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April 5, 2000

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Crucial sections of the Income Tax Act

Larissa Fernand

Granted. They can be pretty mind boggling. To help you in your tax planning, here is an explanation of the various sections of the Income Act, 1961.

Section 80L of the Income Tax Act, 1961
Interest earned upto Rs 15,000 in a financial year will not be taxed, out of which Rs 3,000 is specifically allocated to interest on government securities, income from Unit Trust of India and mutual funds. Schemes falling under this section are:

  • National Savings Certificate VIII
  • Post office time deposits
  • Post office recurring deposits
  • Post office monthly income scheme
  • National Savings Scheme 1992
  • Notified debentures of co-operative societies, institutions or public sector companies
  • Government securities
  • Deposits with a banking company, co-operative bank, co-operative society by members, approved financial institutions and housing boards.

Section 88 of the Income Tax Act, 1961
Offers a rebate of 20 per cent. A rebate is when the government gives you a concession on your taxable income to encourage investments in certain instruments. That means 20 per cent of the amount invested in specific instruments will be deducted from the total tax payable.
So if your tax liability is Rs 1,00,000 and you invest Rs 50,000 in the public provident fund, which is entitled to such a rebate, a 20 per cent deduction takes place. That amounts to Rs 10,000. Your tax liability drops from Rs 1,00,000 to Rs 90,000. The aggregate contribution to schemes entitling one for a tax rebate is subject to Rs 60,000.

An additional Rs 10,000 is in respect of contributions made to new equity and debenture issues of infrastructural and power companies, units of mutual funds dedicated to infrastructure and approved bonds of ICICI and IDBI.
So an individual can reduce his tax liability by Rs 14,000 if he takes all these options into account. Moreover, any payment of principal made by an individual towards the cost of purchase or construction of residential property will qualify for a deduction of up to Rs 10,000.
The schemes offering a tax rebate are:

  • Life insurance premiums
  • Provident fund
  • Public provident fund
  • 10/15 years Unit Linked Insurance Plan
  • 10/15 years Dhanaraksha
  • National Savings Certificate VIII
  • National Housing Bank
  • National Savings Scheme-92
  • Jeevan Dhara/ Jeevan Akshay of LIC
  • Equity-linked tax-saving schemes
  • Retirement Benefit Plan of UTI
  • Repayment installment of a housing loan

Section 10 of the Income Tax Act, 1961
To lure you into investing your money with specific instruments, the government does not tax you on the interest earned. So interest on instruments falling under this section are totally exempt from tax.

  • Dividends from companies
  • Units of UTI and mutual funds
  • Interest payable by public sector companies on notified bonds and debentures
  • Interest on relief bonds (Rahat Patras)
  • Interest on 'Deposit scheme for retiring government employees, 1989'
  • Interest on post office savings bank account
  • Interest on public provident fund
  • Receipts from a life insurance policy other than Keyman Insurance and Pension Plan

Section 80E of the Income Tax Act, 1961
Servicing a loan out of income chargeable to tax which you have taken for higher education is deductible up to a ceiling of Rs 25,000 a year for eight successive years. This amount has been raised to Rs 40,000 in the last budget. The loan should have been taken by an approved charitable institution or financial institution. If your employer provided the loan, you disqualify.

Section 80D of the Income Tax Act, 1961
If you are medically insured, then you can get a deduction up to Rs 15,000 for premiums paid on your gross total income. The deduction was up to Rs 10,000 but has been increased by Rs 5,000 from FY 2000 - 2001. If you are paying the premiums for your dependent spouse, parents or children, then this benefits can be availed even on their premiums.

Section 80DD of the Income Tax Act, 1961
If the taxpayer has a dependent relative who is mentally retarded or suffers from some permanent physical disability then a deduction of Rs 40,000 a year is given for medical treatment, training or rehabilitation. This is allowed in full irrespective of the actual expenditure on medical treatment.
This amount includes investments in UTI's 'Special Plan for the Handicapped' and LIC's 'Jeevan Aadhar.' But you will need a doctor's certificate who works in a government hospital.

Section 80DDB of the Income Tax Act, 1961
Expenditure on actual treatment for specific diseases, like cancer, renal failure and even AIDS, gets a deduction of up to Rs 40,000. This will be applicable if the individual himself contracts this disease or a dependent relative.

Section 10(13)A of the Income Tax Act, 1961
If you own the house, this is not applicable to you. Moreover, you should not be self-employed but a salaried employee availing of house rent allowance (HRA). Fulfill these factors and you are entitled to a deduction on rent paid.
The amount deducted is based on the least of these three factors:

  • 50 per cent of the salary where residential house is in one of the four metros or 40 per cent if it is in another metro
  • Actual HRA received by the employee
  • Excess of rent paid over 10 per cent of salary
Assume your salary is Rs 10,000, HRA amounts to Rs 2,000 and actual rent is Rs 2,500. According to the first criteria, the deduction will amount to Rs 5,000, Rs 2,000 according to the second and excess of rent paid over 10 per cent of salary is Rs 1,500. Since the least qualifies, the sum valid will be Rs 1,500.

Section 80GG of the Income Tax Act, 1961
All self-employed individuals and employees not getting any house rent allowance (HRA) are entitled to deduction. The deduction will be the least of:

  • Rent in excess of 10 per cent of total income
  • 25 per cent of total income
  • Rs 2,000 per month

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