Claiming Tax Deductions

Q 1) I am 27 years old. I work in a private firm and my CTC is Rs 8 lakh. What are the options for tax saving that I should consider apart from a life insurance policy?

- Naseem Zorawar

You will be entitled to deduction u/s 80C, 80CCC and 80CCD (subject to a maximum of Rs 1 lakh) of the Income Tax Act, 1961. Some of the options you can avail yourself of for tax saving are:

1. Life insurance policy premium subject to a maximum of 20 per cent of the sum assured on the policy taken on an individual’s life, life of the spouse or child in case of an individual and any member of the family in case of an HUF.
2. Contribution towards statutory/recognised Provident Fund (PF).
3. Contribution towards 15-year Public Provident Fund (PPF).
4. Subscription to National Savings Certificates (NSC) VIII Issue.
5. Contribution for investing in ULIP of Unit Trust of India or LIC Mutual Fund.
6. Payment towards notified annuity plans of LIC, e.g. New Jeevan Dhara, Jeevan Akshay.
7. Investment in notified units of a Mutual Fund or UTI.
8. Contribution towards notified pension fund set up by a Mutual Fund or UTI.
9. Any sum paid as tuition fees (not including any payment towards development fees/donation/payment of similar nature), whether at the time of admission or otherwise to any university, college or educational institution in India for full-time education.
10. Any payment towards the cost of purchase/construction of residential property, including repayment of loans for the same taken from specified parties like government, banks, LIC, National Housing Bank or the assessee’s employer where such employer is a public company, university, co-operative society or a public sector company.
11. Fixed Deposits in a bank/post office for a period of 60 months or more.

For other items refer the relevant section of the Income Tax Act, 1961. Sections 80CCC and 80CCD are in respect of contribution to a pension fund of LIC or any recognised insurer and contribution to a pension scheme of the Central Government respectively.

Besides, you may purchase a Mediclaim policy and avail yourself of a deduction u/s 80D.

You may also get a deduction in respect of interest on capital borrowed for the acquisition of self-occupied property, if any, subject to a maximum of Rs 150000 p.a. and other conditions.

You could make your investments in the following order:

• Insurance policy to cover your life, so that your family is protected in the event of your death
• Mediclaim insurance cover to cover any instances of hospitalisation
• A pension plan to secure your retirement
• The balance funds may then be invested in other plans to earn income/capital appreciation

Q 2) I am in employment with a multi-national firm and my wife is working in a small private company. We are going to purchase a residential flat, for which I plan to take a home loan from a bank. As my income is higher than that of my wife, the bankers are giving a loan in my name. The flat will be purchased jointly, under my wife’s name and mine.

What are the various deductions/exemptions that we can claim under the provisions of the Income Tax Act, 1961 in respect of this property?

- Aneek Paliwal

Since you are purchasing the residential property jointly under your name and that of your wife, it can be claimed as self-occupied property by both to the extent of your respective share. Further, as you are taking a bank loan, the interest payable to bankers can be claimed as deduction by both of you subject to a maximum of Rs 150000 p.a. each, provided that the bankers issue the interest paid certificate in both your names. It is advisable that the interest be paid by both of you through your respective bank accounts.

In addition, both of you can claim deduction u/s 80C for payment of stamp duty and registration charges in the year of payment. The repayment of the principal amount will also be considered for deduction u/s 80C of the Income Tax Act, 1961. Your respective share of the property should be defined.