CA Sandeep Kanoi

CA Sandeep KanoiIn this article we will take a look at some common myths and misconceptions about personal tax:

Gifts received: Gifts received from specified relatives are exempt from income tax, and there is no upper limit also. Similarly, gifts of any amount and from anyone received during your marriage are totally tax-free. Similar is the case with the gifts received under a Will or by way of an inheritance, or from a registered charitable or education organisation or in contemplation of death of the donor. Also, in case an individual receives any gift from any local authority as specified under the Act, the same would not be taxable.

However, if one gets any other cash gifts from non-relatives exceeding Rs 50,000 in a year, one is required to pay tax on the excess amount exceeding Rs 50,000. Also, earlier, only cash gifts were taxed, but now, with the latest amendments in the I-T laws, even non-cash gifts will be taxed in the hands of the recipient with effect from October 1, 2009. For instance, the scope of the taxability provisions in respect of the gifts has been enlarged to include immovable property, including land or building or both. Besides, certain other gifts received w.e.f. October 1, 2009, has also been brought under the tax net. These include shares and securities, jewellery, archeological collections, drawings, paintings and sculptures as specified under the Act.

Deduction in respect of Payment off Interest on Housing Loan

Most taxpayers generally believe that the deduction related to interest and repayment of principal housing loan is applicable to one house only. But this is not true. On the contrary, an individual can have more than one housing loan.

In case the individual has two housing loans for two separate house properties and if he resides in one of the houses, then the other house will be considered as deemed to be let out and the deemed rental value will be considered as taxable in the hands of the individual.

Employee is eligible to claim a deduction under Section 80C of the Income-Tax Act for the repayment of the principal amount. However, this amount is limited to a total of Rs 150,000 (inclusive of the other investments). The interest paid on housing loan will be eligible for a deduction up to Rs 200,000 in case of a self-occupied property. However, in case a property is let out or deemed to be let out, then there is no such limit and the actual interest paid on the housing loan is allowed as deduction. This is contrary to the case of a self-occupied property, wherein the maximum interest on housing loan is restricted to Rs 2,00,000 p.a., subject to certain conditions.

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Deduction U/s. 80GG for those who paying House rent but not receiving HRA

A tax exemption is available to a salaried employee if he receives house rent allowance (HRA) as part of his compensation from his employer. The exemption is calculated as per the limits prescribed under the law. However, the maximum exemption which can be availed will be equal to the amount of actual HRA received by the employee.

For an individual other than one receiving HRA (whether self employed or otherwise), deduction is available under Section 80GG of the Income Tax Act, 1961 for payment of rent on accommodation. In this case, however, the maximum deduction that can be availed is Rs 2,000 per month or 25 per cent of total income (whichever is less).

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Deduction in respect of Donation U/s. 80G

The belief that all donations are 100% tax-free is not true. True, deduction is available under Section 80G of the I-T Act in respect of donations made by an individual to certain funds, charitable institutions and so on. There is also no restriction on the amount of charity.

The rate of deduction, however, is either 50 or 100 per cent, depending on the choice of trust. Besides, donations must be made to registered institutions only. Also, only donations of up to 10 per cent of your total income qualify for such a deduction.

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Deduction under Section 80C

Under Section 80C benefits, you can get an exemption of up to Rs 1.50  lakh on contributions to a wide range of investments. These include Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), 5-year bank fixed deposits, life insurance policies, equity-linked savings schemes (ELSS), and unit linked insurance plans (Ulips), among others.

However, you needn’t always make an investment or save money to avail tax benefits under Section 80C. You can also claim a deduction for the school or university tuition fees you pay for your children provided they are enrolled in a full-time course at any institute in India. Likewise, your home loan principal repayment also qualifies for deduction under the overall limit of Section 80C.

Also, 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 also be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house.

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Please Note- Deduction Limit Under Section 80C been increased to Rs. 1.50 Lakh from Rs. 1 Lakh from A.Y. 2015-16. Further Limit of Deduction of Interest on Self Occupied Property also been increased to rs. 2 Lakh from Rs. 1.50 Lakh wef A.Y. 2015-16.

(Republished with Amendments)

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0 responses to “Myths and misconceptions about Personal Income tax”

  1. Pratip Kumar Mukherjee says:

    Thanks a lot for the article.

  2. A H Poonawala says:

    in latest budget additional Rs 50,000/- deduction is allowed over & above Rs.1,50,000/- under sec 80C . this addition deduction is ALLOWED TO SENIOR .CAN A SENIOR CITIZEN GET BENEFIT OF THIS NEW RS.50,000/- DEDUCTION ?

  3. CA. Subhash Chandra Podder says:

    Dear all though the article / write up is fine as per the Income tax Act & Rule and as per finance Act, yet always take professional advice before filing Tax Returns .

  4. jitendra thacker says:

    80c 1.5 lacs plus nps 50000 announced in this budget. pl clarify on this also. very good article and info.

  5. Mehta says:

    Father, mother and daughter are jointly registered as owners of an immovable property. The daughter has not made any financial contribution to the acquisition of the property. The daughter wants to relinquish her share in favor of her parents.
    Is there any liability of tax and stamp duty? Does the property have to be re-registered?

  6. Sachin says:

    In case of gifts received in excess of Rs 50000 from non-relatives , is tax payable on the whole amount of gift or only on the amount in excess of Rs 50000. Could you please clarify

  7. RAMESH AGRAWAL says:

    VERY VERY Excellent

  8. vikas says:

    my annual income is approx 18 lakh how much monthly IT I can save

  9. manjunath shanbhogue says:

    nice article, very useful.

  10. Anil says:

    Can units of mutual funds be gifted? How?

  11. rajeev says:

    gifts of money received from unrelated person if exceed rs50000 then whole amount of gifts is taxable and not the amount in excess of rs 50000…

  12. Ashis Majumder says:

    Since last 3 years I am contributing specified amounts in the accounts of my minor child and wife in PUBLIC PROVIDENT FUND (PPF). As the earnings of PPF is a tax free income,the said method may be adopted by the intended persons-to have tax free incomes through family members.

  13. vswami says:

    Impromptu: As per the erstwhile clause (b), so also the newly substituted clause, of sub-section (vii) of section 56 (2), if read together with the Explanation (d) thereunder, is seen to rope in within the mischief of the deeming provision any “immovable property being land or building” as specified. As such,it does not seem to, in terms, apply to the propoerty of a spoecial kind, in the form of ‘unit’ of a building; that is, legally as well as commonly known,- Flat or Apartment.

    This is the self-same aspect which has earlier been critically examined on this website iteslf in certain other contexts; for instance, on the implications / scope of section 194IA, etc. However, it is sad that in this write-up and in the related others, has not been even made a mention;inferably, it has been either skirted or glossed over unwittingly or otherwise.

    It is open for experts in the field to eminently consider and come out with a well-reasoned view on or aginst the validity of the abovementioned intricate point of critique, so as to be of useful guidance to the readers at large.

  14. Naveen says:

    I am holding two house loans which are located in two different cities, i am staying in a third city for Rent. Now can i claim HRA? if yes, how can i claim interest component of my two houses located in two different cities?
    Ex: House1, City1: Interest component – 3L
    House2, City2: Interest component – 1.5L
    House3(staying rent), City3: Rent paid – 1.8L per annum as per the elgibility.
    can i claim over all 4.5 L interest and 1.8L?

  15. Janak Parekh Nutan School, Ghatlodia says:

    Thanks a lot . This article is really a true guidance to me. Very useful.

  16. rugram says:

    The article is not clear about taxablility of gifts of movable/immovable property. The first part under this head of Gifts talks about gifts presumably in cash. In the next para dealing with movable/immovable property, what is not clear is whether gifts of this nature received from specified relatives would be taxable or not. This should have been clarified.
    Further, clubbing provisions for income received from gifts, also have not been mentioned.

  17. Ashis says:

    Its splendid ! In terms of concise concept

  18. sumit pareek says:

    why there is no imcome tax rebate under education help

    if student is taking admission through management quota , the rebate under section 80D in IT Act must be granted

  19. bhattadln says:

    excellent article

  20. sumit pareek says:

    very nice article. Also beneficial for CA students.

    thankyou so much..

  21. CA.Pradeep Kataria says:

    Excellant Article & very informative one.

  22. CA SANJAY BAHETI says:

    This article is so nice & informative to each taxpayer from tax planning point of view.
    regards.

  23. Sreekumar R says:

    The articles are very informative and suppliments to onc’s knowledge and also can be used as a refresher.

    Indeed the articles are very useful’
    Thank you

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