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How to save Income-tax on Health Insurance

Owning health insurance covers your basic risk of health and secures your family. We have discussed in detail what are things to note while buying health insurance.

What's more, the premium paid for health insurance also provides a tax benefit by reducing your taxable income and thereby your tax liability.  We are going to discuss the same here:

Deduction under section 80D of the Act

Premium paid for self, spouse and children

The premium paid towards health insurance policies qualifies for deduction under Section 80D of the Income Tax Act. The benefit is available to individuals on health insurance premium paid for self, spouse, children, and parents. Importantly, it does not matter whether the children or parents are dependent on you or not.

The quantum of tax benefit depends on the age of the individual who is medically insured.

You can claim a deduction of INR 25,000 for the premium paid for self, spouse, and children. If you and your spouse are of the age 60 and above, then you can claim a benefit of INR 30,000 for the premium paid.

Preventive Health Check-up

You can claim a deduction towards health check-ups too. It is included in the above limitations of INR 25,000 (or INR 30,000). Preventive health check-up of up to INR 5,000 is allowed.

Premium paid for parents

Premium paid for health insurance of parents/  guardians up to INR 25,000 is allowed. If they are above the age of 60, then you can claim a benefit of INR 50,000 for the premium paid.

Health checkup expenses for super senior citizens

Very Senior Citizens (who are above 80 years of age), can claim a deduction of up to Rs 50,000 incurred towards the medical expenditure, in case they don’t have health insurance.

Things to Note:

  • We have tabulated below the maximum health insurance and medical expenses you can claim under section 80D for the year ended 31 March 2019.

  • Health insurance premiums paid in cash will not be allowed as a deduction. It has to be paid from banking channels. A Health check-up of INR 5,000 can be paid in cash.
  • Premium paid for health insurance of your siblings is not allowed as a deduction.
  • *Nature of the amount spent on your senior citizens' parents and self-family can be towards medical expenditure as well.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

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    Tax - 02/21/2019
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    Budget 2019 Highlights - 7 things you must know

    1. The BIG change in Individual’s Income Tax Slab Rates

    Your tax liability if your income is up to Rs.5 lakh will turn to be ZERO. However, there is no tax slab changes from the Budget 2019.

    Latest Income-tax Slab Rates FY 2019-20 (AY 2020-21)
    Income slabs Individual aged (Aged below 60 years) Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
    Up to 2,50,000 Nil Nil Nil
    From 2,50,000 to 3,00,000 5% Nil Nil
    From 3,00,000 to 5,00,000 5% 5% Nil
    From 5,00,000 to 10,00,000 20% 20% 20%
    Above 10,00,000 30% 30% 30%

     

    You notice that there is no change in the Income Tax Slab Rates for FY 2019-20. Then how can be it is judged that there is no tax on an individual whose income is up to Rs.5,00,00? There is a change in the rebate available to individuals. Read our Article - -

    2. Standard Deduction for Salaried individuals and pensioners increased from existing Rs.40,000 to Rs.50,000

    In the last year budget, Government introduced Rs.40,000 standard deduction available for all salaried individuals in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.

    Now, this limit is raised from Rs.40,000 to Rs.50,000.

    3. TDS Limit on Bank FDs and Post Office Schemes raised from Rs.10,000 to Rs.40,000

    Earlier the TDS limit on the interest you earn was Rs.10,000. Now, this limit is raised to Rs.40,000.

    This seems to be the biggest relief to many of us. BUT keep one thing in mind that AVOIDING TDS does not mean AVOIDING TAX.

    4. The benefit of rollover of capital gains under section 54 of the Income - Tax Act raised

    The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs.2 Cr. This benefit can be availed once in a lifetime.

    5. Your Income Tax Returns and Refunds will be processed within 24 hours

    The government has now approved a path-breaking, technology-intensive project to transform the Income-tax Department into a more assessee friendly one. All returns will be processed in twenty-four hours and refunds issued simultaneously. Within the next two years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymized back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers.

    6. Income tax on notional rent on a second self-occupied house abolished

    Currently, taxpayers who own two residential houses, which are not self-occupied, are required to impute a notional value for rental income for one property and the value for the other house is taken as zero. The government proposed to exempt levy of income tax on notional rent on a second house self-occupied. Now imputation of notional rental value will apply if the taxpayer owns more than two self-occupied residential houses (i.e. to the third house)

    The deduction available on interest paid on the mortgage loan is restricted to INR 200,000 for both above residential houses, on which no notional rent imputation is required.

    7. TDS threshold for deduction of tax on rent increased

    TDS threshold for deduction of tax on rent is proposed to be increased from Rs.1,80,000 to Rs.2,40,000 for providing relief to small taxpayers.

    Tax - 02/05/2019
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    Is the income up to Rs. 5,00,000 exempt as per the interim budget 2019?

    The income tax rebate has been revised by Budget 2019 and there is no tax on income up to Rs. 5,00,000.  However, this benefit is available to only those whose income is equal to or less than Rs. 5,00,000.

    This benefit is provided through the rebate available under section 87  A and not by amending the tax slab rates. It means if your total tax payable is lower than Rs.12,500, the amount will eligible for a rebate under Sec.87A.

    Refer our Article Income-tax slab rates for Individuals for FY 2019-20 (AY 2020-21)

    A summary of the Revised Income tax slab rates for FY 2019-20 (AY 2020-21)

    Income slabs Individual aged (Aged below 60 years) Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
    Up to 2,50,000 Nil Nil Nil
    From 2,50,000 to 3,00,000 5% Nil Nil
    From 3,00,000 to 5,00,000 5% 5% Nil
    From 5,00,000 to 10,00,000 20% 20% 20%
    Above 10,00,000 30% 30% 30%

    Please note that there is no change in the income-tax slab rates, if your income is higher than 5,00,000, then tax will be levied on income from between Rs. 2,50,000 to Rs. 5,00,000.However, if your income is Rs. 5,00,000 and less, only then your tax liability is zero.

    Let’s explain you with an example

    Tax Rates and Slabs Income of 5,00,000 Income of 7,00,000
    Up to Rs. 2,50,000 Nil Nil
    2,50,000 to 5,00,000 (5%) 12,500 12,500
    Above, 5,00,000(20%) Nil 40,000
    Rebate u/s 87A (12,500) Nil
    Total Tax Payable Nil 52,500

    You may notice that up to Rs.5,00,000, even though there is tax liability, due to revised limits of Sec.87A, your tax liability becomes zero.

    However, if your total income is more than Rs.5,00,000 then you are not eligible to claim the deduction under Sec.87A. Hence, there will not be any benefit for those who are under higher tax bracket.

    Points to note

    • Individuals with income up to Rs. 5,00,000 will have no taxable income, however, tds will be deducted and you will have to claim a refund.
    • To claim a refund and use the benefit it is compulsory to file the income-tax return.
    • Do remember that the rebate should be applied to the total tax before adding the education cess (4%).

    For other Budget Updates, read our Article Budget 2019 Highlights - 6 things you must know.

     

    Salary / Tax - 02/05/2019
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    6 things to note before buying a Health Insurance

    Health Insurance is one of the most important insurance products to own. In fact, it is a mandatory financial product to own after-term insurance to achieve your financial well-being.

    We have listed below the things to note before buying health insurance.

    1) Decide the Sum Insured from the Long-Term perspective

    The biggest mistake one makes when buying Health Insurance, is to consider the expenses that you may incur today. However, in reality, health insurance is bought for 20-25 years from now.

    Hospitalization costs today would be ranging from 50,000 INR to 300,000 INR. Assuming you are 30 today, at modest average healthcare inflation of 7.5% for the next 20 years, single hospitalization bills will range at around Rs. 13 Lakhs when you are 50 years old.

    It is very important to think in the long term while deciding on the cover of the policy and hence, you must take a higher cover.

    2) Know about the things that you must ignore and consider.

    There are many features in a health insurance policy. You must have read the same in the insurance brochures and pamphlets. It is important to be able to distinguish between the features that must be considered versus the add-on features which should not be your deciding factor.

    Features like Ambulance, Daily Hospital Cash, Domiciliary, and any other benefits that don’t get used often, have low consequences in your health planning. These should be overlooked so that you could focus on the main features like the network of hospitals, fees for a doctor consultations, Room rent Limit, and ICU charges. Check if they are paying for medicines or not and these kinds of expenses make the major part of your overall bill.

    Things like Ambulance charges are not more than Rs 2,000, if you have to pay it from your own pocket, even that it's totally fine. Why choose a policy based on this feature? It's always a bonus advantage and nothing else.

    3) Know about the Sub-limits in your health insurance.

    Many Health Insurance policies have room rent capping, which means you are eligible to claim expenses of the room renting up to the decided cap limit. In case you opt for a room above this cap, you will have to bear the additional proportionate expenses on your own. Let me give you an example

    Let's say, as per your policy you are room rent limit is Rs 4,000 per day. Now if you get hospitalized and you choose a room that has room rent of Rs 10,000. You might think that you will just get 4,000 per day for room rent from the insurance company and other charges you will get as per the limit. But that's not true.

    Other hospital expenses such as doctor's consulting fees, medicines, reports, scanning fees, etc are also dependent upon the room that you opt for. If you select a room that is higher than the room cap set. The expenses based on the room rent cap will be reimbursed not on an actual basis but based on the cap set. Other expenses are also proportionate to the room capping

    Hence, your preference for health insurance should be in the following order:

    • Policies with Private Room eligibility.
    • Policies with No Room Rent capping.
    • Policies with Room Rent capping.

    4) Check for the cost-sharing issue or the co-pay

    Many private health insurance companies have a co-pay policy where you have to bear 10%-20% of your health bills. With a big surgery or a huge expense, this amount can also be huge and you may not be in a position to bear it when the time comes. Hence, ensure that all the major expenses of your health bill are covered in your insurance.

    5) Tax deduction under section 80 DD of the Act

    Ensure that your children, spouse, and parents are also covered by appropriate health insurance. Anyone can suffer from any health issue and insuring them will reduce your personal financial burden. The benefits of getting your family covered do not end at the level of security rather it offers great tax benefits as anyone paying premiums for parents, apart from themselves, spouse, and children can claim deductions up to INR 55,000, according to Section 80D.

    6) Don't be late in buying a health insurance

    We always advise that term insurance and health insurance should be bought at the earliest possible. These financial products are obtained when you are in good health and young age to reduce the cost of them, After you have developed any health issue it will be very difficult to obtain a health insurance policy without co-pay criteria.

    To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

     

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      Insurance / Tax - 01/11/2019
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      Reduce taxes without investing any money

      ‘People in my office were suggesting me as to how I should make a fixed deposit from now itself to save my taxes at the end of the financial year.’ ‘Do I have an LIC policy? Do you think that would be enough to avoid taxes on my payslip?’ ‘I do not have money at the end of the year to invest to reduce taxes.’ I am sure most of us have either said such statements or heard people  make them. Irrespective of the above, most of us do wonder why our salary is being taxed and we want to know how to avoid paying taxes or pay the least possible taxes ever. I have mentioned ways to reduce your taxes without making any investments i.e. just by understanding your salary structure and its components. It is very important to know that the entire CTC amount of an individual is not taxed at the same rate but various components in the salary structure affect your taxability differently. This is the main reason why we are not paid an X amount as salary but the same is divided into the components. We have discussed the compensation structure in our Article - Understand your salary structure As discussed earlier, salary can be divided into 4 basic components and we shall discuss the taxability with respect to each component now
                                                   Running away from your tax queries is not the solution to reduce your taxes.
      Reimbursements and allowance: You can reduce your taxes on the reimbursements and allowances by submitting proper bills and other required documents/forms withing the due dates provided by your employer.
      • Leave Travel Allowance (LTA) – Did you know that the annual leaves and holiday that you were taking would actually help you to reduce your taxes? LTA lets you do just that. LTA remunerates employees for their travel within the country. The amount of LTA would be mentioned in your salary structure. Where you submit appropriate and eligible bills of your travel to your employer, the amount shall be paid to you and will be considered tax-free. There are a few conditions/rules which are to be followed while claiming for your tax-free. We have mentioned the same in our article How to save taxes through LTA.
      • House Rent Allowance (HRA) – Your Company pays for your rent and when you submit appropriate rent receipts, no taxes are charged on the same. This benefit is available only to those employees who are staying on rent. Given that in metro cities, many of us are living on rent, it is a great benefit to save taxes. As always, there are certain rules based on which this becomes tax-free, we have mentioned the rules in our Article How to save taxes through HRA.
      • Standard deduction towards medical and conveyance: From April 2018, a standard deduction of INR 40,000 is available towards medical and conveyance expenses of the employees. You are not required to submit any bills to claim this benefit. INR 40,000 would be directly deducted from your gross salary to compute the taxable salary numbers. Ensure that the same is deducted when you receive your Form 16.
      • Food, telephone, internet and other reimbursements – Some employees have other reimbursement items such as food, telephone, internet, uniform, newspaper etc. which are reimbursable and no taxes will be deducted on these if you submit bills as required by your employer.
                                                                           Taxability of various salary components
      Contributions – Payments made by the employer on behalf of their employees towards EPF, NPS, insurance or gratuity for the retirement benefits or otherwise
      • Employee’s provident fund (EPF) - Contributions made by the employer and employee (which are deducted from the CTC) is tax-free. The same is not included as a part of your taxable salary. Please refer to our Article – Taxability of EPF to understand the same in detail.
      • National Pension Scheme (NPS) – Deductions made from your salary each month towards NPS and your employers’ contribution is tax-free. In fact, NPS provides additional tax benefits to the employees. We have discussed the same in detail in our Article – Taxability of NPS.
      • Gratuity – Gratuity is only received when on resignation (after completion of 5 years of service), death or retirement. A part of the gratuity amount received is exempt based on the formula specified under the Income-tax Act. We have discussed the same in detail in our Article – Taxability of Gratuity.
      • Insurance - Any premium paid by your employer towards your health insurance, life and others which is included in your CTC is tax-free and the same is not included in your total taxable salary.
      Variable salary i.e. Bonus paid in any form is taxable. Bonus is added to your total taxable salary and taxed based on the slab rate you fall under after the receipt of the bonus. Fixed Salary Components: This includes the basic salary, special allowance, Dearness allowance etc. They are generally fully taxable.
      • Basic salary is generally is 40% - 50% of the CTC amount.
      • Dearness allowance is not paid by many private companies; it is generally paid by government companies.
      • Special allowances are the balancing number in your CTC. Whatever may be the amount, it is fully taxable.
      Professional Tax - Professional tax is the tax levied by Governments of certain states on salaried employees. The states where professional tax is applicable are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of profession Tax that is deducted varies from state to state where they are applicable. You get a credit of the professional tax paid while computing your income-tax liability. From this article,  you would have understood the simple ways (if applied) that can reduce the taxes without making any additional insurance or investments. These ways are inbuilt in your salary components and not many people know how to make most of it. Understand your salary structure and work on reducing your taxes. It is the first step towards a healthy financial life. In our salary series of articles, we have discussed the taxability of each component.
      Salary / Tax - 01/07/2019
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      Lesser known facts about Employee Provident Fund (EPF)

      We have discussed the basic of EPF.

      Listed below are the specific rules regarding EPF for your reference.

      You can increase the contribution to EPF

      You can contribute more than 12% mandatory contribution to your EPF account. You can contribute up to 100% of your basic pay if you want but the employer is under no obligation to match your EPF contribution. You will get the benefit of your personal contribution (in excess of the basic limit) in section 80C of the Act. All other rules of EPF will apply to the additional contribution.

      EPF withdrawal is taxable

      The investment in the provident fund is tax-free. According to the rules of EPF, the maturity proceeds and interest on it are tax-free. We take the tax benefit of EPF contribution. We never think of the tax on EPF Withdrawal amount.

      If you try to withdraw the EPF balance before 5 years, you must pay back the tax benefit, you had availed at the time of investment. EPF  will deduct the TDS on the withdrawn amount before depositing the same in your bank account (where money is withdrawn before 5 years).

      An employer cannot withhold your EPF balance

      After resignation, many employees leave the company without serving the notice period and sometimes on a bad note with their employer. In such a situation, the EPF balance is the only handle to arm-twist the employee. Some employer’s never forward the PF withdrawal form to the regional PF office.

      The Employer has no right to do so. The Rules of EPF say that an employer can never withhold the EPF balance. The money never remains with them. The employers are the mere facilitator of the EPF scheme. The erring employer can be also punished for this behaviour.

      You can withdraw your EPF balance without the signature of the employee. You can do the same by taking signatures and other formalities from the banker.

      You cannot withdraw 100% of your EPF corpus

      You can withdraw the EPF corpus if you have been unemployed for 2 months. But this withdrawal would not be for the full amount. The is a new rule of EPF withdrawal. Now, you can withdraw only your contribution to the EPF and interest on it. The employer’s contribution and interest will remain in the PF account till the retirement age  (58 years).

      You can opt out of EPF

      We generally think EPF is a mandatory contribution. However, this is not the case. EPFO guidelines say that if an employee’s salary is more than INR 15,000 per month he/she can avail the option of not being a part of the EPF scheme. If this scheme has opted, the entire salary is paid out to the employee, without any deduction, towards EPF every month.

      Having said that, it is important to note here that an employee has to opt out of Provident Fund at the start of his job and if he/she is part of EPF programme even once in his life, this option of opting out stands null and void.

      EPF provides life insurance as well

      A lot of people are not aware of this benefit. Let us explain how this works. If a company does not provide insurance coverage to its employees under the group life insurance plan, then the companies are required to contribute 0.5% of monthly basic pay towards Employees’ Deposit Linked Insurance (EDLI) scheme. This contribution is capped at INR 15000. Companies that are already covering employees for insurance are exempted from this plan of EPFO.

      Check your personal details with EPFO

      Many times people realize at the time of withdrawal or transfer of EPF that incorrect personal details are submitted with EPF. In such cases, you must check and rectify the same while creating an account with the UAN. You must inform your employer to get the same updated.

      We will be posting a detailed article on how to change the same through UAN.

      Salary / Tax - 11/21/2018
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      EDLIS - Employee Deposit Insurance Scheme

      We have discussed the basic contributions of EPF and how the money is invested, contributed and received by the employees. There is a component called EDLIS (Employee Deposit Insurance Scheme) of EPF contributions. We have discussed the features of EDLIS as under:

      • The EDLI scheme was launched in 1976 and applies to all employers who provide the Employee’s Provident Fund (EPF) provisions to their employees. The point of the scheme is to provide life insurance coverage to all their employees.
      • The EDLI Scheme is clubbed and linked to the EPF Scheme and EPS scheme. All employees who subscribe to the EPF scheme are automatically enrolled in the EDLI scheme.
      • All of the employees’ contribution goes toward the EPF scheme. The employees do not contribute to EDLIS. Contributions are made by the employer.
      • EDLI contribution by Employer: 0.50% (subject to a maximum of INR.15,000)

      Features and benefits of the EDLI scheme:

      • The Claim amount under the EDLI Scheme is 30 times the salary. Salary is calculated as (D.A. + Basic Salary).
      • A bonus of INR 1,50,000 is also payable along with the claim amount.
      • The quantum of coverage is directly linked to the salary of the employee.
      • The premium payable is similar for all employees.
      • Payments are made by the employer to the Provident Fund Authorities.
      • Under Section 17 (2A) of the Act, the employer can opt-out of contributing to this scheme if the employer has already opted for a better insurance policy for its employees under a different scheme.
      • In lieu of EDLI, the employer can also opt for schemes like the LIC Group Insurance Scheme.

      EDLI claim procedure:

      • The amount payable can be claimed by the nominee of the employee.
      • In case there has been no nominee named, the surviving family members of the deceased can claim the amount.
      • Under the claims to be made by surviving family members, claims cannot be made by the oldest son or married daughters whose husbands are still alive.
      • In case there is no nominee or eligible surviving family member, the claim can be made by the legal heir.
      • In case the nominee, surviving family member, or legal heir is a minor – the claim can be made by the legal guardian.
      • In order to initiate the claims process, Form 5(which can be found here http://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form5IF.pdf) should be duly filled out and submitted.
      • While filling out the claim, it should be kept in mind that: The EDLI Claims are only admissible if the deceased person was actively employed at the time of death. The application for the claim must be attested by the employer.

      In case the employer is not available to attest the claim application, the attestation must be done with the official seal of either:

      Documents required for a claim under the EDLI scheme

      • Death certificate: of the EDLI member.
      • Guardianship Certificate: If the claim is being made on behalf of a minor family member, nominee, or legal heir, the legal guardian must also submit a guardianship certificate.
      • Succession certificate: If the claim is being made by a legal heir of the deceased.
      • Canceled cheque: of the bank account of the claimant in which claim funds are to be deposited.

      Example

      Mr. Nath was employed and was actively contributing to the EPF, EPS, and EDLI schemes. He drew a monthly salary of Rs.15,000. Upon his death, his nominee claimed the EDLI insurance benefit which was equal to (30 x Rs.15,000) + (Rs.1,50,000) = Rs.6,00,000.

       

      To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

       

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        Alternative Assets / Salary / Tax - 09/04/2018
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        Senior Citizen Savings Scheme (SCSS)

        Senior Citizen Savings Scheme(SCSS) is a scheme run by the Government of India keeping in mind the requirement of Senior Citizens for regular income from safe investment. Eligibility: Any individual, who has attained the age of 60 years or above on the date of opening of the account can open an account under the Senior Citizen Savings Scheme(SCSS). An individual, who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme(VRS) or a Special Voluntary Retirement Scheme can open an account provided it is done within one month from the date of retirement.\ There is no age limit for retired personnel of Defence services provided they fulfill other specified conditions. The account can be held singly or jointly with one's spouse. Multiple accounts can be held subject to the overall investment limit. Non-residents and HUFs are not eligible to open an account under this scheme. Investment Limits:  The minimum amount of deposit required under this Scheme is INR 1,000 and the maximum amount that can be held under this account is INR 15,00,000 (total across multiple accounts). Time Period: This account has a maturity of 5 years. It can be then extended for periods of 3 year each. Withdrawal: If the account is closed after one year but before two years from the date of opening of the years, an amount equal to 1.5% of the deposit will be deducted. If it is closed after two years, then an amount equal to 1% of the deposit will be deducted and the balance paid to the investor. An extended account can be closed after a period of one year from the date of extension. No deduction will be made if the account is closed on the death of the depositor. Tax Treatment: Amount deposited under this scheme is deductible under Section 80C of the Income Tax Act. However, the interest earned is taxable. TDS is deducted at source on interest if the interest amount is more than Rs.10,000 p.a. Others: The interest earned on the account can be transferred to another savings account every quarter. All transactions (account opening date, deposits, interest paid, nominations etc.) with respect to the account are maintained in the passbook provided to each depositor. FinPlan Café Note: Positives: SCSS is the safest Investment Avenue for Senior Citizens looking for regular income. Negatives: The interest earned on the deposit is taxable. The maximum amount a person can deposit is Rs. 15,00,000 translating into a monthly income of Rs. 11,250(pre tax) which may not be sufficient. Conclusion: When planning for retirement, funds must first be allocated towards SCSS and then towards other avenues like PO Monthly Income Scheme, Mutual Fund Monthly Income Plans(MIPs), etc. Having the quarterly interest transferred to a regular savings accounts enables you to earn interest on the unutilised amount in the savings account.
        Alternative Assets / Tax - 08/16/2018
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        Tax benefits of NPS

        National Pension Scheme (NPS) became a famous investment module amongst the high tax bracket income earning individuals because of the additional tax benefit that is included in these investments. NPS, which is a voluntary, defined contribution retirement savings scheme, enables the subscriber to accumulate savings during his or her working life. NPS offers two types of accounts - Tier I and Tier II. The Tier 1 account is non-withdrawable till the person reaches the age of 60. Partial withdrawal before that is allowed in specific cases. (Refer our Article on NPS withdrawal) On the other hand, the Tier II National Pension Scheme account is just like a savings account and subscribers are free to withdraw the money as and whenever they require. We have written a detailed article on the features of NPS. Income Tax Benefits You Need To Know On Tier 1 Accounts
        Section Deduction allowed Amount Who can claim
        80CCD(1) Employee contribution upto 10% of the basic + DA Upto INR 1.5 lakhs including other 80C deductions Employees. Self-employed can claim 20% of their annual income.
        80CCD(2) Employers contribution upto 10% of basic + DA Employers Contribution (No Cap) Only salaried individuals and not self-employed.
        80CCD (1B) Additional benefit of INR 50,000 over and above the benefit in 80CCD (1) Upto INR 50,000 Employee, self-employed or general citizen.
        Income tax on partial NPS withdrawal
        • when you withdraw before 60 years.
        NPS allows partial withdrawals for specific purposes before the subscriber reaches the age of 60. 25 per cent of the contribution made by a subscriber has been exempted from income tax. Anything above that will be taxable as a part of their taxable salary.
        • When subscriber turns 60
        According to the current tax laws, up to 40 per cent of the corpus withdrawn in lump sum is exempt from tax when the subscriber attains the age of 60.The balance 60% is to be invested into buying an annuity product. The amount invested in annuity is also fully exempt from tax. However, income received in the form of annuity is taxable.
        Salary / Tax - 08/15/2018
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        New EPF Rules - 2018

        he EPF account consists of contributions from the employer and employee. However, the money in an EPF account cannot be withdrawn at whim.

        Here are 10 important rules about EPF withdrawal:

        1. Money from the EPF account cannot be withdrawn during employment, unlike a bank account. EPF is a long-term retirement savings scheme. The money can be withdrawn only after retirement.
        2. Partial withdrawal from EPF accounts is permitted in the case of an emergency such as medical emergency, house purchase or construction, and higher education. Partial withdrawal is subject to limits depending on the reason. The account holder can request online for partial withdrawal.
        3. Although the EPF corpus can be withdrawn only after retirement, early retirement is not considered until the person reaches 55 years of age. EPFO allows withdrawal of 90% of the EPF corpus 1 year before retirement, provided the person is not less than 54 years old.
        4. The EPF corpus can be withdrawn if a person faces unemployment before retirement due to lock-down or retrenchment.
        5. The EPF subscriber has to declare unemployment in order to withdraw the EPF amount.
        6. As per the new rule, EPFO allows withdrawal of 75% of the EPF corpus after 1 month of unemployment. The remaining 25% can be transferred to a new EPF account after gaining new employment.
        7. As per the old rule, 100% EPF withdrawal is allowed after 2 months of unemployment.
        8. EPF corpus withdrawal is exempted from tax but under certain conditions. Tax exemption on EPF corpus is permitted only if an employee contributes to the EPF account for 5 continuous years. The EPF amount is taxable if there is a break in the contribution to the account for 5 continuous years. In that case, the entire EPF amount will be considered as taxable income for that financial year.
        9. Tax is deducted at source on premature withdrawal of the EPF corpus. However, if the entire amount is less than Rs.50,000, then TDS is not applicable. Keep in mind, if an employee provides PAN with the application, the applicable TDS rate is 10%. Otherwise, it is 30% plus tax. Form 15H/15G is a declaration form, which states that a person's total income is not taxable and thus, TDS is avoidable.
        10. An employee does not have to await approval from the employer for EPF withdrawal anymore. It can be done directly from the EPFO, provided the employee's UAN and Aadhaar are linked, and the employer has approved it. EPF withdrawal status can be checked online.
        Salary / Tax - 08/13/2018

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