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The new tax code offers a little extra in terms of your take-home salary by tweaking tax brackets and increasing tax deductions. But you will have to rework your investing habits a bit in the financial year 2012-13 (when the Direct Tax Code gets functional) and change the way you invest in order to get the maximum benefit that the government plans to offer.

While equity linked saving schemes (ELSS) and unit linked insurance plans (ULIPs) have been excluded from the Rs 1 lakh deduction benefit, life insurance, medical insurance and child’s education will qualify for an additional deduction of R50,000.

New pension system (NPS) that is one of the few products that qualify for the R1 lakh deduction to be claimed under section 80C is likely to get an impetus and an important component in everyone’s portfolio after having received a weak response in its initial 14 months of existence.

The government has even proposed to tax your insurance benefit if you survive the tenure of the cover, a move that equates it to mutual funds.

The maturity proceed from an insurance policy will not be taxed only if it is received after the death of the insured and be taxed otherwise.

Experts say that this will bring a change in the way people put their money in insurance products as they will move away from insurance to provident funds.

Home loans will continue to get the benefit as deduction of R150,000 will be available towards the interest payment of home loan but payment of principal amount will not qualify for any deduction.

While benefit on long-term capital gains promotes investors to go for an aggressive wealth building, the approved instruments that qualify for the deduction under section 80C (excludes ELSS and ULIPs) calls for a conservative savings approach.

We have listed below the clauses of DTC Bill 2010 relevant in respect of above deductions:-

Clause Particulars Maximum

Exemption

69 Deduction for savings.

69. (1) A person, being an individual, shall be allowed a deduction for savings in respect of the aggregate of the sum referred to in sub-section (2) to the extent of one lakh rupees.

(2) The sum referred to in sub-section (1) shall be the amount paid or deposited by the person in a financial year as his contribution of any approved fund (See Note below) to an account of the individual, spouse or any child of such individual.—

Approved Fund

(18) “Approved Fund” means—

(a) a provident fund, superannuation fund or gratuity fund approved in accordance with the provisions of the Nineteenth Schedule;

(b) a pension fund, which has been approved by the Board in accordance with the Scheme framed and prescribed by the Central Government in this behalf;

(c) any other fund which has been approved by the Board in accordance with the scheme framed and prescribed by the Central Government in this behalf.

1,00,000
Deduction from life insurance.

70. (1) A person, being an individual or a Hindu undivided family, shall be allowed a deduction in respect of any sum paid or deposited to effect or keep in force an insurance on the life of persons specified in sub-section (3).

(2) The insurance referred to in sub-section (1) shall be an insurance where the premium payable for any of the years during the term of the policy shall not exceed five per cent. of the capital sum assured.

(3) The person referred to in sub-section (1) shall be—

(a) the individual, spouse or any child of such individual; and

(b) in case of a Hindu undivided family, any member of such family.

Deduction for health insurance.

71. (1) A person, being an individual or a Hindu undivided family, shall be allowed a deduction in respect of any sum paid during the financial year to effect, or to keep in force, an insurance on the health of   persons specified in sub-section (2) and in addition, in the case of an individual, any contribution made to the Central Government Health Scheme.

2) The person referred to in sub-section (1) shall be—

(a) the individual, spouse, or any dependant child or parents of such individual; and

(b) in case of a Hindu undivided family, any member of such family.

(3) The insurance under this section refers to a health insurance scheme framed by any insurer which is approved by the Insurance Regulatory and Development Authority.

Deductions for education of children.

72. (1) A person, being an individual or a Hindu undivided family, shall be allowed a deduction in respect of any sum paid during the financial year, if the sum is paid—

(a) as tuition fee to any school, college, university or other educational institution situated within India; and

(b) for the purpose of full time education of any two children of such individual or Hindu undivided family.

(2) In this section—

(a) tuition fee shall not include any payment towards any development fee or donation or any payment of similar nature;

(b) full time education shall include education in play school or pre-school.

Limit on deductions under sections 70, 71 and 72

73. The aggregate amount of deductions under sections 70, 71 and 72 shall not exceed fifty thousand rupees.

. 50,000/- in respect of all amount covered under clause 70, 71 and 72
74 Deduction of interest on loan taken for house property.

74. (1) A person, being an individual or a Hindu undivided family, shall be allowed a deduction, in respect of any amount paid or payable by way of interest on loan taken for the purpose of acquisition, construction, repair or renovation of a house property in the financial year in which such property is acquired or constructed or any subsequent financial year, subject to the conditions specified in sub-section (2).

(2) The deduction referred to in sub-section (1) shall be allowed if—

(a) the house property is owned by the person and not let out during the financial year;

(b) the acquisition or construction of the house property is completed within a period of three years from the end of the financial year in which the loan was taken; and

(c) the person obtains a certificate from the financial institution to whom the interest is paid or payable on the loan.

(3) The interest referred to in sub-section (1) which pertains to the period prior to the financial year in which the house property has been acquired or constructed shall be allowed as deduction in five equal installments beginning from such financial year.

(4) The interest referred to in sub-section (3) shall be reduced by any part thereof which has been allowed as deduction under any other provision of this Code.

(5) The amount of deduction under this section shall not exceed one lakh and fifty thousand rupees.

Rs. 1,50,000

More Under Income Tax

Posted Under

Category : Income Tax (25319)
Type : Articles (14809)
Tags : Direct Tax Code (292) dtc (262)

0 responses to “DTC : Deductions in respect of Savings, Children Education Fees, Health Insurance, Life insurance and Home Loan Interest”

  1. Akbar says:

    I am paying my brothers college tution fees of Rs. 52,000 anualy. So, Can i get the tax deduction for the same.

  2. BASANT JAMMARH says:

    no budget, no plan !
    wah re mere Hindustan !!

  3. venkat says:

    under 80C senior citizens have recourse to only provident fund and health insurance. The life insurance and education of children are irrelevant. In such a case ceiling of 70000 per year in PPF must be removed.

  4. Chandulal says:

    At present following two provisions related to Life Insurance are affected.
    1. Rs One Lac is allowed under 80C. This is now reduced to 50000 only.what will happen for the person who is already paying yearly premium of Rs One Lac and commited to pay for next 15 to 20 years.

    2. As per prevailing tax laws Maturity amount of any Life Insurance Policy is taxfree under Sec 10-10-D, except where premium exceeds more than 5% of Risk cover. What tax treetment will be given to the Maturity amount of the prevailing Life Insurance Policies.

  5. minesh says:

    has anyone in metro cities gone through the fee structure of child education.only school fees in private school monthly goes to Rs 100000 for two children.apart from this tution fees Rs 100000 because there are hardly any major educated teacher in school who knows everything.take example in mumbai my sister gives tution for last 25 years.child is totally dependent on him.then what school teacher’s quality you will come to know.have you gone through coaching classes.good classes demand 25000 Rs fees one year in advance.CA Inter fees in J K SHAH classes comes to total 50000 rs approx.per student.100000 for final student.have you seen how much coaching claases earns in a year on post graduation education 10 Crores to 20 Crores in a year.they are running like a industry.they get fees more than mukesh ambani in his company.what a blunder this guys in parliament are making.come to the grass root level experience the feel than decide the changes.do not frame policies for yourself,industrialist to whom 3.5% bonanza,are they poor,to the systems.go to poor people understand their needs.try to maintain equality.level playing field.do not frame such an idea which is helpful to class of people rather than mass people.

  6. AJAY says:

    If any one can clarify my doubts about the DTC. According to Income Tax Act 1961, the refund received after the maturity of the insurance policy by a person was tax free. Now if I get refund after 01.04.2011, weather the refund will be taxable or not, and up to what extend.

  7. ASHOK SHAH says:

    The additional sum of Rs.50,000 allowed for insurance, children education (upto two children) and health insurance is too low.

    Normal fee in any metro town for two children exceeds Rs.50,000/-. So any payment on life insurance and health insurance will not qualify for deduction.

    this area needs attention of the Govenment. Every one needs to raise their voice throgh forum like TaxGuru

    TaxGuru should take lead in forwarding the grievances.

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