Apr 032013

Tuition fees as a deduction under section 80C

The section 80c provides deduction from the taxable income for the tuition fees paid for his/her children .The upper limit for the deduction under this section is Rs 1 lakh. Parents are allowed to claim the deduction for their children’s tuition fees. This deduction is strictly available only  on the tuition fees paid and not the exam fee, sports fee, lab fee, admission fee or the hostel fee. A parent is individually allowed to claim deduction for two children , thus both the  parents can together claim deduction for four children. The deduction claim is permissible for only full time courses and not part time, coaching classes, distance learning or private tuitions. This however includes tuition fees for playschools and pre-nursery. The deduction is available on the amount paid by the individual and the period for which the payment is made is not to be considered.

Feb 262013

Section 80CCD – Employer contribution no limit (NPS)

The Income Tax Act has yet another deduction that you can claim and save more of your income from tax deduction. Section 80CCD offers that by contributing a part of your income towards the new pension fund/scheme (notified pension scheme or NPS), you can exempt up to 10% of salary. NPS is a defined contribution based pension system launched by Government of India with effect from Jan 1, 2004. The deduction shall be allowed within the aggregate upper limit of Rs.1,00,000 considering deductions u/s 80C, 80CCC and 80CCD. An assessee or any individual employed under the central government or other employer on or after Jan 1, 2004 is eligible to contribute funds in the pension scheme. To claim benefit under this section, the assessee or individual as mentioned above should have deposited or paid an amount in his account under the new pension scheme notified by the central govearnment. Self employed persons are also eligible to contribute under this section and claim deduction. Employee contribution towards the notified pension scheme is limited to the extent of 10% of salary.

Besides, the employer is also allowed to contribute under this scheme. Section 80ccd states that contribution made by the employer to a notified pension scheme is exempt from tax to the extent of 10% of salary .The best part under this scheme is that from the assessment year 2012-13, the employer’s contribution are not included in the overall limit of Rs.1, 00,000 provided the contribution does not exceed 10 percent of the salary. As per the new budget proposal, the contribution made by an employer towards the pension scheme shall not be counted under the section 80C but under the section 80CCD.Earlier, this contribution was a part of the section 80C deduction under the provisions which a total of Rs.1, 00,000 from the annual income can be made tax-free tax. The maximum limit of Rs.1,00,000 does not apply to the Employer’s contribution  towards NPS.

This scheme will aid further tax savings and both employee and employer can avail benefits under this section. Employee contribution provides tax deduction on their salary; salary includes dearness allowance but excludes all other allowance and basics. Employers can show their contribution as a business expense from the next financial year and enjoy the added advantage of tax reduction for the firm.

Feb 202013

Benefit of Joint Home Loan and its Tax benefit

Buying a house has always been a bit of financial trouble for many. So, banks come to rescue and aid people with a home loan by facilitating the funding. Two earning members can come together to buy a house and share the loan. Joint home loan is the ultimate way out! Earning members of the family; Spouse, siblings, parent & child either can jointly issue a loan from the bank. This will ease off the burden of loan borrowing. Besides, there is an added major advantage to this joint loan borrowing; the co borrowers can share the tax benefits under the Income Tax Act.

Benefits of joint home loan

  • Two earning members will save a part of their income from taxation
  • The debt burden is minimized as there two people will share the loan
  • Both, Principle and interest payable are exempted from tax under the section 80C and section 24 respectively of the Income Tax Act.

 Rules for seeking a joint home loan:

  • A joint home loan can be taken by minimum 2 and maximum 6 members
  • Not all family members are eligible to take joint home loan, generally blood relatives are allowed
  • The lender defines the relationship between co borrowers in order to be eligible to seek the joint loan
  • KYC documents should be submitted that contain identity and address proof of the loan applicants
  • Documents containing the proof of ownership and income proof of borrowers are also required.

 Repayment of joint home loan:

  • Either the EMI can be paid via a joint account that is held by the co borrowers
  • Payment made by means of two different accounts for the same EMI is not allowed. However they can share total no. of installments. The payment should come from come from borrowers jointly.

The maximum tax benefit available to a single person who seeks home loan is however 1, 50,000 for each co borrower. Hence it is advisable to get a break up of tax benefits on stamp paper prior to issuing the loan. The agreement will specify the share of the ownership as well as that of the home loan. This agreement will contain the share of the ownership along with that of the home loan issued by them.

The co-borrowers must decide the ratio in which they will borrow the loan. Supposing the ratio decided is 60:40 then the tax benefits availed by them will be in the same ratio. The former can avail a 60% of tax benefit on the maximum permissible exempted limit; while the latter, 40%.

Now, it is way easier and beneficial to manage the funding for your new home by applying for loan. The income tax benefits, plus the lesser burden on a single person, in terms of loan repayment. Also, it enhances your eligibility as a loan seeker because the income of two people is clubbed; the bank finds it convenient to grant the loan.