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What is Income Tax and What are the Deductions under Income Tax Act?



Taxing the earnings of a citizen of a country is an ancient practice. Taxation was present in Ancient Greece and the Roman Empire. Taxation was present in India since ancient times imposed on the Subjects of the various Kingdoms by the rulers. There is a popular saying in English "Nothing Is Certain In Life But Death And Taxes". I would like to remind all of you that the team of Financial Planners at Moneymindz.com are always there for you to plan your Tax Planning needs in a most effective and efficient manner. You can explore this unique Free Advisory Service just by giving a missed call on 022 6211 6588.

So Why Was Income Tax Charged :

Since ancient times the money collected from the subjects of the Kingdom such as farmers, potters, merchants, goldsmiths and so on were used to pay the wages of the soldiers of the army and fund the Kingdom’s war machine. In India the income tax funds collected are used for the Nation’s war chest, health care, repairing of roads and bridges, Education and so on. Many of us must be finding the topic of Income Tax quite complicated. You are not alone here. Albert Einstein had once stated that the hardest thing in the world to understand is the income tax.

Income Tax Slabs For The Financial Year 2013-2014 :

Individuals And Hindu Undivided Families and Resident Woman Under 60 Years :

Income Tax Slabs Income Tax Rates Education Cess
Where the total income does not exceed INR 2,00,000 NIL NIL
Where the total income exceeds INR 2,00,000 but does not exceed INR 5,00,000 10% of the amount by which the total income exceeds INR 2,00,000. 2 % of Income Tax
Where the total income exceeds INR 5,00,000 but does not exceed INR 10,00,000 INR 30000/- + 20% of the amount by which the total income exceeds INR 5,00,000. 2 % of Income Tax
Where the total income exceeds INR 10,00,000 INR 130000/- + 30% of the amount by which the total income exceeds INR 10,00,000 2 % of Income Tax

Individual Who Is Between 60-80 Years Of Age At Any Time During The Previous Year :

Income Tax Slabs Income Tax Rates Education Cess
Where the total income does not exceed INR 2,50,000 NIL NIL
Where the total income exceeds INR 2,50,000 but does not exceed INR 5,00,000 10% of amount by which the total income exceeds INR 2, 50,000. 2 % of Income Tax
Where the total income exceeds INR 5,00,000 but does not exceed INR 10,00,000 INR 25000/- + 20% of the amount by which the total income exceeds INR 5, 00,000. 2 % of Income Tax
Where the total income exceeds INR 10,00,000 INR 125000/- + 30% of the amount by which the total income exceeds INR 10,00,000 2 % of Income Tax

Individual Who Is More Than 80 Years At Any Time During The Previous Year :

Income Tax Slabs Income Tax Rates Education Cess
Where the total income does not exceed INR 5,00,000 NIL NIL
Where the total income exceeds INR 5,00,000 but does not exceed INR 10,00,000 20% of the amount by which the total income exceeds INR 10, 00,000. 2 % of Income Tax
Where the total income exceeds INR 10,00,000 INR 100000/- + 30% of the amount by which the total income exceeds INR 10,00,000 2 % of Income Tax

Education Cess :

Here Education Cess on Income tax and Secondary and Higher Education Cess on income tax shall be levied at the rate of 2% and 1% respectively.

Small Relief For Tax Payers :

In a small relief to taxpayers a tax credit of INR 2000 for persons with an income of up to INR 5 Lakhs has been granted.

Tax Deductions Under Section 80 C

  • Certain investments are deductible up to a maximum of INR 1 Lakh per annum from gross total income. This tax exemption is available across Individual Tax Slabs.
  • Public Provident Fund.
  • Bank Fixed Deposits
  • Payment Towards Education Fee Of Children
  • National Saving Certificates of five and ten year tenure
  • Payment Towards Employee Provident Fund
  • Home Loan Benefits
  • Life Insurance Benefits
  • Five Year Post Office Time Deposits
  • National Pension Saving Schemes
  • Equity Linked Saving Schemes
  • NHB Suvriddhi
  • ULIPs
  • NABARD Rural Bonds
  • Stamp Duty and home registration charges
  • Senior Citizens Saving Schemes.

Tax Deductions Under Section 80 CCC :

Here under this section an individual pays or deposits an amount out of his income chargeable towards tax for the premium of an annuity insurance policy such as an LIC policy for receiving pension from the fund. He shall be allowed a deduction of an amount equivalent to the premium paid or INR 1 Lakh whichever is less.

Tax Deductions Under Section 80 CCD :

Here under this scheme the deductions for contributions to the pension scheme of the Central government is available to those individuals who have been employed by the Central government or any other employer on or after January 1ST 2004 .Here a deduction of more than 10% of the employee’s salary will not be allowed.

Tax Deductions Under Section 80CCE :

As per this section the maximum amount of deduction that the tax payer can claim under sections 80C, 80CCC and 80CCD is INR 1 Lakh.

Tax Deductions Under Section 80D :

Here the maximum amounts available for self, spouse and dependents for mediclaim policies is INR 15000.In case of a senior citizen it is INR 20000.In case the parents of the taxpayer are senior citizens the deductions towards their medical policies is INR 20000.

Tax Deductions Under Section 80DD :

Here we have the Expenditure incurred for the medical treatment and rehabilitation of a handicapped dependent relative. If the dependent relative is severely handicapped then a deduction of INR 1 Lakh is available under this scheme.

Tax Deductions Under Section 80DDB :

Here we have deductions of INR 40000 or the amount actually paid , whichever is lesser for the treatment of a disease or an ailment of the tax payer or a dependent relative .Here the deductions will be reduced by an amount received under insurance of an insurer or if he is reimbursed by the employer. If he is a senior citizen then INR 60000 or the actual expenditure whichever is less.

Tax Deductions Under Section 80E :

Here we have deductions for the interest on a loan taken for pursuing higher education. The deduction is also available for the purpose of higher education of a relative.

Tax Deductions Under Section 80GG:(Deductions For Rent):

Here consider that you do not receive HRA from your company. Then you can get a tax rebate for the rent paid under Section 80GG. Here the amount available should be the lowest of the following :

  • An amount of INR 2000 per month.
  • An amount of rent paid in excess of 10% of total income
  • An amount equal to 25% of total income of the tax payer.

Tax Deductions Under Section 10 (5)

Leave travel Allowance is received from the employer to proceed on leave to any place in India for himself and family is tax exempt under this section.

Medical Reimbursement :

Reimbursement of medical expenses actually incurred by an employee or any member of his family up to INR 15000 per year is completely tax exempt .Member of the family includes spouse, children, dependent brother or sister.

Tax Deductions Under Section 80G :

Here this section offers a tax deduction for donations to certain prescribed funds and charitable institutions.Here the extent of deductions is either 50% or 100% of the contribution depending on the charitable institution donated to. For certain funds the aggregate deductions are limited to 10% of the adjusted gross total income.

Donations with 100% Deductions :

  • Prime Ministers National Relief Fund.
  • National Defence Fund
  • Prime Ministers Armenia Earthquake Relief Fund
  • Africa (Public Contribution-India )Fund
  • National Foundation for communal harmony
  • Approved University or educational institution of national eminence
  • Chief Ministers Earthquake relief fund, Maharashtra
  • Donations made to Zila Saksharta samitis
  • National Blood Transfusion council or a state blood transfusion council
  • The Army Central Welfare Fund or the Indian Naval Benevolent fund or the Air Force Central Welfare Fund.

Donations with 50% Deductions :

  • Jawaharlal Nehru Memorial Fund
  • Prime ministers drought relief fund
  • National Children’s Fund
  • Indira Gandhi Memorial Trust.
  • Rajiv Gandhi Foundation

Tax Deductions Under Section 80 U :

Deductions of INR 50000 to an individual who suffers from a physical disability including blindness or mental retardation. If an individual has severe disability deductions of INR 1 Lakh are available

Tax Deductions Under Section 24 :

Section 24 deals with the tax aspects of the interests on home loan repayment. The maximum limit under this section is INR 150000 and you don’t have to actually live in the house to claim the benefits. Under Section 24 interest portion is tax deductible up to an amount of 1.5 Lakhs and an extra 1 Lakh deduction under section 80EE.Here the value of the property purchased should not exceed INR 40 Lakhs. Only those individuals who obtain a loan between April 1st 2013 and March 31st 2014 are eligible for this.

Tax Deductions Under Section 80CCG :

Rajiv Gandhi Equity Savings Scheme is a new Equity tax saving scheme for equity investors in India exclusively for first time retail investors in the Indian market. Here Investors who have a gross total income of 12 Lakhs (Effective 1st April 2013) can invest INR 50000 with Tax benefit deductions under u/s 80 CCG It has a 3 year lock-in period with a fixed lock-in in the first year and a flexible lock-in for subsequent years. Here the maximum amount eligible for claiming benefit under RGESS is INR 50000.

Superannuation :

It is a contribution made by the employer on behalf of the employees towards a group superannuation policy held by the employer. The company pays 15% of basic wages as superannuation contribution. There is no contribution from the employee. The contribution is invested by the fund in various securities as per investment pattern prescribed .Interest on contributions are credited to members accounts with a rate about that of a PPF.

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