Tax Benefits under Section 80D

Description	Medical Insurance Premium paid in respect of		Total Deduction under Sec. 80D
	Self, Spouse & Dependent Children	Parents (whether dependent or not)
No-one has attained the age of 60 years	Rs. 15,000	Rs. 15,000	Rs. 30,000
Assessee and his family is less than 60 years & parents are above 60 years of age	Rs. 15,000	Rs. 20,000	Rs. 35,000
Assessee and his parents have attained the age of 60 years and above	Rs. 20,000	Rs. 20,000	Rs. 40,000

Tax Benefits under Section 80DDB

Section 80 DDB for Treatment of Specified diseases

Costs incurred for treatment of specified illnesses, could fetch you a tax benefit under section 80DDB.

• The deduction is available for individual assesses less than 65 years of age, a deduction limit of Rs. 40,000 is applicable. For a senior citizen, the limit is Rs. 60,000.

• Deduction is applicable for treatment of self, spouse, children, siblings, and parents, wholly dependent on you.

Diseases covered

a) Neurological Diseases (where the disability level has been certified as 40% or more).

b) Parkinson’s Disease

c) Malignant Cancers

d) Acquired Immune Deficiency Syndrome (AIDS)

e) Chronic Renal failure

f) Hemophilia

g) Thalassaemia

Eg:

Question – I am undergoing treatment for Cancer currently. Although these expenses are covered under my insurance policy, there is some parallel treatment recommended as preventive measures to control the spread of this disease. Since the parallel treatment (ovarian ablation and IVF treatment) is not covered in my insurance policy, I would have to shell out approximately 2 lakhs for this treatment. Can I avail of exemption in this case and to what extent?

Answer – Section 80DDB provides deduction for expense on cancer patients.Section 80DDB starts with following lines

Deduction in respect of medical treatment, etc.

80 DDB. Where an assessee who is resident in India has, during the previous year, actually paid any amount for the medical treatment of such disease or ailment as may be specified in the rules made in this behalf by the Board

(a) for himself or a dependent, in case the assessee is an individual; or

(b) for any member of a Hindu undivided family, in case the assessee is a Hindu undivided family,

the assessee shall be allowed a deduction of the amount actually paid or a sum of forty thousand rupees, whichever is less, in respect of that previous year in which such amount was actually paid :

So any amount of expenditure is covered u/s 80DDB. However the deduction is limited to maximum Rs 40,000 (which is Rs 60,000 in case patient is 60 years or above.)

However the proviso to section 80DDB provides that if there is any insurance claim , then deduction shall be allowed by reducing the insurance amount received from expenditure incurred .

Read the proviso below

Provided further that the deduction under this section shall be reduced by the amount received, if any, under an insurance from an insurer, or reimbursed by an employer, for the medical treatment of the person referred to in clause (a) or clause (b) :

In nutshell computation of deduction is as under

Total expenditure xxxxx

Less Insurance claim xxxxx

Net Expenditure xxxxx

Net Expenditure allowed as deduction to the maximum of Rs 40,000 (Rs 60,000 in case of Sr. Citizen) .Therefore , in your case , you can claim deduction despite getting the insurance claim upto Rs 40,000 (Rs 60,000 if you are of 60 years or more.)

Finance&Controlling (FICO)

FINANCIAL ACCOUNTING OVERVIEW


The Financial Accounting (FI) module is the core module within the financials application. Almost all functionality that resides in the other financial application modules relies on the implementation of at least parts of the FI module. Financial Accounting is designed to provide financial information from an external view. The main FI components offer functionality for the general ledger, accounts receivables and accounts payables, asset management, a special ledger used to meet user specific requirements, funds management, and legal consolidations. The general ledger (G/L) houses the chart of accounts as well as the account balances and line items. The G/L tracks all transactional postings, such as inventory updates, sales revenues, bank accounts, and expenses. Accounts Receivable (AR) and Accounts Payable (AP) are subledgers of the G/L that support the processes involved with the collection of revenues and payments of expenses. Combined AR and AP facilitate maintaining customer or vendor records, account balances and line items, payments, clearing, advice notices, dunning, interest calculations, check releases, and over/underpayment management. The AR/AP information systems support reporting for due date breakdown, payment history, days sales outstanding, overdue items, and currency risk. Asset management is another subledger to the G/L that focuses on the management of the fixed assets in an organization. Asset management maintains the master records for the assets, special valuations, country-specific requirements, and four types of depreciation calculations, one of which is for cost depreciation. The special ledger functionality supports the ability to create other ledgers or subledgers for specific user requirements. Special ledgers can pull information from other modules and can support simplistic allocations. In addition to the ledgers and subledgers, FI contains functionality supporting funds management and legal consolidations. Funds management provides the capabilities to define planned revenues and expenses for the management areas, monitor these transactions as compared to available funds, and prevent exceeding the budget. Once all transactions have been completed, consolidations can be performed. Legal consolidations functionality supports providing consolidated financial information for companies and business areas. Business areas are utilized primarily for external reporting of business segments across companies.


CONTROLLING OVERVIEW

The Controlling (CO) module is the symbiotic counter to the FI module and is designed to provide financial information from an internal managerial accounting view. To support this view of accounting, the CO module offers functionality for cost center accounting, activity-based costing, order and project accounting, product costing, and profitability analysis. Cost center accounting focuses on showing the expenses of the organization from a departmental view for the purpose of supporting responsibility accounting. Cost center accounting also supports the planning, budgeting, controlling, and allocation of departmental expenses. Additionally, many organizations desire to show the expenses of the organization within a process view. This process-oriented view is supported by the activity-based costing component. Within organizations, costs might be incurred to support events and overheadrelated projects. The order and project accounting capabilities of CO support planning, monitoring, capturing, and allocating the expenses related to these events. For production-related organizations, many of the cost centers capture expenses that later will be attributed to products to determine product costs. The product costing component of the CO module focuses on the creation of the standard product cost estimates, charging of overhead to production, capturing actual costs of production, calculating production variances, and settling production expenses to the appropriate profitability market segment. All of the expense objects —cost center, process, event or project, and products—allocate or settle costs to the profitability analysis component, which supports the generation of market profit and loss (P/L) statements at a gross and contribution margin level. The next section provides more details on the CO module components, especially for ABC.

RBI - Reference Rate Archive

http://www.rbi.org.in/scripts/referenceratearchive.aspx

Income Tax (IT) treatment of House Rent Allowance (HRA)

Most of the salaried people get an allowance for taking care of the rent that they pay for their home. This is called House Rent Allowance, or HRA.

HRA gets special treatment in income tax laws, and is exempt from income tax to a certain extent. Here are the rules explained in simple terms.


If you are like most other salaried people, one of the components of your pay would be House Rent Allowance, or HRA. This is an allowance paid to the employee to defray the housing rent expense.
Since housing is one of the fundamental needs for us, the government treats it sympathetically, and gives us various tax breaks towards it.

Thus, you get income tax benefit when you take a home loan to buy a house. (Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage” for more details on this).
Similarly, there are income tax benefits on the House Rent Allowance (HRA) as well. The tax benefit on HRA is available under section 10 (13A) of the IT Act.

How much Income Tax (IT) exemption is available:

The minimum of the following three is available as exemption from your income:
1. The actual HRA received from your employer

2. The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)

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)

Example:

Let’s take the following example:
Basic: Rs. 15,000
DA: Rs. 5,000
HRA: Rs. 9,000
Rent paid: Rs. 10,000
You live in Mumbai.
Now let’s evaluate the above rules:

1. The actual HRA received from employer

This is Rs. 9,000

2. The actual rent paid for the house, minus 10% of salary

This would be Rs. 10,000 – 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 – Rs. 2,000 = Rs. 8,000

3. 50% / 40% of your basic salary

Since you live in a metro, this would be 50% of Rs. 15,000 = Rs. 7,500.
The minimum of 1, 2 and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is Rs. 7,500 per month.
The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 – exempt HRA Rs. 7,500 = Rs. 1,500) would be added to your income, and would be subject to income tax.

Who can claim HRA exemption:

There are certain conditions that should be met for claiming IT benefit on HRA.
You can claim HRA exemption towards the rent paid by you, if:

• You receive HRA as part of your salary
• You pay the rent
• You stay in the rented house for which you pay the rent
• You do not own the house for which you are paying the rent

Thus, for example, you are paying the rent for a house in which your parents stay, but you stay in a different house. Then, you can not claim exemption for that. You yourself should be an occupant of the house.

Documents needed to claim HRA exemption:

If the HRA you are claiming is less than Rs. 3,000 per month, no proof is needed. But if the amount you are claiming is more than Rs. 3,000 per month, you would need the following:

• Rent receipts
• Rental agreement

HRA and Home Loan:

Many people get even more confused when it comes to HRA and home loan together. But it is quite simple, really.
In a nutshell: There is no restriction in the Income Tax (IT) Act about claiming home loan and HRA benefits together.
If you are staying in a rented accommodation, and have taken a home loan for purchase of a house, you can claim benefit for both HRA and the principal and interest components of the home loan.
(Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage” for more on IT benefits that you can get using a home loan).
You can claim these benefits even if you have rented out the house you have purchased through a home loan, and are yourself living in another rented accommodation.
The city where you own a house and the city where you work also has no significance: There can be different cities, or can be the same.
Note: Some companies insist that to claim HRA exemption, you would need to provide a declaration stating that in spite of owning a home, you are staying in a rented house due to a genuine reason.
Following are some of the reasons considered genuine:

• The house you own is not conveniently located with respect to your workplace
• Your parents are living in the house you own. So, you have to stay in a rented place.
• The house you own is small. So, you have to rent a bigger house.
• You have rented out the house you own. And you stay in another house that you have taken on rent.

Other important points to keep in mind:

• You can claim exemption for the rent paid to your parents, provided you actually pay the rent. You should get rent receipts for the same. Also, your parents would need to declare this income in their IT returns.
• You can not claim rent paid to your spouse.
• Only one of the spouses can claim HRA exemption – not both.

 

 

Income tax exemption on home loan interest amount 2012-2013

Interest on Housing Loans Section : 2012-2013

For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt from tax. This deduction is in addition to the deductions under sections 80C, 80CCF and 80D. However, this is only applicable for a residence constructed within three financial years after the loan is taken and also the loan if taken after April 1, 1999.

If the house is not occupied due to employment, the house will be considered self occupied.

Income tax exemption on home loan interest amount 2012-2013 : For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. However, the rent is to be shown as income from such properties. 30% of rent received and municipal taxes paid are available for deduction of tax.

The losses from all properties shall be allowed to be adjusted against salary income at the source itself. Therefore, refund claims of T.D.S. deducted in excess, on this count, will no more be necessary

Deduction of Interest u/s 24 is without any limit in case of house property which is charged to tax:

1. If  you have more than one house, in that case , annual value of one house (as per your choice ) is taken as NIL and in case of other house –annual value shall be charged under “income from house property”. The Annual Value of that house will be any one of following whichever is more (generally tax payer takes rent as annual value)

1. actual rent received
2. market rent

2. In case the annual value is NIL, no deduction is allowable. However, only exception is self occupied house . In case of self occupied case , interest upto maximum Rs 1,50,000 is allowed as interest.
3. In case annual value is not nil, interest without any limit (i.e actual amount of interest ) payable on  loan borrowed for the said house property is allowed.
In your case , you have two house. Say , A & B . On A , you have paid interest of Rs 1,70,000 and on purchase or construction of house B , you paid interest of Rs 2,00,000. Say, A is self occupied (or claimed as self occupied) and B is put on rent . Say annual rent is 1,80,000.
House property income in that case shall be computed as under

House A
Annual value                     0
Less
Interest                          Rs,1,50,000
House property income  of A                                       (-) 1,50,000

House B
Annual value                           Rs 1,80,000
Less
Standard deduction 30 %              54,000
Interest on flat B                   Rs 2,00,000
House property income  of B                                       (-)    74,000

Loss from house property (A +B)                               Rs. 2,24,000

 

Can I claim tax benefits on HRA and Home Loan together?

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It is a very common misconception that people who have taken home loan cannot claim tax benefits for both home loan and House Rent Allowance (HRA). HRA is part of salary given by the employer for meeting cost of rent. The tax benefits for home loan fall under Section 80C and Section 24(b) whereas HRA tax benefits fall under Section 10(13A). And as such home loan does not affect HRA and both can be availed.

However there are some circumstances when one might be eligible to get tax benefits or not which are given below:
Living in own House: If you are residing in your own house for which you have taken a home loan, then you can avail deductions for home loan but not HRA since you are not paying any rent.
House under Construction: If the house is not ready for occupation, HRA can be availed. The tax deductions for interest amount of EMI will be applicable only after possession of the house.
Home Far-off: In case your house is far from work place which makes it impossible to stay in or your house is in another city, you can avail tax benefits for home loan as well as HRA.
Home on rent: if you have rented your own house and living in rented place, you can avail tax benefits on both home loan and HRA. However the rent received will be counted in taxable income.
Basically, as long as you are paying rent you are entitled to tax benefits. And if the house is ready for possession, you can get tax benefits for both principal and interest amount. And if particular situation dictates that you cannot reside in your own house, you can claim tax benefits on both home loan and HRA.

Deduction under section 80C and tax planning

 

Section 80C replaced the existing Section 88 with more or less the same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act.  However, it is important to know the Section in toto so that one can make best use of the options available for exemption under income tax Act.   One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions.

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction. Education expense of children is increasing by the day. Under this section, there is provision that makes payments towards the education fees for children eligible for an income deduction

Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1 Lakh, are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1 Lakh), and you end up paying no tax on it at all!

This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1 Lakh, you save tax of Rs. 30,000. Isn’t this great? So, let’s understand the qualifying investments first.

Qualifying Investments:

Provident Fund (PF) & Voluntary Provident Fund (VPF: PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free.

Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8% tax-free and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 70,000. A point worth noting is that interest rate is assured but not fixed. Interest on PPF  is proposed to increase to 8.60% and Investment Limit is also expected to increase to Rs. 1,00,000/- very soon.

 

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.

Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

National Savings Certificate (NSC): National Savings Certificate (NSC) is a 6-Yr small savings instrument eligible for section 80C tax benefit. Rate of interest is eight per cent compounded half-yearly, i.e., the effective annual rate of interest is 8.16%. If you invest Rs 1,000, it becomes Rs 1601 after six years. The interest accrued every year is liable to tax (i.e., to be included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it maeans that the total deduction available for 80CCC and 80C is Rs. 1 Lakh.This also means that your investment in pension funds upto Rs. 1 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1 Lakh.

5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) – which currently offers 7.5 per cent rate of interest –qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum (p.a.) as the rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable.

NABARD rural bonds: There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Unit linked Insurance Plan : ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term.

Others: Apart form the major avenues listed above, there are some other things, like children’s education expense (for which you need receipts), that can be claimed as deductions under Sec 80C.

So, where should you invest?

Like most other things in personal finance, the answer varies from person to person. But the following can be the broad principles:

Provident Fund: This is deducted compulsorily, and there is no running away from it! So, this has to be the first. Also, apart from saving tax now, it builds a long term, tax-free retirement corpus for you.

Home Loan Principal: If you are paying the EMI for a home loan, this one is automatic too! So, it comes as a close second.

Life Insurance Premiums: Every earning person having dependents should have adequate life insurance coverage. (For more on this, please read “Life after life – Why you should buy Life Insurance”) Therefore, life insurance premium payments are the next.

Voluntary Provident Fund (VPF) / Public Provident Fund (PPF): If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF.

Equity Linked Savings Scheme (ELSS): After the above, if you have not reached the limit of Rs. 1,00,000, then you should invest the remaining amount in Equity Linked Savings Scheme (ELSS).

Equities provide the best, inflation-beating return in the long term, and should be a part of everyone’s portfolio. After all, what can be better than something that gives great return and helps save tax at the same time?

When to Invest?

Many of us start looking for investment avenues only in February or March, just before the Financial Year is getting over. This is a big mistake! One, you would end up investing your money without putting proper thought to it. And secondly, you would end up losing the interest / appreciation for the whole year. Instead, decide where you want to make the investments, and start investing right from the beginning of the financial year – from April. This way, you would not only make informed decisions, but would also earn the interest for the full year from April to March.