand draft because if the same is not realised by March 31, then the same will be treated as deposits for the following financial year. This would also have ramifications in respect of the tax deduction being claimed by the individuals in a particular tax year.

8. Opening an account for a minor :-There have been certain practical hurdles in respect of opening of accounts for minor vis-à-vis some intermediary agencies. This clarification reiterates that as per the rules under PPF scheme, an individual may on his own behalf or on behalf of a minor of whom he is a guardian, open a PPF account. Further, either father or mother can open PPF account on behalf of his / her minor child, but both cannot open the account for same child.

Let’s say you open an account for your minor child. You can deposit Rs 70,000 in your account and Rs 70,000 in your child’s account. In this case you can in my opinion take the maximum benefit of Rs. 1,00,000/- U/s. 80C.  As Limit of Maximum Investment in a year of 70000/- is fixed by Public provident Fund Act not by Income Tax law.

9. Loans on PPF Account

Loans can be availed from the 3rd financial year excluding the year of deposit. Amount of such loans must not exceed 25 percent of the amount that stood to the account holder’s credit at the end of the second year immediately preceding the year in which the loan is applied for.

A fresh loan is not allowed when a previous loan or interest is outstanding. Interest is charged at a rate of 1% if repaid within 36 months and at 6% on the outstanding loan after 36 months. The repayment may be made either in lump-sum or in Instalments.

10. Benefit of Investing in PPF – Taxation of PPF

a.            Benefit u/s 80C – The Investments made in PPF Account are eligible for deduction u/s 80C

b.            Tax Free Interest – No Tax is payable on the Interest Earned on PPF Account.

11. Premature withdrawal from PPF

The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7^th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower.

Pre-mature closure of a PPF account is permissible only in case of death.

12. The Interest Rate of PPF is decided by the Govt. The Current Interest Rate on PPF is 8%. The Interest is computed for a calendar month on the basis of the lowest balance in an account between the close of the 5th day and the end of the month and the Interest is credited to the account of the account holder at the end of the year.

13. From which account can an NRI invest in the PPF account?

An NRI can use funds in the NRE account or the NRO account to make investments in the PPF account. It is important to remember that the PPF rules require you to invest at least Rs 500 per financial year in the PPF account. Says Sandeep Shanbhag, Director of Wonderland Investments and an expert in NRI financial matters, “If you fail to make the minimum investment in a year or years your account will be considered dormant. Subsequently, when you want to revive the account, you would need to invest Rs 500 for each year that you missed plus pay up a penalty of Rs 50.”
14. What happens on maturity of PPF Account of NRI?
If you are an NRI at the time the deposit matures, you would need to withdraw the balance. An NRI is not eligible for extension on the PPF account. What happens if you leave the account unattended past the maturity date? “In such cases the account will be considered ‘extended without contribution’ in blocks of 5 years for an unlimited period of time. Extended without contribution means that the NRI will not have to make the minimum yearly investment of Rs 500. His account will continue to earn interest at the prevailing rate,” says Shanbhag adding, “We hear of instances where banks allow NRIs to extend the PPF account only for 2 blocks of 5 years or 3 blocks of 5 years. But according to the rule book the extension can be made for an unlimited period of time.”

15. What are the differences and similarities between the National Savings Certificate (NSC) and PPF?

National Savings Certificate (NSC)	Public Provident Fund (PPF)
Interest Paid: 8%, compounded half-yearly	Interest Paid: 8%, compounded annually
No monthly/yearly payments	No monthly/yearly payments
Minimum investment: Rs 100Maximum investment: No Limit	Minimum investment: Rs 500 (required annually)Maximum investment: Rs 70,000
Duration of investment: 6 years	Duration of investment: 15 years
Can be used as a security for mortgage and other purposes	Cannot be used for such purposes
Tax benefit under Section 80 ‘C’ available.Maximum limit: Rs 100,000	Tax benefit under Section 80 ‘C’ available.Maximum limit: Rs 70,000 (limit of the investment in PPF)
Good medium-term investment option	Good long-term investment option
Interest if fully Taxable	Interest is fully Exempt

Do consider opening a PPF account if you do not have one. You can put in as little as Rs 500 a year to keep it going.

16. Only the person actually depositing the amount gets section 80C benefit

This means if your spouse deposits any amount into your PPF account, you will not be able to claim the deduction benefits under section 80C. Infact, your spouse will be able to (rightfully) claim section 80C deductions on his/her income.
17. You cannot claim section 80C deductions for any amount deposited by you into your parents’ or siblings’ accounts
While tax laws allow you to claim 80C tax benefits for deposits into your spouses account, the same rule does not apply to your parents, siblings or relatives.

80 C. Tuition Fee

Deduction u/s. 80C for tuition/school fees paid for education of children

Who is Eligible: Deduction for tuition fees u/s. 80c of the Income Tax Act 1961 is available to Individual Assessee and is not available to HUF.

Maximum Child: Deduction under this section is available for tuition fees paid on two children’s education. If Assessee have more then two children then he can claim tuition fees paid of only two children’s. The Deduction is available for any two children.

Here we would like to mention that husband and wife both have a separate limit of two children each, so they can claim deduction for 2 children each.

Expenditure  paid for self education not allowable: - This is the only clause u/s 80 C where assessee can not claim tax benefit for expenditure incurred for self. In other words if assessee has paid tuition fees for his own studies, he will not be eligible for deduction. 

Fees paid for spouse: Deduction is not available for tuition fees paid for studies of spouse.

Maximum Limit: Deduction for tuition Fees is available up to Rs.100000.  Please Note that aggregate amount of deduction  under section 80C , 80CCC and  80CCD shall not  exceed Rs. 1,00,000/-

Deduction available on payment basis: - Deduction under this section is available on payment basis.  Fees may be related to any period. For example feed paid for April 2009 if Paid in March 2009 will be eligible for deduction u/s. 80C in A.Y. 2009-10.

Deduction not available for part time course:- The deduction is available for Full Time courses only.   In our opinion no deduction is available for part time or distance learning courses.

Fees for Private tuition/Coaching Classes not eligible for deduction u/s. 80C :- The fees should be paid to university, college, school or other educational institution. No deduction available for fees paid for private tuition’s , coaching courses for admission in professional courses or any other type of courses are not covered as that fee is not paid for FULL time education.

Location of University, college, school or other educational institution: University, college, school or other educational institution must be situated in India though it can be affiliated to any foreign institutes.

Allowability of pre-nursery, play school and nursery class fees: - Pre-nursery, play school and nursery class fees is also covered under section 80C (circular 9/2008 & 8/2007).

Not allowable Expenses:-

1. Development fees or donation not eligible.

2. Transport charges, hostel charges, Mess charges, library fees, scooter/cycle/car stand charges incurred for education are not allowed.

3. Late fees is not eligible for deduction.

4. Term Fees is not eligible for deduction.

5. No deduction for part time or distance learning courses.

6. no rebate for private tuition.

7. Building fund or any donation etc not allowed.

Note: Above list is not exhaustive.

FREQUENTLY ASKED QUESTIONS ON DEDUCTION FOR TUITION FEES U/S. 80C

Q. Can an unmarried person can claim deduction u/s 80C of Income tax Act, 1961 for school fee paid for 2 children?

Answer: Yes he can. As clause (c )  of subsection 4 of Section 80C only speaks of children’s of Individual.  Section 80C is silent on legality of child and it does not say that child should be legal child.

Q. Can I claim deduction u/s 80C of Income tax Act, 1961 for my adopted child’s school fees?

Answer: Yes you can. As section 80C again silent and do not specify that child should be biological child for the purpose of claiming deduction under clause (xvii) of section 80C.

Q. I have divorced to my wife and have custody of my son with me and paying his school fees. Will I be eligible for deduction u/s 80C of Income tax Act, 1961 for school fee paid on his education?

Answer: Yes you will. As section 80C do not specify that marriage should continue to claim the deduction under clause (xvii) of section 80C.

Q. Can I claim deduction under section 80C for tuition fees paid to an Indian institution for my wife’s education?

Answer: No you can’t claim. Deduction u/s. 80C is available only for tuition fees paid for two children’s education.

Q. I and my wife both paid for education of our one child. My wife paid 70,000 and I paid 1,10,000/- can we both claim deduction?

Answer: Yes both of you can claim deduction u/s 80C up to a maximum of Rs.  1,00,000 each.  You can claim deduction up to 100000/- and your wife can claim deduction of Rs. 70,000/-.

Q. I am currently working and studying. If  I pay my tuition fees out my own earnings and do not take an educational loan, will I get any tax benefits?

Answer: The tuition fees paid by you will not make you eligible for any tax benefits. You will not be able to claim any income tax deduction.

Q. I am a working women and I am paying the education fees for my husband education. Can I claim the deduction for this?

Answer: Payment of tuition fee up to Rs 1 lakh can be claimed as deduction u/s 80C of the I T Act. But the payment of tuition fee for full time course must be for for any two children of individual. It follows therefore one can not claim deduction for payment of tuition fee for his/her spouse.

Question:- Section 80C allows deduction in respect of tuition fee but excludes payments towards development fees, donations or payments of similar nature.

Does this mean that the items not specifically excluded, such as fees for games, magazines, stationery, Parents’ Teacher Association fees, Staff Benefit Fund, Gratuity Fund, and hostel will not qualify for the deduction?

Answer:- None of these will qualify for deduction under Section 80C of the Income-Tax Act, 1961.

The deduction available under this Section is for sums paid as tuition fees (excluding any payment towards any development fees or donation or payment of a similar nature) whether at the time of admission or thereafter to any university, college, school or other educational institutions within India for the purpose of full-time education of any two children of an individual. The principle requirement for qualifying for deduction under this provision would be that the fee paid should be in the nature of tuition fee. All of the items enumerated by you are essentially not in the nature of tuition fee, and so cannot qualify for deduction.

You may note that the development fee or donation or payments of a similar nature even if they are in the nature of tuition fees will not qualify for the deduction under this Section.

Question:- Can Mother claim the benefit of tuition fees paid for his son/daughter.
Answer:  Assessee means both mother and father both can take the benefit u/s 80 C for amount paid by them respectively.
 Question:- If a couple have four children, can they both claim fees for two children each?
Answer: Yes ,husband and wife both have a separate limit of two children each ,so they can claim deduction for 2 children each.
 Question:- If a Couple has one child and paid a fees of 200000 rs can they both claim tuition fess 100000 each ?
Answer:  yes ,they both can claim deduction for 100000 each subject to they have actually paid same amount .If husband has paid 1.50lac and wife has paid 50000 then husband can claim 100000 and wife can claim 50000.
Question:-  Ram has paid tuition fees for his child 2000/- in February 2011  relates to period march to June 2011 ,how much amount he can claim deduction in assessment year 2012-03?

Answer:  He can claim full 2000 Rs in assessment year 2012-13 , as this deduction is available on the basis of payment and it may or may not be related to the period in which it has been paid.

 Question:-  Is Late fees paid with tuition fees is eligible for deduction ?
Answer:   No,late fees is not eligible for deduction.

EXTRACT OF SECTION 80C

Clause xvii of section 80C

xvii) as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,

(a) to any university, college, school or other educational institution situated within India;

(b) for the purpose of full-time education of any of the persons specified in sub-section (4);

Subsection 4 of Section 80C

“(4) The persons referred to in sub-section (2) shall be the following, namely:

(a) ………………….
(b) …………………..

(c) for the purposes of clause (xvii) of that sub-section, in the case of an individual, any two children of such individual

 

Easy chart of deductions u/s 80C to 80U

The season of tax has arrived. Therefore , there is need for easy chart of all tax deduction u/s 80c to 80U for an Individual taxpayer?Under Income tax , deduction u/s 80C,80CCC, 80D, 80DD,80DDB,80G , 80GG, 80GGA, 80GGC , 80IAB , 80IB , 80IC , 80ID ,80IE , 80JJA , 80QQB ,80RRB , 80U  are relevant to Individuals depending on the condition fulfillment. The following chart of deductions will give instant and fair idea about certain deductions to individual tax payers. (section 80IAB to 80IE are not discussed which are specific to business men ) .

Sl No	Section	Details of deductions		Quantum
1	80C	General deduction for investment in PPF,PF,Life Insurance, ULIP, Stamp duty on house, Fixed deposits for 5 years , bonds etc		Maximum Rs 1 ,00,000 is allowed. Investment need not be from taxable income.
2	80CCC	Deduction in case of contribution to pension fund. However, it should be noted that surrender value or employer contribution is considered income.		Maximum is Rs 1,00,000
3	80CCD	Deduction in respect to contribution to new pension scheme. Employees of central and others are eligible.		Maximum is sum of employer’s and employee’s contribution to the maximum : 10 % of salary.
4		It should be noted that as per section 80CCE , the maximum amount of deduction which can be claimed in  aggregate of 80C ,80CCC & 80CCD is Rs 1,00,0000
5	80D	Medical insurance on self, spouse , children or  parents	Rs 15,000 for self , spouse & children Extra Rs 15,000 for insurance on parents. IF parents are above 65 years, extra sum should be read as Rs 20,000 Thus maximum is RS 35,000 per annum
6	80DD	For maintenance including treatment or 7insurance the lives of physical disable dependent relatives	Rs 50,000 . In case disability is severe , the amount is Rs 1,00,000.
7	80DDB	For medical treatment of self or relatives suffering from specified disease	Acutal amount paid to the extent of Rs 40,000. In case of patient being Sr Citizen , amount is Rs 60,000
8	80E	For interest payment on loan taken for higher studies for self or education of spouse or children	Actual amount paid as interest and start from the financial year in which he /she starts paying interest and runs till the interest is paid in full.
9	80G	Donations to charitable institution	100% or 50% of amount of donation made to 19 entities (National defense fund , Prime minister relief fund etc. )
10	80GG	For rent paid.	This is only for people not getting any House Rent Allowance. Maximum is Rs 2000 per month.  Rule 11B is method of computation.
11	80GGA	For donation to entities in scientific research or rural development f	Only those tax payers who have no business income can claim this deduction .Maximum is equivalent to 100 % of donation.
12	80GGC	For contribution to political parties	100 % of donations
13	80QQB	Allowed only to resident authors for royalty income for books other than text book	Royalty income or Rs 3,00,000 whichever is less.
14	80RRB	For income receipt as royalty on patents of resident individuals	Actual royalty or Rs 3,00,000 whichever is less.
15	80U	Deduction in respect of permanent physical disability including blindness to taxpayer	RS 50,000 which goes to Rs 1,00,000 in case taxpayer is suffering from severe disability.