INCOME TAX BENEFITS FOR AY 2020-21 (FY 2019-20)
I would
like to talk about Income tax benefits for Assessment Year (AY) 2020-21 because December 31, 2020 is an extremely important
deadline for a whole range of taxation. The Income tax Act, 1961 providing
the deductions and exemptions on our investments and expenses. Here, I have
given some of the most important deductions and exemptions. The taxpayers
should be remembered the following tax deductions or exemptions before paying
the Income tax to government for Financial year 2019-20 (AY 2020-21).
1.
House Rent Allowance (HRA) :-
If we are
living in a rented house and receive HRA as a part of the salary, we can claim
this exemption u/s 10(13A) in accordance with Rule 2A of the Income Tax Rules as
:-
i. HRA
received, or
ii. 50% of
Basic salary + DA, if we are living in a Metropolitan city. Otherwise, 40% if
we are living in other than Metropolitan city., or
iii. Excess
of rent paid over 10% of basic salary + DA, whichever is lower.
Example
:-
Assume
that one employee earns a basic salary + DA of ₹40,000 per month and living in
a rented house (Mumbai) and rent paid ₹10,000 per month. His actual HRA is
₹16,000.
i. Actual
HRA received i.e. ₹16,000,
ii. 50% of
basic salary i.e. ₹20,000,
iii.
Excess of rent paid over 10% of basic salary + DA i.e. (10,000 – 4,000) =
₹6,000, whichever is lower.
Hence,
₹6,000 per month is the least and will be exempted for HRA deduction.
In case of
self-employed who do not receive HRA from their employer, can claim deduction
up to ₹60,000 in a financial year u/s 80GG.
2.
Leave Travel Allowance (LTA) :-
This exemption
can be claimed by those who receive this LTA from their employer u/s 10(5) of
the Income-tax Act, 1961. The deduction is lower of the LTA amount or actual
expenses. This exemption can be claimed to the extent of actual expenditure
incurred on domestic journey (travel within India). No international travel is
covered under LTA. The exemption for LTA allowed to an employee and their
family for 2 travels undertaken within a block of 4 calendar years. The block
applicable for the current period is calendar years 2018 to 2021.
3.
Life Insurance Policy :-
We can
claim deduction up to ₹1,50,000 u/s 80C on premium paid for a life insurance
policy. The maximum deduction allowed is only 10% on sum assured. For example,
if the sum assured is ₹10,00,000, the limit is ₹1,00,000. If we pay an actual
annual premium of ₹1,20,000, the maximum deduction allowed is only ₹1,00,000. However,
if we purchased the life insurance policy before 31st March 2012, then
we are allowed a deduction of up to 20% of the sum assured amount.
4.
Health Insurance Policy :-
If we are
less than 60 years of old and paying health insurance policy for ourselves or
spouse or our children, then we can claim maximum health insurance policy
premium amount of ₹25,000 u/s 80D of the Income Tax Act. If we are above 60
years of old, the maximum deduction will be ₹50,000. If we pay health insurance
premium for our senior citizen parents as well, we can claim additional deduction
of Rs 50,000. If the premium is lesser than the maximum deduction, you can
claim maximum amount up to ₹5,000 deduction for expenses on preventive healthcare.
Super senior citizens who are having more than 80 years, can claim a maximum deduction
of ₹50,000 on actual expenses incurred on their healthcare.
5.
Medical Expenses :-
(A) We can
claim the deduction for medical expenses u/s 80DD
for medical expenditure incurred in case of self, spouse, children,
parents, or dependent siblings. Such deduction and deductible amount will be
applicable in below conditions :-
i. If
disability is 40% or more but less than 80%, then fixed deduction of ₹75,000.
ii. If there
is severe disability i.e. more than 80%, then fixed deduction of ₹1,25,000.
It should
be noted that the certificate of disability is required from respective medical
authority to claim this deduction.
(B) Deduction
for Medical Expenditure u/s 80DDB for Self or Dependent relative
i. A
deduction up to ₹40,000 is available with respect to any expense incurred
towards treatment of specified medical diseases or ailments for himself or any
of his dependent in case of individuals and HUFs below age 60.
ii. A
deduction up to ₹1,00,000 is available with respect to any expense incurred
towards treatment of specified medical diseases in the case of senior citizens
and super senior citizens.
It should
be noted that we need to get a prescription for such medical treatment from the
concerned specialist in order to claim such deduction.
6.
Home Loan amount :-
If we have
taken a home loan for purchasing or constructing a house, then we can claim
deduction on both interest and principal payments as the maximum amount of
₹2,00,000 as mentioned below. If we are
not able to construct such a home within 5 years, then we are eligible to claim
for maximum amount of only ₹30,000 per annum.
|
Deduction |
u/s |
Maximum Deduction allowed |
Condition
apply |
|
Principal |
80C |
₹1,50,000 |
House property should not be sold
within 5 years of occupied. |
|
Interest |
24b |
₹2,00,000 |
Loan must be taken for purchase or construction
of a house and the construction must be completed within 5 years from the end
of financial year in which loan was taken. |
|
Interest |
80EE |
₹50,000 |
Amount of loan taken should be ₹ 35,00,000
or less and the value of the property does not exceed ₹50,00,000. |
|
Stamp duty |
80C |
₹1,50,000 |
can be claimed only in the year in
which these expenses are incurred. |
|
Interest |
80EEA |
₹1,50,000 |
The stamp value of the property
should be ₹45,00,000 or less. The taxpayer is not eligible to claim deduction
u/s 80EE |
7.
Education Fee :-
We can claim
deduction towards expenses incurred on tuition fee paid during the financial
year to any school, college, university or other educational institution situated
in India for the purpose of full time education of any two children up to
maximum amount of ₹1,50,000 u/s 80C(2)(xvii) of the Income Tax Act, 1961. However,
no deduction can be available in respect of development fee or donation or any
other payment of similar nature.
8.
Interest on Education loan :-
We can
claim deduction towards an interest paid on education loan for self or spouse
or children u/s 80E. This deduction has no limit i.e. we can claim entire
amount how much we paid during the financial year. The deduction is allowed for
a period of 8 years or until the interest is paid by the individual in full,
whichever is earlier. However, it should be remembered that no deduction can be
claimed during the moratorium period.
9.
Exchange Traded Funds (ETFs) by CPSE :-
We can
claim deduction towards investment in ETFs during the financial year up to a
maximum amount of ₹1,50,000 u/s 80C of the Income Tax Act, 1961. ETFs are good
investment option as contributions of this scheme are invested in a wide range
of government companies operating in different core sectors (i.e. electricity,
energy, etc.) of the economy. It tracks the CPSE (Central Public Sector
Enterprises) index.
10.
Unit Linked Insurance Plan (ULIP) :-
We can
claim the premium paid towards ULIPs which are offered by Insurance companies is
eligible for a tax deduction up to a maximum amount of ₹1,50,000 u/s 80C. Moreover,
the returns out of the policy on maturity are exempt from income tax u/s
10(10D) of the Income Tax Act 1961. Hence, we can say that this is a dual
benefit from a single contribution of this policy. The benefits of investment
in ULIPS are :-
i. Life
cover,
ii. Income
tax benefits,
iii.
Flexibility of a portfolio switch,
iv.
Finance long-term goals, etc.
However,
the returns are not as high as ELSS because, a part of the investment amount
goes into buying the insurance cover.
11.
Equity linked savings scheme (ELSS) :-
We can
claim deduction towards investment in ELSS of Mutual Funds during the financial
year up to a maximum amount of ₹1,50,000 u/s 80C of the Income Tax Act, 1961. The
ELSS of MF can offer higher returns and tax benefits. However, the returns from these schemes are taxable. The profit from ELSS treated as long term capital gains (LTCG)
and taxed at 10% for gain more than ₹1,00,000.
12.
Fixed deposits (FD) :-
We can
claim deduction towards investment in Fixed deposits (5-year lock-in period) of
Banks and Post offices during the financial year up to a maximum amount of
₹1,50,000 u/s 80C of the Income Tax Act, 1961. However, interest earned on FDs is
taxable income. The rate of return on FD of post office 7.7% at present. The
interest rate of FD through banks is vary from bank to bank.
13.
Public Provident Fund (PPF) :-
We can
claim deduction towards contribution to PPF during the financial year up to a
maximum amount of ₹1,50,000 u/s 80C of the Income Tax Act, 1961. The PPF which
is a long-term tax saving investment scheme having a lock-in period of 15 years
and investors need not to pay tax at any stage of the investment. The
rate of return on PPF is 7.9% at present.
14.
National Savings Certificate (NSC) :-
We can
claim deduction towards contribution to NSC during the financial year up to a
maximum amount of ₹1,50,000 u/s 80C of the Income Tax Act, 1961. There is no
maximum investment limit in NSC, and TDS will not be deducted on the interest
amount. However, interest earned on NSC is taxable income. The rate of return
on NSC also 7.9% at present.
15.
National Pension Scheme (NPS) :-
(a). We
can claim deduction towards self-contribution of NPS (which is a part of
Section 80C) during the financial year is 10% of the salary (in case of
employees) but not more than the maximum limit of ₹1,50,000 or u/s 80CCD(1) of
the Income Tax Act, 1961. But, in the case of self-employed taxpayer, this
limit is 20% of the gross income.
(b). The
employees can claim additional self-contribution up to an amount of ₹50,000 u/s
80CCD(1B) as NPS tax benefit. Therefore, NPS allows a maximum tax deduction of ₹2,00,000.
(c).
Section 80CCD(2) covers
the employer’s contribution to NPS, which will not form a part of Section 80C.
This benefit is not available for self-employed taxpayers. The maximum amount
eligible for deduction will be :-
i. Actual NPS contribution by employer,
ii. 10% of Basic + DA,
iii. Gross total income, whichever is lower.
NPS is run
by the government of India and is open to public. NPS to boost returns
of retirement savings.
16.
Other Pension Plans :-
Thank you,
Chandra Sekhar Reddy
Author and Sole proprietor,
SCR Gallery
Website : https://www.scrgallery.com
Blogger : https://scrgalleryindia.blogspot.com/
E-mail : scr@scrgallery.com
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