Being a taxing time, I’m sure you would have already got the first call from your accounts department detailing your tax liability and telling you how much you should invest in order to save taxes.
Like everyone, you will also be questioning as to why we should taxes be paid at such higher rates. Well, though this question can be answered, you will not accept whatever way it is convincing. Hence, it’s advisable to focus on how to save tax wherever possible.
“The best place to start is where you are with what you have.”
Regarding the tax benefits, there are many queries being raised in the minds of people. Notably, not all employers clarify the same for many reasons like inadequate time, lack of knowledge etc.
Here below is the Q&A session, which we came across, will clear the queries to a certain extent:
Home Loan FAQs
Q-We are a working couple. My wife has been saving taxes through various instruments under Section 80C. The ownership of the home as well as the home loan is on joint basis, but I pay the EMIs. However, my wife did a part-prepayment of Rs 50,000 towards the loan. Can she avail tax benefit for that? How much more can she invest under Section 80C?
Yes. She can avail tax benefit for prepaying the principal amount towards the home loan as principal repayments qualify for deduction under Section 80C. This is mainly because she, too, is the joint owner of the home loan. Otherwise, she would not have enjoyed the benefit. The maximum that she can save under Section 80Cis Rs 1 lakh. Hence, the balance Rs 50,000 can be utilised to save further tax.
Q-I plan to buy a house by rasing loans from friends and relatives. Will I be eligible for tax benefit from all sources?
Interest payment to friends and relatives can be claimed under Section 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.
Q-Can my brother and I both claim tax deduction for a home loan we have taken jointly?
Yes, that can be done. If a house is owned by more than one person and is also self-occupied by each co-owner, then each co-owner is entitled to a deduction individually up to a maximum of Rs 1 lakh on account of repayment of principal amount of the loan taken to buy the house under Section 80Cof the Income Tax Act. Co-owners are also entitled to a deduction up to a maximum of Rs 1.5 lakh each on account of interest paid on the home loan. However, if the house is given on rent, then there is no limit on the amount of deduction on account of interest paid on the borrowed capital.
Q-I am planning to buy a house jointly with my wife and take a joint home loan. Can we both claim income tax deduction?
If your wife is working and has a separate source of income, both of you can claim separate deductions in your income tax returns. For claiming income deduction through a housing loan, the equated monthly instalment (EMI) amount is divided into the principal and interest components.
The repayment of principal amount of the loan can be claimed as a deduction under Section 80Cup to a maximum amount of Rs 1 lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under Section 24 under the head ‘income from house property’.
In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs 1.5 lakh. If the house is given on rent, there is no restriction on this amount. Both co-owners can claim deductions in the ratio of ownership.
Q-My husband and I have jointly taken a home loan. He pays 75 per cent of the EMI. What will be our individual tax benefits?
As you have taken a joint home loan, both of you are eligible for tax exemption for your share of the EMI paid. For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The repayment of principal amount of loan is claimed as a deduction under Section 80Cof the Income Tax Act up to a maximum amount of Rs 1 lakh individually by each co-owner. The repayment of the interest portion of EMI is also allowed as a deduction under Section 24 of the Act, which is given under the head “income from house property”. In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of interest on borrowed money up to a maximum amount of Rs 1.5 lakh individually. If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership—3:1 in your case.
Q-What tax benefits can I claim on interest and principal payments for two loans I have taken to buy two houses?
On one house, you would be entitled to a deduction on account of the interest payable for the year up to Rs 1.5 lakh and the principal repayment qualifies for deduction under Section 80Cup to Rs 1 lakh. The other house will be “deemed to have been let out”. Consequently, it would be chargeable to the notional rental income that the property would fetch if it is let out. This would be taxable in your hands even if the property has not been actually let out. There is no cap on the interest on the home loan that you claim as deduction on the second house. However, no tax benefit is available on the principal repayment on the second house.
Q-I took a home loan jointly with my father to renovate my house. I have already received the completion certificate and the tax exemption certificate from the bank. Will I get tax deduction on the principal as well as the interest amount?
Loan taken for renovation or alteration to an existing house, that is, after the issue of completion certificate or after the house has been occupied or let out, is not eligible under Section 80Cfor claiming exemption for the principal component of loan. However, its interest component is still eligible for deduction under Section 24(b) under the head “income of house property”. In case you are living in this house, the maximum amount of interest allowed is restricted to Rs 30,000 (as it is a loan for renovation of the existing house), but if the house is given on rent, the full amount of interest on loan will be allowed as a deduction.
Q-Sometimes I am not able to pay the EMI of my home loan on time. Will that have any effect on the income tax exemption that I claim for paying EMIs?
Section 24(b) of the Income Tax Act allows deduction of interest due on home loan from the head “income from house property” even if it is not paid during the previous year. Section 80Cof the Act, on the other hand, allows deduction of the principal amount of the home loan only if it is actually paid during the previous year. Hence, non-payment of EMIs will affect your income tax exemption.
Q-I am not living in my house in Ghaziabad as I was transferred to Chennai recently. I don’t plan to rent out my house. What tax exemption can I avail? I got possession of the house in September 2008. Will I get tax benefits on pro-rata basis?
Even if you are not staying in your own house in Ghaziabad because you are working in another city and are not deriving any other benefit from the house, the house will be treated as self-occupied and you would be entitled to all the tax benefits applicable on the same. If you got possession of the house in a particular year, then all the interest and principal payment for that year will be allowed as deduction from your total income for the year. Pro-rata basis of allowance of tax benefit does not apply here.
Q-The apartment I bought is still under construction. I have been paying pre-EMI interest to the bank. Can I claim tax relief?
The interest amount on the home loan can be claimed only after its completion. The total amount of interest before the completion of the house is divided into five equal instalments and claimed every year starting with the year of completion of the house. The payment of interest after its completion can be claimed up to Rs 1.5 lakh in case you move into your house. In case you give it on rent, you can claim the full amount of the interest amount without any ceiling.
Q-Will I get tax benefit on the principal and interest payments if I take a bank loan to buy land?
You won’t get any benefit if the land is a standalone property. You will, however, be entitled to tax benefit if you construct a house on the land.
Q-I want to construct a home on land registered in my father’s name. Will I be able to get a home loan for it and avail tax rebate on it? If not, can I make my father a co-owner to get the benefits?
You can get a home loan if you are a co-applicant for it. However, whether you can claim income tax benefits will depend on who the owner of the house is. If you are the owner/co-owner of the house, then you will be able to avail tax benefit on the home loan. Not otherwise.
Q-I have invested in 5-year tax savings notified bank fixed deposit (FD). Is the interest taxable?
Yes. The interest is taxable fully in your hands. By investing in them, you only get tax benefit under Section 80C. However, the income in the form of interest is to be added back to your income in the year of receipt. To keep things in perspective, interest earned on investments, such as Senior Citizens’ Savings Scheme, National Savings Certificate (NSC) or 5-year post office time deposits all come with tax benefits under Section 80C. However, the entire amount of interest is liable to be taxed.
Q-My father’s friend has a bank fixed deposit of Rs 1.5 lakh. The bank does not deduct tax at source. Is there a way to save this tax?
Form 15G is the composite form for all taxpayers. It has replaced forms 15G, 15H and 15I which were being used earlier for a declaration for non-deduction of tax at source. In case your annual income is below the taxable limit (Rs 1.50 lakh for men, Rs 1.80 lakh for women and Rs 2.25 lakh for senior citizens), you can fill up Form 15G to declare the same, so that no tax is deducted at source, whether it be from interest income from bank deposits or tax-saving bonds. Declaration in form 15G has to be submitted on a yearly basis (generally at the beginning of the year) for non-deduction of TDS.
Q-My father has a bank fixed deposit of Rs 1.5 lakh on which the bank is deducting tax at source. Is this the right way?
If the aggregate interest income that you are likely to earn for all your deposits held in a branch is greater than Rs 10,000 in a financial year, you become liable for TDS. It is deducted every time the bank pays interest. TDSis also deducted on interest accrued (but not yet paid) at the end of the financial year—31 March. For exemption from TDS, the Form 15H can be submitted by senior citizens to the bank branch.
Q-My recurring deposit in a bank matures next year. The principal amount is Rs 60,000. Will the interest from this be taxed? Is there any tax payable on the principal?
Yes, the interest would be taxable. However, since you did not claim any tax benefit on the principal while commencing the deposit, the principal amount would not be taxed in your hands on withdrawal.
Q-Will I have to pay tax on interest accrued on my cumulative 3-year bank FD every year?
The amount of interest earned (the accrued interest and interest paid) from FDs is taxable every year and is included in an individual’s taxable income. In other words, you are required to pay tax on the interest earned on your FDannually and not at the end of the term. For the purpose of deduction of TDS, all banks follow the procedure laid down as per Section 194A(4). If your FDearns an interest of over Rs 5,000 (increased limit to Rs 10,000 with effect from 1 June 2007), the bank will deduct tax at the rate of 10 per cent plus surcharge and cess. The limit is for the entire financial year and does not depend on the tenure of the deposits.
Q-Can I invest in equity-linked savings scheme (ELSS) in the name of my grandchild and get tax benefit?
Agrandparent may invest in an ELSSin the name of the grandchild. But, he can claim the tax benefit only if the grandchild is a minor. In case the grandchild is a major, the grandfather can’t claim any tax benefit.
Q-I had a systematic investment plan (SIP) in an ELSSfor two years. For what period shall I get the tax benefit?
Deduction under Section 80Ccan be availed on an annual basis and on the amount invested or incurred during a financial year. Therefore, the amount invested in ELSSthrough SIP in a year would give tax benefit. This means that, in your case, the deduction will be allowed for two years. Each instalment in the SIP would have a lock-in period of three years.
Q-How are the returns from a debt fund taxed?
Any short-term capital gains from the sale of units will be added to your total income and you will have to pay tax at the marginal rate applicable to you. Long-term capital gains will be taxed at 10 per cent without indexation and 20 per cent with indexation benefits. You will have to pay the applicable surcharge and education cess in both the cases.
Life Insurance FAQs
Q-I had to surrender one of my money-back plans before maturity. Is the amount that I received taxable?
Yes. The amount received would be taxable in your hands in the year of receipt. Even though the insurer wouldn’t deduct any tax, any surrender from any traditional insurance plan like money-back or endowment plan is liable to be taxed in the hands of the policyholder. Had the policy been held to maturity, the proceeds would have been tax-free.
Q-I am retiring next month. I want to receive my pension in a lump sum. How much amount can I receive in this manner? Please tell me the tax liability on this.
Pension received by an employee from his employer after his retirement or voluntary resignation is taxable under the head of salaries as per the income tax rates applicable to an individual. As per pension rules, you can commute some amount of your total pension in a lump sum at the time of retirement, but under no circumstances will the full pension amount be commuted or withdrawn at any time. The commuted value of pension is specifically exempted under Section 10(10A) of the Income Tax Act,1961, and the quantum of exemption depends on whether you have received gratuity at the time of retirement. In case of receipt of gratuity by the employee, commuted value of one-third of the pension is exempt from tax. In case of non-receipt of gratuity, commuted value of half the pension is exempt from tax and the rest is liable for tax.
Q-I failed to pay last year’s premium for my insurance policy. After reviving it, I paid two years’ premium in one financial year. Can I claim tax relief for both the payments in the current financial year ending 31 March 2009?
The payment of life insurance premium qualifies for deduction under Section 80Cof the Income Tax Act, 1961, provided the payment is actually made. Since you did not make the payment of premium in financial year 2007-08, you would not have got the deduction for that period. During the financial year ending on 31 March 2009, you paid premium for two years. Since the deduction is allowed on payment basis, you are eligible to claim relief for the payments under Section 80C. The overall deduction under Section 80Cwill, however, be limited to Rs 1 lakh.
Q-Is money received from a life policy tax-free in my hands?
As per Section 10(10D), any sum received under a life policy, including bonus, is exempt from tax. This includes money received as survival benefits in a money-back plan. But, this rule does not apply to money under Section 80DD(3), or under a Keyman insurance policy, or any sum received other than as death benefit under an insurance policy which has been issued on or after 1 April 2003, and if any of the premiums paid during the term of the policy is more than 20 per cent of the sum assured.
Q-How attractive are single-premium insurance plans, which are market linked, and come at lower cost in terms of tax benefit?
Single-premium Ulips have lower upfront cost. However, there are two provisions in the Income Tax Act that need to be taken care of before buying such a policy. If the premium paid for a policy is more than 20 per cent of the sum assured, then deduction under Section 80Cwill be allowed only up to 20 per cent of the sum assured. So, make sure the cover is at least five times the premium to get full tax benefit. Otherwise, it will be a loss-making proposition. This, however, may not affect affluent investors as they would be least concerned of Section 80Cbenefits.
Another tax element, too, seeks attention. If the premium paid is more than 20 per cent of the sum assured, the amount received will not be tax-free under Section 10(10D). Investing without considering the tax implications could burn your fingers in the long-term.
Q-I am a salaried individual and I pay life insurance premium and mediclaim for both my father and mother out of my salary. While my father receives pension, my mother is a housewife. Can I claim tax benefits in respect of the premium paid towards my parents’ life insurance and mediclaim policies?
The deduction under Section 80Cin respect of the life insurance premium will be available to an individual for the premium paid in respect of such individual, the spouse of such individual, or any child of such individual. Therefore, the life insurance premium paid to insure the life of your father and mother will not be eligible for the deduction. However, the deduction under Section 80D, in respect of medical insurance premium, is available to an individual where it is paid to insure the health of such individual, the spouse of such individual, dependent parents or dependent children of such individual.
Q-How much can I invest in a pension plan to claim tax benefit?
Pension plans are eligible for a deduction under Section 80CCCup to Rs 1 lakh from the total income. If any investments have been made under Section 80CCC, then the qualifying amount under Section 80Cwill stand reduced to that extent.
Q-My son bought a Ulip few months back. He has been shifting his funds online from equity to debt fund options and vice versa. Does he have to pay tax if the holding period is less than a year?
Ulips have various fund options—from all equity to all-debt. Premiums can be put into them in varying proportion. Also, they allow switching of funds. Most plans allow specific number of free switches in a year. All such switches or transactions do not entail any tax, irrespective of the time of holding. No capital gains tax arises on switching funds from an equity fund to a debt even within a year.
Q-I have assigned my insurance policy to a bank for a home loan. Can I still avail the tax benefits as I am paying the premiums?
Yes, you would continue to avail the tax benefit on the premium paid by you to keep the policy running.
Health insurance FAQs
Q-I am paying premiums on a health policy for my parents and myself. How much tax benefit can I claim?
The Budget 2008 has introduced additional benefit under Section 80Dto the extent of Rs 15,000 for premium paid for health insurance taken for parents. This will act as an impetus to tax payers to provide medical cover to their parents, pushing the total limit of deduction allowed for medical insurance premium to Rs 30,000. But in case the parent is over 65 years of age, the deduction allowed is Rs 20,000, taking the full deduction amount to Rs 35,000 for the person buying a cover for himself and his parents, dependant or otherwise. If a senior citizen is buying a cover for his parents, the total deduction allowed is Rs 40,000. The existing limit of Rs 15,000 remains unexhausted by most individuals. However, the additional deduction available on buying health plans for parents might induce individuals to get their parents medically insured.
Q-I don’t have a critical illness rider with my insurance policy. I am planning to attach it to my Ulip? Will I get tax benefit?
Premium paid towards critical illness as a standalone policy or as a rider will be treated as life insurance premium and will qualify under Section 80C. In order to claim deduction under Section 80Dfor a health insurance premium, one has to be insured under policies offered by general insurance companies.
Q-My brother has bought a health Ulip from an insurance company. Will he get both Section 80Cand 80Dbenefit?
A single amount is paid towards a health Ulip, which bundles life insurance, health insurance and investments into one. But, the insurer bifurcates it and is supposed to send the policyholder a break-up of the premium that is used to cover the heath insurance in the plan. Only that part of the premium that goes for servicing your health cover is eligible for deduction under Section 80D. The balance is to be used for Section 80C. Ensure that your insurer sends such a statement to you.
Q-I have a personal accident policy. Does it qualify for tax benefit under Section 80C?
No. Premium paid towards personal accident policy as a rider, or even as a standalone policy does not qualify for any tax benefit.
Q-I have group term and group health cover from my employee. Am I eligible for tax benefits on them?
Premium paid towards group health cover will not be eligible for any tax benefit. However, the premium towards the group term cover will be eligible for the benefit. Ensure that your employer shows it as an eligible amount under the tax savings head.
Q-I have a diabetes policy in my name. Will I get tax benefit?
The premiums paid by you under this policy will be eligible for tax benefits under Section 80D.
Q-I have spent around Rs 2 lakh on my wife’s illness. My insurance claim is pending and I do not hope to get it as the insurer says that the illness is not covered because it is a pre-existing one. Can I get tax benefit on the money spent on my wife’s treatment?
Yes, you can claim deduction under Section 80DDB in respect of the expenditure incurred for the medical treatment of your wife provided the ailment is specified in the income tax rules. The maximum deduction allowed from the gross total income is Rs 40,000. Any amount received from an insurance company for the medical treatment has to be first deducted from Rs 40,000. To claim this deduction in your return, a specialist doctor working in a government hospital in India will have to confirm the treatment of the disease in Form 10-I and also that the expenditure incurred on the treatment of the disease is eligible for deduction. Form 10-I does not require the doctor to certify the amount spent on the medical treatment.
Educational Loan FAQs
Q-I have availed an education loan on which there is a moratorium of 6 months—till that time I won’t have to pay any EMI. What will be the tax implication?
No tax benefit can be availed during the moratorium period as no payments are being done. Once the EMI payments begin, one can avail the tax benefits. A principal repayment, as it is, does not get any tax benefit. At the end of the financial year, one needs to get a certificate from the bank showing the total interest paid which would qualify for the deduction.
Q-I have taken an education loan in the name of my 19-year-old son. Can I avail tax benefit on the loan as my son has no source of income? Will both the principal and interest attract tax benefit?
In the past, any deduction under Section 80Eon the interest of education loan taken for higher studies is the sole privilege of the student himself in whose name the loan is taken. Since the parents were not taking loans for their own education, they did not get the benefit of deduction. This anomaly was removed in Budget 2008 and the benefit has been extended to the parents as well.
What’s more, deduction is even allowed for educating your spouse by taking a loan. While there is no ceiling to the interest portion of your education loan and the principal repayment gets no tax advantage, unlike home loans. The tax benefit on interest through deduction is allowed for a maximum of eight years, or till the interest is paid in full. This deduction is over and above the Rs 1 lakh available through Section 80C.
Tuition fees FAQs
Q-For my son’s admission, I had to pay the school development fees of Rs 55,000. Can I claim it under Section 80C?
Only the tuition fee paid is allowed as a tax deduction under Section 80C. The payment needs to be made only towards 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, for the purpose of full-time education to any university, college, school or other educational institution situated within India.
Q-My son goes to an expensive playschool. I pay Rs 65,000 a year as tuition fees including the transportation cost for two of my children. Is the full amount available for claim?
Section 80C, which allows a deduction in respect of tuition fees, does not place any restrictions on the amount that will qualify for the deduction. The entire amount of tuition fees can be claimed for up to two children up to the upper limit of Rs 1 lakh a year under Section 80C. However, only the tuition fees would qualify and not transportation, or any other related expenditure.
Income Clubbing FAQs
Q-Can I save money in my son’s name and get tax benefit on it?
Yes. Parents can invest in children’s name and save tax on that amount. Children can be minors or adult or even married. However, the reverse is not allowed. Children cannot invest in their parents name and get tax benefit on the amount invested.
Q-My 10-year-old daughter has received offers for acting in advertisements. If she works, will her income be clubbed with mine? Or, will I have to file separate tax returns for her?
As per the Income Tax Act, a child below 18 years of age is treated as a minor and his income is clubbed with the income of the parent (parents living together) whose income is greater, except in certain cases. Income derived by a child from manual work or by application of his skills, talent or specialised knowledge and experience is excluded from the clubbing provisions. Thus, income earned by your daughter from acting in advertisements will be taxable in her hands and separate returns will have to be filed for her under your guardianship.
Q-My daughter is 15 and son 11. I have given a gift of Rs 3 lakh each to both of them. The amount has been invested in post office schemes. Will I have to pay taxes for that?
Income generated out of investment made in the name of minors would be added to the parent’s income. Post office instruments like Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) are fully taxable and in this case in your hands. Investments made in equity mutual funds for that matter do not attract long-term capital gains after one year.
Q-My 15-year-old daughter is working with a theatre group and has earned some money. My wife and I are taxpayers and my wife earns more than me. Do we have to file our daughter’s returns separately, or will her income be clubbed with our income? Also, how much of her income shall be exempt from tax?
The Income tax Act, 1961, says a child below 18 years of age is treated as a minor and the income earned by the child is clubbed with the income of the parent (parents living together) whose income is greater except in certain cases. When the child has derived some income from manual work, or by application of his skills, talent or specialised knowledge and experience, such income is excluded from clubbing provisions. Thus, income earned by your daughter from plays and acting shall be taxable in her hands and her separate returns shall be filed under your guardianship if her income exceeds the basic exemption amount—Rs 1.45 lakh for women for the financial year 2007-08.
Q-I got married recently. We received a lot of cash as gifts from relatives and friends and even family members. Also, my wife received lots of cash as birthday gift during the year. Do we need to pay tax on them?
Any gift of any amount from relatives during the financial year is completely exempt from tax while cash gifts and gifts by cheque or bank draft from non-relatives can be fully exempt from income tax up to Rs 50,000 in aggregate in one financial year.
However, any gift received from any person on the occasion of the marriage of the gift’s recipient would not be liable to income tax at all. There is no monetary limit attached to this exemption. In case of gifts received on birthday, the ones received by your wife’s relatives would not have any limit but from non-relatives, the limit would stand at Rs 50,000 per year.
Q-Can I gift some money to my relatives to claim deduction?
Gifting any sum of money to your relatives does not entitle you to claim deduction from income tax. If your parents, spouse or dependent minor children invest the money that is gifted by you, the income earned from the investment will be clubbed with your income for income tax purposes.
However, income earned by major children from the gifted sums will be taxed in their own hands. You may draw a gift deed in favour of your major children for the sake of your own records.
Q-I am a pensioner and a taxpayer. To reduce my tax liability on interest from deposits, I am planning to gift some of the money held by me in deposits to my wife and grandchild. What will be the tax implication?
You can’t save tax by transferring your income to your wife even by way of a gift because such transfers of deposit attracts the provisions of Section 64 of the Income Tax Act, which deals with clubbing of income. As you are the absolute owner of the interest-bearing deposits in your name as on date, by implication of the Section 64, if you transfer the deposits in the name of your wife without receiving adequate consideration, the income from such deposits will still be considered as yours and taxed accordingly. But, if you gift the deposits to any of your major children, the income subsequent to the date of the gift will be taxed in their hands.
Q-I run a beauty parlour. I get an annual income (profit after expenses) from the parlour of around Rs 2 lakh. If I gift Rs 1 lakh out of my income to my mother, a homemaker who has no independent source of income, will my tax liablity be reduced?
The Income Tax Act does not provide for any deduction on account of gifts made by an individual to any relative. So, a gift of Rs 1 lakh to your mother will not change your taxable income. Your tax outgo will depend on your gross total income from business and profession less expenses incurred in connection with your business and other tax deductions you are entitled to. Agift to one’s mother is not an allowable expense under any head.
Q-I am retired and my annual income from pension and other sources is around Rs 4.5 lakh. What will be the tax implication if I gift Rs 2 lakh to my homemaker wife, who has no source of income?
You can gift money to your wife, but as your wife is a housewife with no source of income, the interest on fixed deposits shall be clubbed with your income. According to the Income Tax Act, if you transfer money in your wife’s name without adequate consideration, then it shall be deemed your income only. So, the interest on fixed deposits in your wife’s name (after you gift her) shall continue to be taxed in your hands. The main purpose of this clause is to tax the money in the hands of the real owner of the source. Gifts to certain specified relatives, including major children, are exempt from gift tax. When you gift the amount to your daughter, who is married, any income earned on the gifted amount will be taxed in the hands of your daughter.
Q-My grandmother has just started receiving family pension after the death of my grandfather, who was a government employee. How will the pension be taxed?
Family pension received by the family of an employee after his death is taxable under the head ‘income from other sources’. Standard deduction at the rate of 33.33 per cent of the amount of family pension, or Rs 15,000, whichever is less, can be claimed as a deduction from the gross family pension. The arrears of family pension are taxed in the same manner as family pension, but your grandmother can claim relief under Section 89 if her total income is assessed at a rate higher than the rate it would have attracted if this income was received in the financial year to which it belonged. The assessing officer is empowered to grant relief in such cases.
Standard Deduction FAQs
Q-I am making mandatory contribution of 12 per cent towards my Employees’ Provident Fund. The employer contributes an equal amount. Can I increase my contribution and up to what limit? Will I get tax benefit on the increased contribution?
Yes, you may contribute voluntarily over and above the stipulated rate of contribution and increase your contribution from 12 per cent to 100 per cent of your basic salary. You will also get tax benefit on the increased contribution, subject to applicable limits.
However, your employer need not increase the same to match your contribution. The contribution should be a certain percentage of your basic salary and not a fixed amount. The rate of voluntary contribution can be changed only from the beginning of a financial year. Change in between the financial year is not possible. Such a step looks better if you are nearing retirement, as the lock-in period for funds would be less.
Q-I have joined a private sector bank after working in a public sector bank for 10 years. I got Rs 2 lakh as my PFdues. Is this amount taxable?
If you were a member of a recognised PF, the withdrawal of the gross amount from the PF account on voluntary resignation from job after rendering continuous service for 10 years (more than the stipulated minimum period of five years) will not be taxable in your hands. Also, at the time of switching jobs, the employer asks you to choose between withdrawing the balance in your PF account, or transferring it to the PF account that will be opened for you in your new organisation. If you get the balance in your PF account transferred to your new account, you will not incur any tax liability.
Q-I am changing my job after seven years of service in a company. Am I liable to pay tax on PF withdrawal from my account?
First, assuming that you were a member of a recognised provident fund, the withdrawal of gross amount from the provident fund account on voluntary resignation from job after rendering continuous service of seven years (that is, more than the stipulated minimum period of five years) will not be taxable in your hands. Second, at the time of switching jobs, the employer gives you the option of withdrawal or transferring the balance in your provident fund account which your new employer will open for you. In such a case, the accumulated balance due and becoming payable (gross amount) shall be exempt from income tax if it is transferred to your account in the recognised provident fund maintained by your new employer (irrespective of employment period).
Q-In FY2008-09, I got my salary for nine months from one company. The salary for the remaining three months will be from another. How do I file my returns?
First of all, you need to collect salary-cum-tax deduction certificate from both your employers. Both the employers will issue the certificates in Form 16. The form will have complete details of your salary, tax deducted at source and the branch of the bank in which the income tax was deposited.
Since both the companies must have allowed you the basic exemption while calculating your tax liability, you will, in all probability, be required to pay self-assessment tax while filing your income tax returns. You will also have to include income from other sources like bank interest and capital gains, if any. The joining bonus received by you, if any, is fully taxable. File your returns in the form applicable to you on the basis of the heads under which your income falls.
Q-I changed my job in June last year. I was unable to file the income tax returns for the financial year 2007-08 as my previous company did not provide me Form 16. Is there any way I can file my returns without Form 16? Can I claim the extra expenses I will incur due to late filing of returns?
It is compulsory to fill Form 16 to claim tax deducted on the salary paid by your previous employer. In case no tax was deducted by your previous employer, you can request them to give you a salary certificate stating the gross salary paid to you during that period and then you can file your return.
There is no way by which you can claim any expenses on late filing of return as it is your personal obligation and your previous employer will not assume any responsibility on account of delay. Your previous employer, however, can be fined for late issuance of Form 16 by the income tax authorities.
Tax Filing FAQs
Q-I took up a job in Bangalore recently. My income tax returns were filed in Delhi till now. Where should I file it now?
You can file your income tax returns either in the city of your current residence, or in the city where your office is located. Since you have joined a company based in Bangalore and also shifted your residence there, you will be required to file your returns in Bangalore. You should write a letter to your current assessing officer about the change of your address and mark a copy of the same to your assessing officer in Delhi. You should also write to the income tax department for change of your address in their PAN records. While filing your return in Bangalore, it would be best if you enclose a copy of your previous year’s return. This will serve as a ready reference for your current assessing officer.
Q-I have paid self-assessment (SA) tax for 2005-06 and filed the return with the challan. I have got a demand, wherein credit for SA tax is not given. I did not keep a copy of the challan for my records. How do I prove to the IT department that I have paid SA tax?
If you do not have a copy of challan submitted with the return, you can always get a duplicate challan from the branch of the bank through which you deposited it. The bank will ask for the date on which you de-posited the tax. If you paid by cheque, you can give the cheque number and date to the bank. It will track the payment with the help of these details. If you paid in cash, you can give a copy of the cash deposit slip to the bank. The bank will charge a nominal fee for issuing a duplicate receipt. You can then give the receipt to your assessing officer and get the demand reversed.
Q-I earned under two heads—salary and capital gains—in the last financial year. Which form will I have to use to file my return and how will my tax be assessed?
As an individual assessee, if you have earned income from capital gains in addition to your salary, you will have to file your returns in Form ITR2. For the purpose of taxation of capital gains, you will have to segregate your gains into short-term and long-term (if you held the shares for more than a year before selling, the gain will be termed as long-term, otherwise it will be short-term). If you have paid securities transaction tax on all shares, long-term gain will be exempt from tax and short-term gain will be taxed at a flat rate of 10 per cent. Your gross tax outlay will depend on your salary, income from capital gains, income from other sources like bank interest and the deductions to which you are entitled.
Q-My wife is a part-time tutor and earns about Rs 7,000 a month. She receives the amount in cash. Does she have to declare her income and file income tax returns? How should I manage this?
The basic exemption limit for not filing return for women is Rs 1.80 lakh per annum with effect from financial year 2008-09. Your wife is earning about Rs 84,000 per year, which is below the threshold limit for filing return. Therefore, it not mandatory for her to file her income tax returns. However, it is advisable for her to open a bank account and deposit her earnings in it. When her income becomes more than the basic exemption limit in the future, she can apply for a PANand file returns.
Q-My wife obtained a PAN number as she wanted to open a demat account. But neither did she open a demat account nor did she trade in shares. She is a housewife, has small savings and has no source of income. Is filing tax returns mandatory for her?
It is mandatory for a woman to file income tax returns only if her annual income exceeds Rs 1.8 lakh (limit for the financial year 2008-09). As your wife does not have any source of fixed income, and her existing income is below the limit, she is not required to file her returns.
Q-My wife earns Rs 10,000 per month from part-time coaching classes at an institute. Is she required to declare her income and file income tax?
With effect from the financial year 2008-09, the basic exemption limit for not filing of returns for women is Rs 1.80 lakh per annum. Your wife is earning Rs 1.20 lakh per annum, which is below the taxable limit. Therefore, it is not mandatory for her to file her income tax returns at this stage. The moment her income exceeds Rs 1.80 lakh, she will have to get a PAN card and file returns.
The clarifications given are based on current laws prevailing and are generalised in nature.
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