Taxexcel: Additional tax benefits U/s 80CCD(1B)

1. There has been no change in the income tax slabs.

2. For people with net taxable income below Rs 5 lakh, the tax rebate has been increased from Rs 2,000 to Rs 5,000 u/s 87A. This would benefit people who have net taxable income between Rs 2.7 Lakhs to Rs 5 Lakhs.

3. Additional exemption for first time home buyer up to Rs. 50,000 on interest paid on housing loans. This would be applicable where the property cost is below Rs 50 Lakhs and the home loan is below Rs 35 lakhs. The loan should be sanctioned on or after April 1, 2016.

4. Tax Exemption u/s 80GG (for rent expenses who do have HRA component in salary) has been increased from Rs 24,000 to Rs 60,000 per annum. This is a good move to align the exemption amount with today’s rent and keep the section relevant.

5. For people with net taxable income above Rs 1 crore, the surcharge has been increased from 12% to 15%

6. Dividend Income in excess of Rs. 10 lakh per annum to be taxed at 10%

7. 40% of lump sum withdrawal on NPS at maturity would be exempted from Tax. This rule now also applies to EPF. So now in the case of EPF income tax would be applicable on 60% of the corpus in maturity.

8. Presumptive taxation scheme introduced for professionals with receipts up to Rs. 50 lakhs. The presumptive income would be 50% of the revenues.

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1. Section 80C/80CCC/80CCD

These 3 are the most popular sections for tax saving and have a lot of options to save tax. The maximum exemption combining all the above sections is Rs 1.5 lakhs. 80CCC deals with the pension products while 80CCD includes Central Government Employee Pension Scheme.

You can choose from the following for tax saving investments:

1. Employee/ Voluntary Provident Fund (EPF/VPF)

2. PPF (Public Provident fund)

3. Sukanya Samriddhi Account

4. National Saving Certificate (NSC)

5. Senior Citizen’s Saving Scheme (SCSS)

6. 5 years Tax Saving Fixed Deposit in banks/post offices

7. Life Insurance Premium

8. Pension Plans from Life Insurance or Mutual Funds

9. NPS (New Pension Scheme)

10. Equity Linked Saving Scheme (ELSS – popularly known as Tax Saving Mutual Funds)

11. Central Government Employee Pension Scheme

12. Principal Payment on Home Loan

13. Stamp Duty and registration of the House

14. Tuition Fee for 2 children

2. Section 80CCD(1B) – Investment in NPS

Budget 2015 has allowed additional exemption of Rs 50,000 for investment in NPS. We have done a complete analysis and concluded that it would be beneficial for you to discard this benefit and invest after-tax money in a good equity mutual fund.

3. Payment of interest on Home Loan (Section 24/80EE)

The interest paid up to Rs 2 lakhs on home loan for a self-occupied home is exempted u/s 24. There is no limit for home given on rent.

Budget 2016 has provided additional exemption up to Rs 50,000 for payment of home loan interest for first time home buyers. To avail this benefit the value of the home should not exceed Rs 50 lakhs and loan should not be more than Rs 35 lakhs.

4. Payment of Interest on Education Loan (Section 80E)

The total interest paid on education loan can be claimed as tax exemption. There is no upper limit for the same.

5. Investment in RGESS (Section 80CCG)

Deduction Up to Rs 25,000 (50% of the amount invested) is allowed if you make an investment in preapproved stocks and mutual funds in Rajiv Gandhi Equity Savings Scheme (RGESS). This is available to first-time equity investors subject to certain conditions.

6. Medical insurance for Self and Parents (Section 80D)

You can get a tax deduction up to Rs 25,000/- for below 60 years and Rs. 1,25,000/- for Above 60 Years as Sr.Citizen and paying a medical insurance premium for self, your dependents, and your parents. There is also sub-limit of Rs 5,000 for a preventive medical checkup.

7. Treatment of Serious disease (Section 80DDB)

You can claim deduction up to Rs 80,000 for treatment of certain diseases like AIDS, renal failure, etc for self or dependents

8. Physically Disabled Taxpayer (Section 80U)

Physically Disabled Taxpayer can get tax exemption up to Rs 1.25 lakhs u/s 80U

9. Physically Disabled Dependent (Section 80DD)

You can claim deduction up to Rs 1.25 lakhs for maintenance and medical treatment of Physically Disabled dependent

10. Donations to Charitable Institutions (Section 80G)

Deduction up to Rs 40,000 is allowed for Donation to certain charitable funds, charitable institutions, etc.

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There is so much confusion about NPS Tax Benefits after the 2016 Budget. Hence, in this post let us discuss about NPS Tax Benefits under sections 80CCD(1), 80CCD(2) and 80CCD(1B) and how to claim additional tax benefits.

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NPS Tax Benefits under Sec.80CCD (1)

The maximum benefit available is Rs.1.5 lakh (including Sec.80C limit).
An individual’s maximum 10% of annual income or an employee’s (10% of Basic+DA) contribution will be eligible for deduction.
As I said above, this section will form the part of Sec.80C limit.

NPS Tax Benefits under Sec.80CCD (2)

There is a misconception among many that there is no upper limit for this section. However, the limit is least of 3 conditions. 1) Amount contributed by an employer, 2) 10% of Basic+DA and 3) Gross Total Income.
This is additional deduction which will not form the part of Sec.80C limit.
The deduction under this section will be eligible for self-employed.

NPS Tax Benefits under Sec.80CCD (1B)

This is the additional tax benefit of up to Rs.50,000 eligible for income tax deduction and was introduced in the Budger 2015
Introduced in Budget 2015. One can avail the benefit of this Sect.80CCD (1B) from FY 2015-16.
Both self-employed and employees are eligible for availing this deduction.
This is over and above Sec.80CCD (1).

How much maximum NPS Tax Benefits available while investing?

For Self-Employed

The maximum benefit you can avail under Sec.80CCD (1) is Rs.1,50,000 (including Sec.80C limit). Along with this Rs.50,000 under Sec.80CCD (1B). So total maximum benefit an individual can avail is Rs.2 lakh (where Rs.1.5 lakh will be part of Sec.80C limit).

Even though on paper it looks like maximum benefit available will be Rs.2 lakh. But under Sec.80C, you will have lot of choices and few default options to save (like life insurance premium or PPF). Hence, never be in wrong belief that NPS will ALONE gives you Rs.2 lakh tax benefit.

For salaried Persons

You can avail the tax benefit under Sec.80CCD (1)+Sec.80CCD (1B) up to Rs.2 lakh. Along with that you have another additional option to claim deduction under Sec.80CCD (2), which is unlimited and based on certain conditions. I explained the same in my above post.

Let us say you accumulated Rs.100 at retirement. In that, you are eligible to withdraw Rs.60 or 60% of such accumulated corpus. Remaining Rs.40 or 40% need to be purchased an annuity product.

In the lump sum withdrawal of Rs.60 or 60%, Rs.40 or 40% is tax-free. Remaining Rs.20 or 20% is taxable income in the year of withdrawal.

The income from an annuity will be taxed year on year as per your tax slab. So you are deferring the tax treatment for future years from the 40% annuity you will buy.

NPS Taxation on Pre-mature withdrawal

In this case, you are allowed to buy an annuity product from the 80% of accumulated corpus. So there is no confusion here as the annuity will be taxable income for you year on year.

The confusion is about 20% lump sum withdrawal. IT Department need to come out with clarity. The rules just say 40% of lump sum withdrawal from NPS is tax-free. However, in this particular case the lump sum investment is 20%.

Hence, whether the whole 20% is tax-free (as it is less than 40% tax-free limit) or 40% of 20% is only tax-free (i.e. 8% from 20%). As of now, there is no clarity on this aspect.

NPS Taxation on Partial withdrawal Partial withdrawal from NPS is allowed on certain conditions.

There is no clarity about the tax treatment relating to this partial withdrawal. However, I feel such partial withdrawal will be taxed in the year of withdrawal as per subscriber’s income tax slab.

NPS Taxation in the event of death of subscriber

For Government Employees-Nominee will be allowed to withdraw only 20% lump sum. The nominee must purchase the annuity from remaining 80%. However, in case the accumulated corpus is less than or equal to Rs.2,00,000 then his spouse (or nominee) can withdraw all the amount at once without any mandatory.

For others-Nominee will be allowed to withdraw 100% accumulated corpus. However, the nominee has a choice to buy an annuity too.

The lump sum withdrawal by the nominee will be exempt from Income Tax. If the nominee opted for buying an annuity, then annuity income will be taxed as per nominee’s income tax slab in the year of receipt.