Answers to Most Frequently Asked Tax Questions in India

Are recurring deposits in bank eligible for deduction?

No. Recurring deposit does not come under the ambit of deduction under Section 80C. Even if a taxpayer deposits in a recurring deposit for more than 5 years it cannot be claimed as deduction under Section 80C. A taxpayer should invest in specified fixed deposit in order to claim deduction under Section 80C.

Does deduction under Section 80C include 80CCC and 80CCD?

Yes. The aggregate amount of deduction under Section 80C, 80CCC and sub section (1) of Section 80CCD shall not exceed Rs.1,50,000.

Are all allowances taxable for salaried individuals?

No. Not all allowances are taxable. Some allowances like City Compensatory Allowance, Special Allowance, and Overtime Allowance are taxable in the hands of employee. On the other hand, allowances such as Hostel Expenditure Allowance, Children Education Allowance, Leave Travel Allowance and House Rent Allowance, which are often paid to employees as a part of their salary, are partially tax exempt.

Even if no taxes have been deducted from salary, is there any need for the employer to issue Form 16?

Form 16 consists of 2 parts- Part A & Part B. Part A needs to be downloaded from the Traces website Part B is prepared by the organisation itself. Form 16 (Part A) is issued by the employer, if he deducts TDS. If the salary is under basic exemption, no TDS or Form 16 is applicable. Whereas, Part B is issued by the employer and the employer can issue Part B even if the salary of employee does not exceed the tax limit.

Will my family pension income be taxed as salary income?

No. Family pension will not be taxed under salary income, as no employer-employee relationship exists. Family pension will be taxable under head of income from other sources.

Is leave encashment taxable as salary?

Amount received in lieu of leaves is taxed under the head income from salary. If the taxpayer is a government employee, any amount received as leave encashment is exempt from tax. If the taxpayer is a non-government employee, the least of the following is exempt:

Leave encashment actually received
Amount equal to salary for the period of leave earned (maximum leaves earned will be 30 days for every year of actual service)
10 months average salary. [Avg. salary = salary (basic + DA) of 10 months immediately preceding the retirement or resignation]
Maximum Rs.3,00,000

What should one do in case of discrepancies in actual TDS and TDS credit as per Form 26AS?

Every person deducting tax at source has to furnish the details of tax deducted by him to the Income Tax department. Many times, the actual amount of TDS and TDS credit as appearing in Form 26 AS may differ. The TDS credit appearing in Form 26 AS may be less than the actual TDS. This maybe because of non-furnishing of TDS details to the Income Tax Department by the deductor deducting the tax or incorrect Permanent Account Number, etc. In such a case, the deductee should approach the deductor and request him to take the necessary steps to rectify the discrepancy.

What are the deductions available for a disabled person?

Any resident individual, certified as a person with disability by the medical authority can claim exemption u/s 80 U. If a person suffers from at least 40% of disability, then he is eligible for a deduction of Rs.75,000. If a person suffers from severe disability i.e. above 80% of disability, then he is eligible for a deduction of Rs.1,25,000.

Are there any deductions for medical insurance done for any family member?

Deduction can be claimed for medical insurance under Section 80D by an individual for self, wife, dependent children or parents. Section 80D covers:

If you buy a policy for yourself and your spouse and children	You can get a maximum deduction of Rs.25, 000
If you are a senior citizen	The deduction limit increases to Rs.50,000
If you buy a policy for your parents	You can get a maximum deduction of Rs.25,000
If your parents are senior citizens	The deduction limit increases to Rs.50,000
If you buy a policy for yourself, spouse and children and another policy for your parents	You get two deductions: Up to Rs.25,000 for your policy and Up to Rs.25,000 for your parents’ policy
If your parents are senior citizens and you also buy a plan for them	You get two deductions: Up to Rs.25,000 for your policy and Up to Rs.50,000 for your parents’ policy
If both you and your parents are senior citizens and you buy two policies, one covering your family and another for your parents	You get two deductions: Up to Rs.50,000 for your policy and Up to Rs.50,000 for your parents’ policy

Can both earning members of a family claim deduction for home loan taken in joint name?

Under Section 24B of Income Tax Act, interest on housing loan is eligible for tax deduction. Joint home loan borrowers can claim the maximum tax benefits individually. It means each holder can get a tax rebate of Rs.1,50,000 for principal repayment under Section 80C and Rs.2,00,000 for interest payment.

How can we get additional benefit in NPS (National Pension System) other than that included in 80C?

Under Section 80 CCD (1B) of Income Tax Act, a taxpayer can claim deduction for voluntary contribution up to Rs.50,000 which is over and above the limit of 80 C.

What is the interest penalty under Section 234A?

If the Assessee has an outstanding tax liability, and he does not file his income tax return on time, then he is penalized by charging interest (u/s 234A). Therefore, interest u/s 234A is charged on late filing of income tax return.

What is the benefit of taking indexation while calculating capital gain?

Indexation is a process by which the cost of acquisition/improvement of a capital asset is adjusted against inflationary rise in the value of asset. The benefit of indexation is available only in case of long-term capital assets and is not available in case of short-term capital assets.

Are there any bonds in which I can invest my capital gains to claim tax relief?

Yes. As per Section 54EC, a taxpayer can claim tax relief by investing the long-term capital gains in the bonds issued by the National Highway Authority of India or by the Rural Electrification Corporation Limited. The investment should be made within a period of 6 months from the date of transfer of capital asset and bonds should not be redeemed before 3 years. This benefit cannot be availed in respect of short-term capital gain. Maximum amount which qualifies for investment will be Rs.50,00,000. Thus, deduction under Section 54EC cannot be claimed for more than Rs.50,00,000.

What is Section 80TTA?

Section 80TTA of Income Tax Act allows for a tax deduction on interest income from savings bank account. Interest earned above Rs.10,000 will be taxable.

How is tax levied for Indian residents and non-resident Indians?

In case of resident individuals and companies, their global income is taxable in India. However, non-residents have to pay tax only on the income earned in India or from a source/activity in India.

What are tax benefits?

Tax benefit usually refers to tax laws that provide one with an option to reduce their tax bills, if they clear the eligibility requirements. Tax saving investment benefits can be in any form, like credit, exemption or deduction in the tax bills. The amount of tax saved is also dependent on the tax benefit claimed as there are different forms of savings. Some of the tax saving investment benefits include:

Exemption from Income
Deduction from Income

Some of the Tax benefits include:

Tax benefits under section 80C of the Income Tax Act, 1961, may be available to an individual for the premiums paid subject to the conditions/limits specified therein.
Benefits received under a life insurance policy may be exempted under section 10 (10D) of the Income Tax Act, 1961, subject to the conditions specified therein. Where the amount paid to the policyholder is not exempt under the provisions of section 10(10D), the said amount will be subject to tax deduction at source in accordance with provisions of section 194DA of the Act.
For further details, please consult your tax advisor. Tax benefits are subject to change from time to time.

What are the tax benefits on life insurance?

Life insurance is one of the most prominent tax saving investments available today. When you buy an insurance policy, you are entitled to receive tax deductions under Section 80 C of the Income Tax Act 1961.These tax deductions considerably lower your taxable income, which in turn increases your overall savings.

Tax benefits Under Section 80C

Investing in a life insurance policy allows you to avail of several tax benefits under Section 80C. Tax saving terms under this section are:

You can avail tax deductions up to Rs. 1,50,000 under this section;
The deduction is allowed up to 10% premium of the sum assured for policies purchased after 1st April 2012;
For policies issued before 1st April 2012, deductions on premium are allowed up to 20%of the sum assured (even if the holder pays more than 20% of the sum assured in one financial year);
If the insurance policy is discontinued within two years if its commencement, the tax benefits received would be reversed;

Tax Benefits Under Section 10 (10D)

Under Section 10(10D), any sum received at maturity of a Life Insurance Policy, is exempted from tax. However, this exemption is not applicable to:

Amount received under Section 80DDA(3) or 80DD(3);
Maturity benefits received under a Keyman Insurance Policy;
Sum received under any insurance policy (other than as death benefit) issued on or after April 1, 2003, during the term of which the premium paid is more than 20% of the sum assured;

What are the tax benefits available on health insurance?

The premiums paid by you can be considered eligible for tax benefits as available under the provisions of Section 80C, and 10(10D) as applicable.

Section 80C: Under this Section, a deduction of Rs 1,50,000 can be claimed from your total income.
Section 10D: Any amount received under an insurance policy including the amount allocated on bonus on the policyis exempted from tax.(* subject to fulfillment of certain conditions)

Will I get tax benefits if I purchase health insurance for my parents?

The premiums you pay for health insurance policy for your parents qualify as tax saving investment under 80D Section of Income Tax Act. The benefit is available for you on your premiums regardless of the fact that your parents are dependent on you or not. The factor that plays a major role in tax benefit is the age of the individually insured. If your parents are senior citizens over the age of 60, you get a tax benefit of Rs 50,000.