What are the tax benefits still available to an individual?
The Union Budget of 2002-03 was a little unfortunate for individuals. In that budget, a new surcharge of 5 per cent was imposed on individuals for national security. The section 88 benefit which offered a 20 per cent tax rebate for investment in certain instruments, was reduced to 15 per cent for individuals in the income group of Rs 1.5-5 lakh. The rebate was made nil for those in the income group of over Rs 5 lakh.
The administered rate on small savings was cut by 50 basis points. Dividend income from mutual funds and shares was made taxable in the hands of the investor. And a 5 per cent service tax was imposed on premiums payable on life insurance policies.
However, despite all these tax-cuts in the last budget, there are certain tax benefits still available to an individual to duck the tax blows. Section 88 offers a tax rebate for making investments of up to Rs 1 lakh in infrastructure bonds. Under section 80L, interest income from securities like National Saving Certificate qualifies for a deduction up to Rs 12,000.
Pension plans and deferred annuity schemes qualify for a deduction of up to Rs 10,000 in each financial year, under section 80CCC. Section 80D offers a rebate of up to Rs 10,000 on premium paid for medical insurance, which moves up to Rs 15,000 for senior citizens.
Then there is section 80E which offers a rebate on repayment of loans for higher education for an aggregate repayment of principal and interest up to a maximum of Rs 40,000. Section 80G and 80GGA allow an individual to donate money to specified charitable institutions and funds, such as the Prime Minister's National Relief Fund, to save tax. While some trusts qualify for a 100 per cent deduction, others offer a deduction of 50 per cent.
As per section 54EC, an individual can park his long-term gains in Nabard, National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC) to get an exemption to the extent of gains invested. And 54ED allows to claim an exemption, if the individual uses his gains from sale of shares or mutual funds to buy shares of specified capital issues by a public company. And lastly, section 24(2) of the Income Tax Act, 1961, grants an income-tax deduction for interest payment on housing loans of up to Rs 1.5 lakh.
| Tax rebates: which instruments qualify? | |||
| Scheme | Section 88 benefit | Tax implications | Maturity proceeds |
| Fixed time deposit | Not applicable | U/s 80L; no wealth tax | Tax-free |
| Company fixed deposit | Not applicable | Nil | Tax-free |
| Bonds/debentures | Not applicable | U/s 80L for specific bonds from ICICI and IDBI | Taxable u/s 54 EC/ED |
| Infrastructure bonds | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | U/s 80L | Tax-free |
| GOI Relief Bonds | Not applicable | U/s 10 (15); no wealth tax | Tax-free |
| LIC policies | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | U/s 80L; u/s 80 CCC(1) in some policies; Benefit of section 10 (10D) | Tax-free |
| Mediclaim | Applicable up to an investment of Rs 10,000 (Rs 15,000 for senior citizens) | U/s 80D | Tax-free |
| Public Provident Fund | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | Fully tax-free; no wealth tax | Tax-free |
| National Savings Certificate | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | U/s 80L | Tax-free up to the limits of section 80L |
| National Saving Scheme | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | U/s 80L | Tax-free |
| Kisan Vikas Patra | Not applicable | None | Tax-free |
| Post office recurring Deposit | Not applicable | U/s 80L | Tax-free |
| Post office monthly income scheme | Not applicable | U/s 80L | Tax-free |
| Pension plans | Applicable only for income below Rs 1.5 lakh; 15% for income between Rs 1.5-5 lakh | U/s 80CCC | Tax-free |
| Equity-linked savings scheme | Applicable up to an investment of Rs 10,000 | None | Taxable under capital gains tax |
| Deposit scheme for retiring employees | Not applicable | U/s 80L | Tax-free |
| Bank savings account | Not applicable | U/s 10(15)i; no wealth tax | Tax-free |
| Bank recurring deposit | Not applicable | U/s 80L; no wealth tax | Tax-free |
| Monthly income schemes | Not applicable | U/s 80L; no wealth tax | Taxable under capital gains tax |
| Note: Section 88: Tax rebate on investment up to Rs 60,000 in a year and Rs 80,000 for additional investment in infrastructure bonds Section 80 L: Interest income qualifies for a deduction up to Rs 9,000 Section 10D: All proceeds received by policy holders are tax-free Section 80CCC: All contributions up to Rs 10,000 eligible for 100% deduction Section 80D: Deduction is allowed up to Rs 15,000 for medical insurance premium Section 10 (15)1: Interest in bank savings account is deductible u/s80L Section 54 EC/ED: Short/long term capital gains tax | |||