Skip to main content

All tax deductions are not worth claiming

Download Tax Saving Mutual Fund Application Forms

Invest In Tax Saving Mutual Funds Online

Buy Gold Mutual Funds

Leave a missed Call on

94 8300 8300

 

 

 

The tax season has kicked off. Yet again, taxpayers will be rushing to complete their formalities and more important, claim deductions. But there are many deductions or benefits the Income Tax ( I- T) Act offers that are not in line with the current expenses of individuals or in keeping with the pace of inflation.

As an income tax consultant puts it, "Some of the deductions are a joke." The tax rates for various income brackets aren't too high as compared to many other countries.

But the inflation and interest rates are low in the latter. So, while one pays a higher income tax, they are not paying high equated monthly instalments or food prices have not gone through the roof.

Most countries across Europe, including the United Kingdom, have the highest tax rate in the range of 45- 55 per cent and the gap between the income brackets is much wider compared to India. In the highest slab, Sweden has a tax rate of 56.6 per cent, Denmark 55 per cent, the Netherlands 52 per cent, Austria and Belgium 50 per cent, Ireland, Finland and Norway nearly 45 per cent, Japan 50 per cent, and Australia, China and Israel 45 per cent. The income threshold for the basic exemption and for the highest tax bracket in most other countries are quite high.

There are various expense- and investmentbased deductions in Indian I- T laws that have not been revised for a long time. Here's a look at some.

Medical expenses

Something as basic as the annual medical reimbursement has been kept at ₹ 15,000 for the last 15 years ( it was raised from ₹ 10,000 to ₹ 15,000 in April 1999). This should be revised to be on a par with medical inflation, which has been huge in the past years. For those battling health issues or having elders who need medical attention, ₹ 15,000 is a rather small amount to claim.

Some tax consultants say senior citizens should be given some relief for medical expenses as their income might not be much but health care expenses could be high. Also, senior citizens get negative returns when there is a limited income flow.

Preventive health check- ups

In 2012, then finance minister Pranab Mukherjee brought an additional deduction for preventive health checks. You can claim up to ₹ 5,000 for this under Section 80D. Unfortunately, this ₹ 5,000 deduction is a part of the ₹ 15,000 deduction you can claim for contribution towards premiums of a health insurance policy.

In effect, it eats into your deduction for the health insurance premium if you have a high cover and premium.

At the same time, ₹ 5,000 for health checks is small. Definitely not enough when looking to get your family a preventive health check. In most cases, this can cost you ₹ 9,000- 12,000.

Health insurance

The ₹ 15,000 deduction available for individuals for contribution towards premium of a health insurance policy for oneself could be good enough. But the deductions for contribution towards premium of a health insurance policy for elderly parent( s) might not be enough.

If you buy a policy for a retired parent, you will need an individual policy as an elderly person could have complicated health issues. A health insurance policy of ₹ 5 lakh for a retired individual can cost you between ₹ 20,000 and ₹ 36,000 annually. In case you contribute this most of the ₹ 1 lakh allotted under this section.

Hence, there is little left for you to claim for your children's tuition fee. The annual tuition fee in schools can easily be ₹ 50,000 and upwards.

if your employer pays you an allowance for children's education, you can claim ₹ 100 per child per month, for up to two children. And, ₹ 300 per month per child for up to two children for expenses towards their hostel accommodation.

When the tax deduction amounts are so small, you probably have no inclination left to claim deductions. Imagine paying around ₹ 50,000 a year towards your child's education, for which you get deductions of up to ₹ 1,200 in ayear ( for two children).

We suggest clients not take such an allowance, if possible, because it doesn't make sense to keep records of such meagre deductions.

Instead, take deductions under Section 80C. This way, you make up for the cost to at least some extent. For those who can't deny having received such allowances, we suggest they don't bother claiming.

Repayment of home loan principal

Can you really claim a ₹ 1- lakh deduction on your home loan principal repayment? Given that it is under Section 80C and amid all those other heads like EPF, child's education, insurance claims, etc, one will seldom be able to claim it.

The deduction for interest repayment up to ₹ 1.50 lakh is significant but might not work much in metro cities, where houses cost way more than the ₹ 15- 18 lakh of loan amounts (which would provide a ₹ 1.50- lakh benefit).

Someone who has a home loan of ₹ 50 lakh pays an equated monthly instalment ( EMI) of roughly ₹ 50,000. Of that, at least 80 per cent goes towards servicing the interest portion, which comes to ₹ 40,000 or ₹ 4.80 lakh annually.

The person gets tax benefit on only ₹ 1.50 lakh of that, unless it is a second property. You get unlimited tax benefit for repaying interest on asecond home loan.

Similarly, if you avail a loan for renovating your house, you can claim for the interest paid on this loan as a tax deduction, subject to a cap of ₹ 30,000 annually for a self- occupied property.

Renovation can actually cost way higher. Surana says the ₹ 2,000 rebate to every person with a total income of up to ₹ 5 lakh, introduced in the previous Budget under Section 87A, is also on the lower side and might not be worth the effort of claiming.

Too Many Deductions For Saving ₹ 1 Lakh ( Under Section 80C)

The limit allowed for claiming deductions under this section is low in the context of the number of instruments listed in the section. Initially, Section 80Cwas supposed to cover only investments

Instruments approved in Section 80C Tax treatment for interest income EPF Exempt PPF Exempt Life insurance premium Unit- linked insurance premium Exempt Equity- linked saving scheme ( ELSS) Exempt Home loan principle repayment National Pension System ( NPS, under Section 80CCC) Withdrawals are taxable Tax- saving fixed deposits Taxable at slab rate 5- year time deposit Taxable at slab rate National Saving Certificate ( NSC) Taxable at slab rate Senior Citizen Savings Scheme Exempt Stamp duty and registration charges for a housing property Children's tuition fee

 

 

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

 

 

Leave a missed Call on 94 8300 8300

 

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

 

Best Performing Mutual Funds

    1. Largecap Funds             Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds         Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds          Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds   Invest Online

      1. DSP BlackRock MicroCap Fund

2.       Franklin India Smaller Companies

E. Sector Funds          Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds      Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds        Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds         Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...
Read more

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...
Read more

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...
Read more

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now