NPS Benefits that can bring down your Income tax burden

The New Pension Scheme or NPS can not only help save towards your retirement but is also tax-friendly. NPS has been mandatory to all employees joining central government (except Armed Forces) since 2004 but the additional tax deduction of Rs 50,000 introduced in the Budget 2015-16 helped in putting the investment scheme into the spotlight.

Under NPS, there are two types of accounts – tier I and tier II. The tier I account is non-withdrawable till the age of 60, except in specific situations. The tier II account is a voluntary savings account. Subscribers to tier II accounts can withdraw the money whenever they want.

Broadly, the tax benefits offered on investment in tier I accounts in NPS can be categorised into three parts:
1) On self-contribution, under Section 80CCD(1B) of the Income Tax Act, the maximum deduction offered is Rs 50,000. Investors can contribute more than the Rs 50,000 limit but the maximum tax deduction allowed is Rs 50,000. This means an investor in the 30 per cent tax bracket can save around Rs 15,500 under Section 80CCD(1B) by investing Rs 50,000 in NPS. This benefit is also applicable for self-employed people.
This is over and above the limit of deduction available under Section 80CCD(1). This is an exclusive tax deduction available only for investment in NPS and not available for any other investment.

2) If you are contributing to NPS via salary deductions, your own contribution is eligible for tax deduction under Section 80 CCD(1) of up to 10 per cent of salary (basic + dearness allowance). This is within the overall ceiling of Rs 1.50 lakh under Section 80C of the Income Tax Act. Under Section 80C, other investments such as NSC, PPF and principal repayment of home loan quality for tax benefits. So investors can split their NPS contributions for claiming the combined tax benefit of Rs 2 lakh under Section 80C and 80CCD(1B).

3) Employees also get tax deduction for the contribution made by the employer under Section 80 CCD(2) of up to 10 per cent of salary (basic + DA).
Self-employed individuals are also eligible for tax deduction of up to 10 per cent of gross annual income under Section 80CCD(1), subject to the limit of Rs 1.5 lakh under overall Section 80C.

Other things to know
Remember that only initial investments in NPS under Section 80 CCD are eligible for tax deductions. At the age 60, one can withdraw a maximum of 60 per cent and the balance 40 per cent has to be mandatorily annutised or invested in a pension plan. However, 40 per cent of the NPS-accumulated corpus is exempted from income tax.
If funds from the accumulated corpus are reinvested in an annuity or pension plan, no income tax has to be paid on the funds invested. But the earnings from the annuity are taxable under respective income tax brackets.

Is the Deduction U/s.80C as tuition fees for Payment of Education Fees of Nephew allowable ?

This deduction in respect of school fees is covered under Section 80C of the I-T Act. A parent can claim a deduction of payment made for tuition fee to any university, college, school or any other educational institution.

The deduction on payments made towards tuition fee can be claimed up to Rs 100,000 (Limit Raised to Rs. 1,50,000/- from A.Y. 2015-16), together with deduction in respect of insurance, provident fund and pension.

But, there are certain conditions to get this. It can only be claimed in respect of two dependent children and for fees to an educational institution within India and, for tuition fee only. Payment as donation or development fee to an educational institution does not qualify.

The following are the deduction allowed under tuition fees

  • Fees paid to regular educational institution irrespective of the class attended by the child.
  • Payment of fees to play schools or crèches will be allowed as deduction.
  • Fees for admission are excluded from amounts eligible for deduction.
  • The deduction is allowed only for two children.
  • Deduction is available of paid basis.
  • Adopted Child’s tuition fees is also eligible for deduction

The following are the deduction not allowed under tuition fees

  • Deduction is not allowed for private tuition, coaching center.
  • University College School or other educational institution must be situated in India. It can be affiliate to any foreign university.
  • A late fee is not eligible for deduction.
  • Development fees or donation is not eligible.
  • Payment of fees for overseas education is not allowed.
  • Fees for admission are excluded from amounts eligible for deduction.
  • Transport charges, hostel charges, Mess charges, library fees charges incurred for education are not allowed
  • Spouse’s tuition fees is not allowed for deduction.

 

 

 

Deduction u/s. 80DD for expenses on medical treatment of disabled dependent

In Past few years cost of medical treatment has shoot up very sharply and has made medical treatment almost out of reach of Lower and Middle class families in India. Government of India has in order to provide some relief to those who have a dependent with disability or sever disability provided some relief’s from Income tax under section 80DD of the Income Tax Act, 1961.

Who is eligible to claim deduction?

  • Individual or a Hindu undivided family, who is a resident in India.
  • Deduction u/s 80DD is not available to non-resident Indian (NRI).

What Expenses are eligible for deduction?

  • Expenditure for the medical treatment (including nursing), training and rehabilitation of adisabled dependent.
  • Money paid to Life Insurance Corporation (LIC), Unit Trust of India or any other insurer for the purpose of buying specified scheme or insurance for the purpose of maintenance of such dependant.

Definition of relative: Who can be your disabled dependant?

  • For individuals, your spouse, son / daughter (any child), parents and brother / sister (siblings) can be your handicapped dependants.
  • For HUFs, any member of the HUF can be a disabled dependant.
  • The disabled person should be wholly or mainly dependant on you for his / her support and maintenance, and should not have claimed deduction under section 80U.

Some considerations for the insurance premium

  • Not all schemes qualify – there are specific schemes meant for this purpose. The policy has to insure your life. i.e. it should be in your name.
  • Premium is required to be paid on annual basis or a lump sum amount for the benefit of the disabled dependant.
  • Nomination of Policy should be in the name of (a) your disabled dependant, or (b) any other person or trust that would receive the money for the benefit of your disabled dependant

Policies in which one can invest

  • Life Insurance Corporation of India offers two insurance policies – Jeevan Aadhar and Jeevan Vishwas for the benefits of parents or guardian of person with physical disabilities which qualify for tax benefit under Section 80DD.

These policies ensure that the dependant person with physical handicap does not have to depend on anybody for financial support in case something happens to his parent or guardian. The Jeevan Aadhar is a non- profit policy and is relatively cheaper whereas the Jeevan Vishwas is a policy which participates in profits.

Under both these insurance policies, the life of the person, on whom the handicapped person is dependant, is insured. In case the dependant dies before the guardian/parent, the parent/guardian will have the option to either keep the policy for a reduced paid-up sum assured or entitled to receive the refund of premiums paid.

However if the parent/guardian dies before the dependant, 20% of the lump sum assured becomes payable for the benefit of the dependant. Moreover the balance is paid by way of monthly annuity for 15 years for sure and thereafter for life on the life of dependant.

  • The health insurance cover provided by National Trust needs special mention. The trust has introduced “Niramaya” health Insurance Scheme for persons with disabilities like Autism, Cerebral Palsy and Mental Retardation etc. Under this scheme, for those who have family income of less than Rs. 15,000 per month, you need to make a payment of Rs. 250 per year. For the person having family income of more than Rs. 15,000 per month is required to pay an amount of Rs.500 per year. For the families which are Below Poverty Line (BPL) this scheme is free, provided the applicant holds the BPL card. This scheme covers health expenses up to a limit of Rs. 100,000 per year for the person suffering from these disabilities. The scheme is administered by National Trust in collaboration with ICICI Lombard. Under this scheme even existing disease are covered without any medical checkup. Moreover this plan covers routine expenses like medical checkup, transportation and corrective surgery etc. which are not covered under regular health insurance products.

What is considered as disability and Severe Disability?

Disability would be as defined under clause (i) of section 2 by the “Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995”.

It includes the following:

  • Blindness
  • Low vision
  • Leprosy-cured
  • Hearing impairment
  • Locomotor disability
  • Mental retardation
  • Mental illness
  • Autism
  • Cerebral palsy
  • Multiple disabilities

A person with disability means a person suffering from not less than 40% of any of the above disabilities.

Severe disability means 80% or more of one or more of the above disabilities.

Other Conditions to claim deduction

  • For claiming the deduction in respect of the above, you have to furnish a medical certificate of disability from a Government Hospital certifying the disability of the dependant. The certificate needs to be renewed periodically.
  • For people having Autism, Cerebral Palsy or multiple disabilities, form number 10-IA needs to be filled up. There are two other formats for person suffering from mental illnesses and all other disabilities.
  • People have to furnish self declaration certifying the expenditure incurred on account of medical treatment (including nursing), training and rehabilitation of the handicapped dependant.
  • You do not have to preserve the actual receipts for expenses incurred. However you will have to produce the actual receipts in case you claim deduction in respect of payment made to LIC, UTI etc for the purpose of buying insurance or other schemes for maintenance of such dependant.

Who can issue medical certificate of disability?

  • Neurologist having a degree of Doctor of Medicine (MD) in Neurology (or, in case of children, a Pediatric Neurologist having an equivalent degree)
  • A Civil Surgeon or Chief Medical Officer (CMO) of a government hospital

Taxability of Premium Amount Paid in Case disable dependant dies before the taxpayer:- In case your disabled dependant predeceases you (that is, dies before you); the amount in the policy is returned to you. This would be treated as your income for the year in which you receive it, and would be fully taxable in your hands.

Amount of Deduction and Tax Saving

  • The deduction allowed is Rs. 50,000 if disabled dependant is not suffering from severe disability.
  • Deduction allowed goes up to Rs. 1,00,000 if disabled dependant is a person with severe disability.
  •  Deduction not depend on amount of expenses incurred:- Even if your actual expenses on above mentioned disabled dependent relative is less then amount mentioned above you will be eligible to full deduction.
  • The income tax that you can save would depend on the tax bracket that you fall into – it can range from Rs. 5,000 to Rs. 15,000 (for Rs. 50,000 deduction) or from Rs. 10,000 to Rs. 30,000 (for Rs. 1,00,000 deduction).

Please Note –

  1. a) Individuals would need to produce a copy of the disability certificate as issued by the central or state government medical board to claim deduction.
  2. b) Insurance policy obtained must be in your name and should be a policy for life. It could pay either an annuity or a lump sum amount for the benefit of the dependent on your death.
  3. c) If the disabled dependent predeceases you, the policy amount is returned to you, and treated as income for the year in which you receive it, thus fully taxable in your hands.

Conclusion:- The physical and mental agony experienced by the parents/ guardian of such dependants cannot be taken away but Government of India, National Trust, LIC and other charitable institutions are doing commendable job by reducing the financial agony of such families. It is important for all of us to look for such benefits available and talk these about in various media to take it across as many people as possible. This is a bit of social work which can give relief to handicapped persons and their parents.

Confusions in Deduction on repayment of house loan under section 80C ?

Deduction for house loan /installment available up to Rs 150000/- under section 80C (earlier limit was Rs.100000 /-)

  • The limit of Rs 150000 as above is total limit u/s 80C for all type of savings, plus section 80CCC(pension policy) plus u/s 80CCD . Means the aggregate amount of deduction under above referred sections cannot exceed Rs. 1,50,000.
  • The payment of loan should be made towards cost of purchase/construction of new residential house property.
  • The house property income should be assessable in the hand of assessee in simple term assessee should be the owner of the house property
  • The house loan should not be for addition or alteration to, or renovation or repair of house property
  • House construction must be completed before the end of the previous year
  • Completion of house means
    1. completion certificate in respect of the house property by the authority competent to issue such certificate or
    2. house property or part has been occupied by the assessee or any other person on behalf of assessee or
    3. has been let out;
  • Housing loan benefit for more than one house can also be claimed.
  • All the benefit of tax u/s 80C will reversed if house property is sold within 5 year from purchase of house property.
  •  The tax benefit under section 80C is available on residential house property only and not available on commercial house property.
  • Loan should be taken from Specified institutions/dept only as given below
    1. Central or State Government
    2. any Bank including co-operative bank
    3. LIC or National Housing Bank
    4. public company formed and registered in India or co-operative society with main object to provide long term finance for construction purchase of houses in India.
    5. Assessee’s Employer if public company or public sector company or university established by law or a college affiliated to such university or local authority or co-operative society.
  • The benefit is available only to Individual assessee and to HUF assessee.
  • The benefit is available on payment basis ,no matter to which year payment is relates to or payment overdue or not.
  • From total amount of installment paid of house loan reduce amount availed under section 24 (Interest) deduction
  • The Benefit under this section is available whether residential house property is rented or self occupied, but House must be completed by the end of the previous year in which deduction is to be claimed .
  • Pre EMI paid in a financial year are also eligible for deduction if house property is completed by the end of financial year.
  • Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee is also eligible for deduction under this section even assessee has not taken any loan .
  • There is no requirement that for loan, house property must be mortgaged to the institution from where the loan has been taken ,but it should be used for the purpose of purchase /construction of house property.
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