By Deepak Yohannan
The most common and popular section used by tax payers is Sections 80C and its sub-sets 80CCC and 80CCD, with its combined Rs 1,00,000 limit. Apart from Section 80C, one should look beyond at the other sections to significantly minimise the tax liability. Here is a detailed look at them.
Section 80CCG- Your option over and above 80C
If you already have exhausted your one lakh limit in Section 80C, CCC and CCD, you have an additional scope to invest to help reduce your tax liability. The Rajiv Gandhi Equity Saving Scheme (RGESS) under Section 80CCG offers a deduction over and above what you get in 80C. If you are a first time equity investor, with an income up to Rs 12 lakh, what you get is:
l With the maximum investment allowed at Rs 50,000 get a 50 per cent deduction for the invested amount.in shares for the first three years. So for a Rs 50,000 investment, you get a deduction of Rs 25,000 on your annual income.
l In the first year of investment, you wouldn’t be allowed to sell the shares invested in.
l After the second year you are allowed to transact the shares, subject to fulfilling certain conditions.
l The deduction is permitted in only one assessment year.
l The tax deduction is over and the Rs 1, 00,000 of 80 C.
Section 80D – Deduction in respect to health insurance
80D extends a tax deduction on the premiums paid towards health insurance policies that are approved by the General Insurance Corporation or by the Insurance Regulatory and Development Authority (IRDA). The benefit is applicable for premiums paid for health insurance policy for self, spouse, parents and dependent children. It is for both individual and family floater plans. What you get from 80D is:
l An annual deduction of up to Rs 15,000 from the total taxable income for premium towards health policy in the name of self, spouse and children.
l In case of a health policy in the name of ether parent, an additional deduction of Rs 15,000 could be claimed. For parents above the age of 65 years this deduction is Rs 20,000.
l This deduction could be claimed over and above the Rs 15,000 deduction you would be entitled to as an individual.
l This benefit could be availed of irrespective of whether they are actually dependent on you or not.
l Tax payers above the age of 65 years the deduction under Section 80D is Rs 20,000.
Capital Gains – Indexation to reduce tax liability
Capital gains from the sale of assets such as mutual funds, stocks, real estate, etc. The gain is classified as long term or short term on the basis of its holding period. In the case of real estate, asset held for more than 3 years is categorised as long term capital gains tax. When it comes to equity investment, more than a year is treated as long term.
The Income Tax act has provision to reduce the liability of long term capital gain through indexation, or by investing the gains in other investment avenues. Indexation is the provision to reduce the impact of inflation on investment. By applying an appropriate factor from the cost inflation index, you can adjust your capital gains. Indexation considers the inflation during the investment period and accordingly adjusts the cost of the asset.Thus the cost of asset is reworked using indexation as below:
Indexed Cost=Purchase price of asset X Inflation cost in year of sale
Inflation cost in year of purchase
By using this indexation benefit you could reduce your long term capital gains significantly lower.
Section 80E – Towards loan for higher education
Section 80E provides for deduction in respect to a loan taken for pursuing higher education. This benefit is applicable for a loan taken self, spouse or dependent children.You could get the benefit:
l For a period of eight years or till the interest is paid, whichever is earlier.
l Only for approved higher studies, such as full-time graduate or postgraduate courses in engineering, management or applied sciences, pure sciences including mathematics or statistics. There is no exemption is applicable for part-time courses.
Saving income tax is not a herculean task. A meticulous and planned approach from the beginning of the financial year would help you sail through easily and reap great benefits.
(The author is the CEO of MyInsuranceClub.com, an online insurance price and features comparison portal. You may contact him directly on Twitter: @dyohannan)