Section 80TTA Deduction...Save upto 10K

The Finance Bill 2012 has proposed to insert a new section 80TTA in the Income Tax Act – 1961 which will provide deduction up to Rs. 10,000/- to an Individual/ HUF from Gross Total Income towards Interest on saving bank A/c (not being time deposits) maintained with a bank / society / post office. The deduction admissible shall be interest received or Rs. 10,000/- whichever is lower.

It is also proposed to provide that where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

The section is applicable with effect from April 01, 2013 and will apply from AY 2013-14 and onwards.

Explanation—For the purposes of this section

• “Time Deposits” means the deposits repayable on expiry of fixed periods.
• banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);
• co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or
• Post Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898)

Few Clarifications on 80TTA (Amendments)

With above basic coverage on the provision proposed to be incorporated, few FAQ’s are as under:

1. The deduction towards interest on all saving accounts taken together cannot exceed Rs. 10,000/-. If the interest on saving bank account received is Rs. 12,500/-, then effectively only Rs. 2,500/- will be taxable.
2. The deduction is in addition to deduction of Rs. 1 Lacs admissible u/s 80C of the Income Tax Act-1961.
3. As already mentioned, the maximum amount of deduction admissible u/s 80TTA can not exceed Rs. 10,000/-. If you will be receiving Rs. 31,850/- from three saving accounts, you will be entitled for Rs. 10,000/- only as deduction u/s 80TTA & the balance amount of Rs. 21,850/- will be taxable.
4. The filing of income tax return would not be mandatory if your Gross Total Income is below the applicable basic exemption limit even though interest on saving accounts exceeds Rs. 10,000/-.
5. The interest to be offered for taxation depends upon the method of accounting regularly followed by the assessee in recognizing the income.

If Assessee is following cash (Receipt) system of accounting then the interest income has to be offered at the end of FD Tenure i.e., at the time of maturity of FD. If Assessee is following mercantile (Accrual) system of accounting then interest income is required to be offered for taxation every year on due basis as income of that year only.

In view of the Circular No. 371 dated 21.11.1983 issued by the Central Board of Direct Taxes (CBDT), we advise the readers to offer the interest on Bank FDR on accrual (due) basis only.

Analysis/Conclusion

The insertion of this new section has been a relief to individual or Hindu undivided family as interest on saving bank account was always a taxable income with no corresponding tax benefits. It would also help in avoiding inclusion of small savings bank interest in the taxable income, which was required to be done after deletion of section 80L.

It's Time to Submit Investment Proofs

Submitting investment declaration is a matter of concern for most of us. The most important document in an investment declaration is the investment proof. So let us understand what Investment proofs are required to be submitted for getting Tax Benefit. There are various sections under which you can claim exemptions and submit the proofs. I am listing here those sections and the proofs to be submitted for the same.

Rajiv Gandhi Equity Savings scheme: It will provide income tax deduction of 50% for those who first time invest upto Rs.50,000 directly into equities and whose annual income is less than Rs.10 lakh, subject to a three -year lock in. Exchange-traded funds (ETFs) and mutual funds listed on stock exchange and invested only in BSE 100, CNX 100 and blue chip public sector stocks would also be allowed tax rebate under the scheme.

House Rent Allowance (HRA):  Rent receipts can be shown for taking tax benefit for living in a rented house. Income tax exemption for HRA will be least of following:

1. The actual amount of HRA received as a part of salary.
2. 40% (if living in non-metro area) or 50% (if living in metro area) of (basic salary+Dearness allowance (DA)).
3. Rent paid minus 10% of (basic salary+DA).

In some cases, deduction for both HRA and home loan interest (u/s 24) can be taken together in case owned house is not in same city or not at a commutable distance to office.

Transport/Conveyance allowance: Rs 800 per month is non taxable if salary has this component. This would not be exempted in case employee also avail car reimbursement. No proofs/bills required to submit for this exemption.

Children education allowance:  Per school going child 1200 per annum is non-taxable. Maximum for 2 children, so max 2400 per annum becomes non-taxable.

Grade/Special/Management/Supplemementary Allowance: That’s general component in industry to complete CTC amount after putting 35-40% into basic and 20% in HRA. This is not an expense, but this head is kept just to put the rest of CTC amount into some component.

Arrears: Generally arrears are fully taxable, but employee may claim exemption u/s 89(1).  One would need to compute income tax on the arrears if it would have been received in actual year. Now difference of income tax between payment year and actual year would be allowed for deduction.

Gratuity: If amount is received before completion of five years of service with employer, it should be taxable. Else it would be non-taxable up to Rs 10 lakh in case of non-government servants. In case of Government service employees, it would be fully non taxable.

Leave travel allowance (LTA): Two trips on a block of four years can be claimed for exemption for travel done inside India. Following amount would be non-taxable:

1. Where journey is performed by rail; railway-fare in first AC class by shortest route to destination.
2. Where places of origin and destination are connected by rail but the journey is performed by any other mode then first AC class fare by shortest route to the place of destination.
3. Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then (i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or, (ii) If in other case, first AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.

Payment by way of leave encashment received by Central & State Govt. employees at the time of retirement in respect of the period of earned leave at credit is fully exempt. In case of other employees, the exemption is to be limited to minimum of all below:

1. The actual amount received
2. The cash equivalent of leave balance (max 30 days per year of service)
3. Maximum of 10 months of leave encashment, based on last 10 months average salary
4. Rs. 3 Lakh

Performance Incentive/Bonus: This component would be fully taxable.

Medical allowance/Reimbursement: This component is on-taxable up to 15000 per year (or Rs 1250 per month) on producing medical bills.

Food Coupons – Non-taxable upto 50 Rs per meal. So a 22 working month and one meal per day would make Rs 1100 as non taxable. Sodexo or Accor ticket coupons may also be provided by employer for same.

Periodical Journals: Some employers may provide component for buying magazines, journals and books as a part of knowledge enhancement for business growth. This part would become non taxable on providing original bills.

Professional Development Allowance : If original bills are submitted to employer, this allowance may become non-taxable. Generally payment done towards any technical course fee, certification etc done to enhance professional knowledge can be reimbursed.

Uniform/Dress Allowance: Some sections of employees mat get allowance for purchase of office dress/uniform. In such case, the component would become non-taxable.

Telephone reimbursements – In some of the cases, companies may provide a component for telephone bills. Employees may provide actual phone usage bills to reimburse this component and make it non-taxable.

Internet Expenses - Employer may also provide reimbursement of internet expenses and thus this would become non taxable.

Car expense reimbursements – In case company provides component for this and employee use self owned car for official and personal purposes, Rs 1800 per month would be non-taxable on showing bills for fuel or can maintenance. This amount would be Rs 2400 in case car is more capacity than 1600cc.

Driver salary – If employee pays driver salary for self owned or company owned car, Rs 900 per month may become non-taxable if employer provides component for it.

Gift from relatives vs non relatives: Gifts from relatives would be non-taxable with no limits attached. Following relations are covered under non-taxable rule:

1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual, Spouse of the person referred to in clauses (2) to (6).

If gifts received from non-relative persons is worth more than Rs.50000, one is liable to pay the tax on whole value. Gift can be in form of a sum of money (in cash/cheque/bank draft/electronic transfer) or any articles.

Agricultural Income: If one has only only agricultural income, then it is fully exempt from income tax. If other income also there, rebate on agricultural income would be provided at 10-30% rate depending on actual amount of agricultural income.

House rent Income: 30% of the rental income can be reduced as a standard deduction for repairs, maintenance etc. irrespective of the actual amount spent.

Bank/Fixed deposit/Post Office/NSC/SCSS interest: Interest earned on bank account, fixed deposits, post office, debt mutual funds/fixed maturity plans(kept less than one year) would be added to taxable income and taxed as per slab rates.

Short Term Gains from Share Trading/Equity Mutual funds: if stocks/equity mutual funds are sold before one year, 15% tax would be payable on such gains. STT should have been on transaction.

Long term gains from Share Trading/Equity Mutual funds: If stocks/equity mutual funds are kept for more than a year before sale, it would be long term gains and such gains would be fully exempt from income tax. Securities transaction tax (STT) must have been paid on transactions for availing this exemption.

Section 80C, 80CCD and 80CCC deductions- One can claim his investments/payments under section 80C, 80CCC and 80CCD, up to 1 lakh combined limit. Amount can be invested in:

1. Tax saving mutual funds (ELSS) with three years lock-in
2. Five year tax-saver bank Fixed deposits
3. Public provident fund (PPF)
4. National Savings Certificate (NSC) or National Service Scheme (NSS)
5. Employer contribution into New Pension Scheme (NPS) (Section 80CCD)
6. Life insurance/Unit Linked Insurance Plan (ULIP) premium
7. Employee’s contribution towards Employee provident fund (EPF)
8. Home loan principal amount payment (only if you have got possession of house)
9. Senior citizen savings scheme (SCSS), if your age is more than 60 years
10. Post office tax saving deposit or tax saving bonds
11. Pension scheme/Retirement plans (Secion 80CCC)
12. Tuition fees paid for children education

Section 80D : Maximum deduction of up to 15,000 under mediclaim or health insurance offered by life insurers taken for self and family. An additional deduction of up to 15,000 for buying cover for dependent parents. If parents/assessee are senior citizens, they can claim deduction up to Rs 20,000.

Section 80DD : Deduction of 50,000 for maintenance of a disabled dependent. If the disability is severe, the deduction amount will be 100,000.

Section 80E : Tax relief on interest payments on education loan taken for higher studies for self, spouse or child. There is no maximum limit on this deduction.

Section 80G : The eligibility is 50% or 100% of the donation amount subject to overall ceiling of 10% of your gross total income to certain funds and charitable institutions.

Section 24/Home loan interest payment : The maximum limit is of 1.5 lakh on interest payments of a home loan for a self-occupied house. There is no ceiling on the amount of deduction if the house is let out or deemed to be let out. House rent would needs to shown in income in case house is not self-occupied.

Section 80U (Disabled/Handicapped person): Deduction can be claimed if person has a disability. The allowed dedudtion if for Rs 50,000. This deduction goes up to Rs. 75,000 in case disability is severe.

Section 80DDB deduction (Medical treatment expenses): Expenses done for medical treatment for self, spouse, dependent children, parents, brothers and sisters. Maximum deduction can be Rs 40,000 (goes up to 60,000 in case patient is senior citizen). Deduction is only allowed in case of following diseases:

1. Neurological Diseases where the disability level has been certified to be of 40% and above,
   (a) Dementia
   (b) Dystonia Musculorum Deformans
   (c) Motor Neuron Disease
   (d) Ataxia
   (e) Chorea
   (f) Hemiballismus
   (g) Aphasia
   (h) Parkinson’s Disease
2. Malignant Cancers
3. Full Blown Acquired Immuno-Deficiency Syndrome (AIDS)
4. Chronic Renal failure
5. Hematological disorders :
   (a) Hemophilia ;
   (b) Thalassaemia.

Professional tax: Professional tax deducted from salary by employer should be removed from taxable salary before computation of income tax.

Employer contribution of EPF/New pension scheme(NPS): Employer contribution does not become part of employee’s income and hence income tax is not payable on this part.