NPS Tax Deduction

Most of us dream of retirement - with leisure travel, more time with family and friends and a certain peace of mind that is a welcome change from our regular hectic lives. However, rising inflation, higher life expectancy owing to better medical facilities, and minimal government support means that if one doesn’t have a big retirement corpus, you may be forced to work even during retirement. To avoid this you need to not just invest but invest smartly. And one smart investment option is the National Pension System (NPS),

The government of India launched NPS in 2004 for government employees and opened it for the general public in 2009. NPS is a voluntary contribution scheme that not only helps you get you financially ready for the future but also offers tons of tax-benefits as well. However, most people get confused about how much and under which section they can save tax when investing in NPS.

We have explained the tax benefits of NPS in 4 simple points below:

● Tax Benefits under Section 80C

NPS is one of the eligible options to save tax under Section 80C. The maximum deduction limit for this section is ₹1.5 lakh, and you can invest the entire amount in NPS and claim a deduction for that amount.

● Tax Benefits under Section 80CCD (1B)

This is an additional tax benefit for NPS investments. Here, you can claim deductions up to ₹50,000 above the Section 80C limit.

So, you can claim tax deduction up to Rs 2 lakh simply by investing in NPS – Rs 1.5 lakh under Section 80C and another Rs 50,000 under Section 80CCD (1B). This means if you fall under the income tax bracket of 30 percent, you can save as much as Rs 62,400 in taxes.

● Tax Benefits under Section 80CCD (2)

Applicable for only salaried employees, this benefit comes into effect when an employer contributes towards NPS of an employee. Deductions of up to 10% of salary (Basic pay + Dearness allowance) for the corporate sector and 14% for the government sector can be claimed by an employee

For example, a corporate employee earns Rs 6 lakh as the basic salary and another Rs 3 lakh as Dearness Allowance. In case his employer contributes to his NPS, he can claim Rs 90,000 (10 percent of Basic + DA) on his employer’s contribution. Besides, if he adds the deductions under Section 80C and Section 80CCD (1B), he can claim deductions up to Rs 2 lakh.

● Tax benefits on returns of and maturity amount

Tax benefits of NPS don’t just end at the amount you invest. With NPS, you don’t have to pay any tax on the returns or the maturity amount as well. This triple-tax benefit (called Exempt-Exempt-Exempt) is available only on select products in India.

Tax - 12/15/2021

TAX DEDUCTION ON PRE-CONSTRUCTION INTEREST

In some cases money may be borrowed (home loan) prior to the acquisition or construction of the property. In such a case, what is the tax treatment of interest paid/payable before the final completion of construction or acquisition of the property(pre-construction period) under Income Tax Act/Rules.

What is the Tax treatment of Pre-construction period Interest ?

The interest paid can be claimed as deduction only after the property is ready for possession. Any interest paid before possession is tax deductible in five instalments and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilised for repairs, renewal or reconstruction. It is also subject to a cap of Rs 2 lakh if the property is self-occupied. Hence, if you get the possession by the end of March 2022, you can claim deduction for interest from the current financial year. Additionally, a deduction of Rs 1.5 lakh is also available u/s 80 EEA for interest paid on loan for purchase of a house that has stamp duty value not exceeding Rs 45 lakh and the loan is availed during 2020-21. The benefit is available only on first residential property. You cannot claim any of the deductions if you opt for the new regime of taxation u/s 115 BAC of the IT Act.

Frequently Asked Questions

How do I claim pre-construction interest?

The income tax act allows one to claim the pre-construction interest from the date of borrowing of loan till the 31st March before the end of the financial year in which the construction gets completed.

Under which section can you claim pre-construction interest?

Pre-construction interest is allowed to be claimed for under construction residential property under the section 24 of the Income tax act

Is pre-EMI fully taxable?

Income tax act allows to claim pre-construction interest only after the construction is completed in 5 equal installments. Also only interest component can be claimed as deduction on completion of construction.

Tax - 12/15/2021

INCOME TAX DEDUCTIONS

Income tax deductions are a specified amount of certain expenses incurred by the taxpayer during the financial year that can be subtracted from their gross income to calculate the tax liability. Income tax deductions are specified under Section 80C to 80U of the Income Tax Act. After following these deductions, the total income of the assessee has arrived & tax is charged on it at prescribed rates.

1. Deductions are not permitted on the following incomes:

Long term capital gains
Short-term capital gains on transfer of equity shares and units of the equity-oriented fund through a recognized stock exchange.
Winning from lotteries & races.

2. The deduction cannot exceed Gross total Income

3. No deduction shall be allowed if the deduction is not claimed in the return of income.

Various Types of Tax Deductions in India

You can reduce your taxable income by increasing your deductions. There are many investment options and forms of expenditure which can help you get reductions on your taxable income. The Indian Income Tax Act provides many provisions for this. Mentioned below are several different tax deduction options.

1. Section 80C

For	Payment of LIC, PF, NSC, etc
Eligible Assessee	Individual or HUF
Conditions	Deposit or investment in any one or more of the listed items during the previous year
Amount of deduction	The amount deposited/invested or RS 1,50,000 whichever is less
Eligible deposits	Life Insurance Premium paid on the life of the individual, spouse, any child, or any member of HUF Public Provident Fund (PPF) Unit Linked Insurance Plan (ULIP) of UTI or LIC Payment to a notified annuity plan of LIC Recognized Provident Fund Tuition fees paid (max 2 children) Repayment of House Loan (excluding interest on the loan) Superannuation fund Sukanya Samriddhi Account Scheme National Saving Certificates (VIII issue) UTI or Mutual Fund Notified pension fund of Mutual Fund Notified deposit scheme or pension fund of housing finance companies or housing boards Notified deposit scheme of housing finance companies or housing boards Equity shares, debentures, units, etc of Infrastructure undertakings Fixed deposit of 5 years more with a scheduled bank Fixed deposit of 5 years more with a post office Notified Bonds of NABARD Deposit in an account under Senior Citizen Saving Scheme

2. Section 80CCC

For	A contribution made to annuity plans of LIC & other insurers
Eligible Assessee	Individual
Conditions	Deposit during the previous year a sum under an annuity plan of LIC for receiving a pension from the fund
Amount of deduction	The amount deposited/invested or Rs 1,50,000 whichever is less

3. Section 80CCD

For	Contribution toward approved pension scheme
Eligible Assessee	Central Government employee or any other individual assessee
Conditions	Employer & Employee contribution to approved pension scheme of the central government & any amount deposited by any other individual assessee to such scheme
Amount of deduction	In case of salaried employee: Employers contribution: Amount paid in assessee’s account or 10%of salary, whichever is lower; Employee’s Contribution: Amount paid or 10% of salary, whichever is lower; In case of any other individual assessee: The amount deposited in an approved pension scheme or 20% of gross total income in the previous year, whichever is lower
Additional deduction	Up to Rs 50,000 in respect of contribution to NPS of the central government.

Section 80C + Section 80CCC+ Section 80CCD ≤ Rs 1,50,000

4. Section 80D

Eligible Assessee: Individual or HUF

In respect of Payment of Medical Insurance Premia Section 80CCC

Particulars	Individual		HUF
For the benefit of -	Family	Parents	Any member
Medical Insurance Premium	✔	✔	✔
Payment of Preventive Health Checkup	✔	✔	✘
Contribution to CGHS/ Notified Scheme	✔	✘	✘
Maximum Deduction- General Deduction Additional deduction (Policy taken on the life of senior citizen)	Rs 25,000 Rs 25,000	Rs 25,000 Rs 25,000	Rs 25,000 Rs 25,000

5. Section 80DD

For	Medical treatment of disabled dependent
Eligible Assessee	Resident Individual or HUF
Conditions	Expenditure incurred for medical treatment, training, and rehabilitation of a dependent being a person with a disability The amount deposited under any scheme of LIC, UTI, or any other insurer for maintenance of a dependent, being a person with a disability
Amount of deduction	Fixed deduction of Rs 75,000 (Rs 1,25,000 in case a dependent is a person with a severe disability)
Disability Certificate	To furnish along with the return of income

6. Section 80DDB

For	Medical treatment of specified disease
Eligible Assessee	Resident Individual or HUF
Conditions	Expenditure incurred on medical treatment of prescribed disease in respect of an individual, his spouse, children, parents, brothers, and sisters dependent on him and any member of HUF dependent on HUF
Amount of deduction	The actual amount paid or Rs 40,000 (Rs 1,00,000 in case of senior citizen), whichever is lower
Prescription	Should obtain a medical prescription from a doctor

7. Section 80E

For	Repayment of interest on Education Loan
Eligible Assessee	Individual
Conditions	Interest on loan taken from a financial or charitable institution
Amount of deduction	100% of the amount of interest on a loan
Period of deduction	8 assessment years(including initial assessment year)

8. Section 80EE

For	Interest on loan taken for residential house property
Eligible Assessee	Individual
Conditions	The value of the house should be Rs 50 lakhs or less The loan taken for the house must be Rs 35 lakhs or less The loan must be sanctioned by a Financial Institution or a Housing Finance Company The loan must be sanctioned between 01.04.2016 to 31.03.2017 As on the date of the sanction of the loan, no other house property must be owned by you.
Amount of deduction	Interest payable or Rs 50,000, whichever is lower
No double deduction	The deduction is not allowed if interest is already allowed

9. Section 80G

For	Donation to certain funds, charitable institutions, etc
Eligible Assessee	All assessee
Conditions	Donation in kind not eligible No deduction if the amount exceeds Rs 2,000/- unless the amount is paid by any mode other than cash.
Amount of deduction	As given below

Donations eligible for Full Deduction

National Defence Fund set by the Central Govt.
Prime Minister’s National Relief Fund
Prime Minister’s Armenia Earthquake Relief Fund
National Foundation for Communal Harmony
University/ Education Institution of National eminence approved by the prescribed authority
Maharashtra Chief Minister’s Earthquake Relief Fund
Any Fund set-up by the State Govt of Gujarat, exclusively for providing relief to the victims of the earthquake of Gujarat
Zila Saksharta Samiti constituted in any district
National Blood Transfusion Council or any State Blood Transfusion Council
Any fund set up by the state Govt to provide Medical Relief to the poor
Army Central Welfare Fund or Indian Naval Benevolent Fund or the Air Force Central Welfare Fund
National Illness Assistance Fund
Andhra Pradesh Chief Minister’s Cyclone Relief Fund
Chief Minister Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Territory
National Sports Fund set up by the Central Govt
National Cultural Fund set up by the Central Govt
Fund for Technology Development and Application, set up by the Central Govt
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities.

Donations eligible for 50% Deduction

Jawaharlal Nehru Memorial Fund
Prime Minister’s Drought Relief Fund
National Children’s Fund
Indira Gandhi Memorial Fund
Rajiv Gandhi Foundation

Deductions with a max limit of 10% of Adjusted Gross Total Income*

Government or any local authority, institution, or association for promoting family planning
Indian Olympic association
Renovation or repair of the temple, mosque, gurudwara, church, or other places notified by the CG
Corporation for promoting the interest of minority community

*Adjusted Gross total income= Gross total income - Long-term capital gains, Short-term capital gains subject to STT, and all deductions available u/s 80 except section 80G

10. Section 80GG

For	Rent paid
Eligible Assessee	Individual
Conditions	Must not be receipt of rent allowance Any residential accommodation must not be owned by the assessee or his spouse or minor child at the place where he originally resides or performs duties of his office or employment or carries on his business profession
Amount of deduction	Least of the following: Rs.5,000 per month 25% of the adjusted total Income Rent paid - 10% of adjusted total Income

11. Section 80TTA

For	Interest on saving deposit
Eligible Assessee	Individual or HUF
Conditions	Interest on saving deposit maintained with bank or post office
Amount of deduction	100% of interest income or Rs 10,000 whichever lower

12. Section 80 TTB

For	Interest on all kinds of deposits
Eligible Assessee	Resident senior citizen
Conditions	Interest on deposits maintained with bank or post office
Amount of deduction	100% of interest income or Rs 10,000 whichever lower

Note: Apart from all the sections discussed above under chapter VI-A, there are many other sections that have not been covered, keeping in mind the importance and relevance of the sections to the mass.

Tax - 12/15/2021

Benefits available to government employees

Have you ever wondered why people in our country still crave to get into a government job despite the swanky workplaces as well as the high-end lifestyle offered by the private sector?

Well, the answer lies in the numerous benefits which a government employee is eligible to avail. A government employee not only enjoys high prestige in the society but also other benefits such as job security, fixed working hours, paid holidays, retirement benefits, and most important of all various tax benefits on his salary as compared to a non-government employee.

Let me take you through the prominent differences in the tax implications on the Salary Income of a private sector employee as compared to a Government Employee. It includes the treatment of various incentives, retirement benefits, or deductions received by employees of both sectors. We will discuss all these benefits one by one in detail. Let’s begin.

Firstly, we will start with the salary benefits available to Government employees :

SALARY BENEFITS

Dearness Allowance (DA):

Dearness Allowance (DA) is an allowance paid to government employees as a cost of living adjustment to cope with inflation. It has hiked from the existing 17% to 28% percent of the basic pay for central government employees and autonomous bodies from July 2021.

DA paid to employees is fully taxable with salary. The Income Tax Act mandates that tax liability for DA along with salary must be declared in the filed return.

DEDUCTION FROM SALARY

Entertainment Allowance:

The deduction on this allowance is allowed only to a Government Employee. That means the non-government employees shall not be eligible for deduction if an entertainment allowance is received by them.

The deduction from the gross salary of the government employees shall be a minimum of the below three limits :

Actual entertainment allowance received
1/5th of salary exclusive of any allowance, benefit, or perquisite.
Rs. 5000

Foreign allowances :

Foreign Allowances or perquisites paid or allowed only to Government Employees posted outside India are fully exempt from tax.

Allowances to members of UPSC :

The serving Chairman or Member of UPSC is given the following tax-free allowances and perquisites:

Value of rent-free official residence
Value of conveyance facilities including transport allowance
Sumptuary allowance (This allowance is provided to the members of honorary posts for daily expenditures.)
Leave travel concession

Further, if allowances are provided to Retired Chairman/Members of UPSC then the tax exemption shall be up to Rs.14,000 per month for offering services on a contract basis.

Allowances by UNO :

Allowances paid by the UNO to its employees are also exempt.

Allowances to Judges :

Allowances paid to Judges of the High Court or Supreme Court are exempt from tax. Eg - The compensatory Allowance is exempt.

Allowances to SAARC member states:

Salary, as well as allowances received by the professors from SAARC member states, are also exempt.

RETIREMENT BENEFITS

Gratuity

It is a part of salary which you receive as an appreciation from your employer for the services offered to the company. You are eligible to receive gratuity only if you have rendered services for 5 continuous years or more to the organisation.

The amount of Gratuity received is fully exempt from tax

Pension

With time, only you retire but your tax does not!! Tax will always be levied till the time a person earns Income irrespective of age. A pension is a payment made by the employer at the time of retirement as a reward for a past service. There can be two types of pension. The brief description is as under:

Uncommuted Pension: If the Pension is received periodically i.e. on monthly basis then it is fully taxable in the hands of both government as well as non-government employees.
Commuted Pension: It refers to a lump-sum pension payment received in place of periodic pension. The taxability has been defined under the income tax act:
The amount received is fully exempt from tax

Leave Encashment

Every organisation grants certain leaves to its employees and these leaves, if unused, can either be carried forward or are lapsed at the end of the year. You can encash the unused accumulated leaves, depending upon the policy of the company either during the time of employment or at the time of retirement.

Tax Treatment of Leaves encashment :

Received during employment: Where the leaves are encashed during the period of employment, it is fully taxable for the government as well as non-government employees.

Received at the time of retirement: The amount shall be fully exempt for government employees.

The numerous tax benefits enjoyed by the government employee could be one of the reasons which give them an edge over the non-government employee. However, the job content and job satisfaction should be equally evaluated before deciding upon the organisation you wish to work for.

Tax - 12/15/2021

LTA related questions

As the name itself suggests, it is an exemption for allowance/assistance received by the employee from his employer for travelling on leave. Though it sounds simple, many factors need to be kept in mind before planning the trip to claim an LTA exemption. Income tax provision has laid down rules to claim exemption of LTA.

Frequently Asked Question

Q1. How much can I claim tax exemption in Leave Travel Allowance or LTA?

A. The amount of LTA exemption depends on the LTA component in your compensation package or CTC. You can furnish proof of travel within the block period and claim up to the amount prescribed in your CTC.

Q2. What is the latest block period to claim LTA exemption?

A. The latest block period of four years is from 1 January 2018 until 31 December 2021.

Q3. How many trips can I make in one year to claim the exemption?

A.You can claim LTA exemption only for one trip in one calendar year.

Q4. Can we carry forward unclaimed LTA?

A. Yes. An employee can carry forward one trip to the next block year. This means in 4 block years, he can claim one trip and one trip he can carry forward to the next block year. During the next block year, instead of 2 trips, they can undertake 3 trips and claim LTA benefits. However, this has to be communicated to an employer so that they can make provisions in their books.

Q5. Can I claim an LTA benefit for the travel costs of my family?

A. You can claim LTA benefit for the travel costs of yourself, your family consisting of your spouse, children, dependent parents, brothers, and sisters of the employee.

Q6. How many kids are eligible to travel to get an LTA benefit?

A. 2 kids are eligible to travel to get LTA benefits. In case there is a triplet kid, due to twins, such twins would be considered as one kid for this purpose.

Q7. If an employee does one trip but visits multiple places, is he eligible to claim LTA?

A. The income tax rule indicates that LTA can be claimed for the shortest distance between the starting point and farthest point. In between, if there are more places to visit, you can do that.

Q8. Can I claim LTA by travelling abroad?

A. LTA can be claimed for travel taken within India. You cannot claim foreign trip expenses for LTA benefits.

Q9. What mode of travel is eligible for claiming LTA?

A. In the case of air travel, economy class is eligible.

In the case of train travel, up to the first AC is eligible.

In the case of road transport, a rented vehicle/bus of any kind is eligible to claim LTA benefit.

Q10. If an employee travels at the end of the year and returns from a trip which falls beyond 31st Dec, how does it work?

A. In such cases, employees need to consider the starting date as a basis and claim for that calendar year.

Q11. If an employee travels at the end of the block year and returns from a trip after 31st Dec which falls in a different block year, how does it work?

A. Block year for the current LTA period is from 1-Jan-2018 to 31-Dec-2021. Assume that you want to claim your 2nd LTA amount and plan your trip from say 25th Dec 2021 to 5th Jan 2022. Since 1-Jan-2022 onwards is a different block period, you can still claim this trip under the 2018-2021 block period.

Q 12. I missed submitting my first LTA claim in a block year. Can I submit 2 LTA claims in a block year later?

A. As per IT Rules, an employee needs to claim 2 trips LTA in a block of 4 years. However, if you have missed a claim in the first 2 years, you need to indicate this to your employer, so that they can carry it forward to the subsequent 2 years of the same block year. You can later submit the bill of the first 2 years (bill date should indicate that) and claim it. However, you cannot claim 2 trips expenses in the subsequent 2 years of a block period (with bill dates of the 3rd and 4th year of a block period).

Q13. Do I need to submit a single bill for our trip or multiple bills would be accepted for LTA?

A. LTA benefit is given for a trip. This means, one family is travelling. Ideally, there would be one bill. However, there are cases where multiple bills would be received for a single trip (for airfare bills, where a family member agreed to join later and the booking was made later, but the travel date is the same for the remaining members). In such cases, these are agreed upon by employers. It would be better to check with your employer in such circumstances before proceeding further.

Q 14. How can we claim LTA even without travelling?

A. Due to the Covid-19 pandemic, many people are not in a position to travel with family, and, therefore, LTA can be claimed even without travelling. For claiming the LTA exemption,

Conditions to be fulfilled for claiming LTA exemption under the scheme

3 times the amount of LTA earned to be spent
Goods and Services to be purchased from registered GST dealer
Payments to be done only through digital modes
All Invoices of the purchase has to submit to the employer

Tax - 12/15/2021

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NPS Tax Deduction

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TAX DEDUCTION ON PRE-CONSTRUCTION INTEREST