HRA tax exemption under section 10 (13A)

Majority of the salaried people get an allowance for taking care of the rent that they pay for their home. This is called House Rent Allowance, or HRA. The Indian Income Tax Laws considers housing as a basic necessity, and hence gives sympathetic treatment to the HRA Allowance received by the employees, by way of giving some tax benefits under section 10 (13A) of Income Tax Act, Government of India. The tax benefit available to the employee on the HRA received is treated as follows for computation of Income tax. The minimum of the following is available as exemption from employees earning. The actual HRA received from your employer OR The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any) OR 50% of your basic salary (if you live in a metro) or 40% of your basic salary (if you live in a non-metro) Let us consider a hypothetical case or evaluate with an example. Consider the Salary Components as follows: Basic: Rs. 15,000, Dear Allowance(DA) or other allowances Rs. 5,000 and HRA: Rs. 9,000 So a total salary of Rs 29,000 Let actual rent rent paid be: Rs. 10,000 You live in Mumbai (It is a Metro in Income Tax Computation. it is a Metro otherwise too!). Now let us understand how the rule works. 1. The actual HRA received from employer = This Amount is Rs. 9,000 2. The actual rent paid for the house minus 10% of the salary (Excluding HRA Component) This would be Rs. 10,000 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 Rs. 2,000 = Rs. 8,000 3. Fifty percent 50% of your basic salary Since you live in a metro, this would be 50% of Rs. 15,000 = Rs. 7,500 The minimum amount out of 1, 2 and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is Rs. 7,500 per month. The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 Minus exempt HRA Rs. 7,500 = Rs. 1,500) would be added to your taxable income.

Income Tax Exemption on Housing Loan

Tax rebate on home loans means that you can benefit and save significant part of your tax liability if you have taken a home loan. It works in following manner. Interest paid on the home loan

As per Sec 24(b) of the Income Tax Act, 1961 in India a deduction up to Rs. 150,000 can be claimed as tax exemption on housing loan. This deduction is claimed towards the total interest that we pay on the home loan towards purchase or construction of house property while computing the income from house property. The interest payable before you acquire home or start the construction work would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed. In case of self- occupied property, housing loan tax benefit is allowed only for one such self occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b). Principal repayment of the home loan As per the newly introduced Sections 80C read with section 80CCE of the Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions. Let us consider a hypothetical example. Your taxable Income: Rs 5,50,000 Principal repayment for the same year: Rs 1,10,000 and Interest payable for the year: Rs 1,60,000 Total Deductions allowed: Rs 2,50,000 (Rs 1,50,000 towards interest payable & Rs 1,00,000 for principal repayment of the loan) Thus, your taxable income will reduce to Rs 3,00,000 (Rs 5,50,000 Rs 2,50,000)

Income Tax Deductions section 80C

Each year most of the people eagerly wait for the budget proposals to be announced for various reasons. One of the significant reasons is to know what all instruments of investments and deductions / exemptions have been included in the Section 80C of Indian Income Tax for employees, so that they can plan their tax savings according to the same, and maximize the benefits. As income tax is major component of the salary, the changes / additions in 80C Section has major impact on the savings and expenses of salaried employees as they have a fixed source of income. The 80C Section deductions are introduced to boost savings of employees on one side and save tax on the other side. Actually, Section 80C replaced the earlier Section 88 which was available till 1st April 2006. The Deductions permitted in the 80 C Section of Indian Income Tax is more or less the same investment mixes that were available in Section 88. Even the section 80CCC on pension scheme contributions was merged with the above 80C. However, this new section has allowed a major change in the method of providing the tax benefit. Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall. The most important aspect that needs to be kept in mind is that the total exemption limit under section 80c is Rs 1,00,000/- only. This benefit is available to everyone, irrespective of his or her income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1,00,000/-, you save tax of Rs. 30,000. We will now see in detail those deductions that are permissible under section 80C in this section. The following is section 80c deductions / exemption list. Provident Fund (PF) deduction under section 80C Any contributions to Provident Fund, Voluntary provident Fund (VPF) or savings made in Public Provident Fund (PPF Account) are eligible for income tax deduction under section 80C of Indian Income Tax Act. Life Insurance Premiums

Any Life Insurance premiums (for one or more insurance policies) paid by you for yourself, your spouse or your children is eligible under income tax deduction under section 80C of Indian Income Tax Act. ELSS Equity Linked Saving Schemes Any investment made in certain Mutual Funds called equity linked saving schemes qualifies for section 80C deduction. Please note that not all mutual fund investments are eligible for this deduction. Some examples of ELSS funds are SBI Magnum Tax Gain, HDFC Tax Saver, HDFC Long term advantage, etc. ULIP Unit Linked Insurance Plan Investments made in certain ULIPs of Unit Trust of India and LIC of India are eligible for 80C deduction. Bank Fixed deposits or Term deposits of term greater than 5 years According to a relatively new provision amount saved in fixed deposits of term at least five years is eligible for income tax deduction under section 80C of Indian Income Tax Act. Principal part of EMI on Housing Loan deduction under section 80C If you are paying EMI on a housing loan, you would be aware that the EMI (equated monthly installments) consists of two parts principal part and interest part. The principal part of the EMI on your housing loan is eligible for income tax deduction under section 80C. The interest part is also eligible for tax deduction, however not under section 80C but section 24. Tuition Fees deduction under section 80C Amount paid as tuition fee for the education of two children of the employee / Tax Payer is eligible for deduction under section 80C of Indian Income Tax Act. Other 80C deductions Amount saved in National Saving Certificate (NSC), Infrastructure Bonds or Infra Bonds, amount paid as stamp duty and registration charges while buying a new home are eligible for income tax deductions under section 80C of Indian Income Tax Act. These are the eight avenues, which qualify for deductions under Section 80 C of Indian Income Tax What is Assessment Year and Financial Year Most of us face a barrage of financial terms throughout the year during the course of our work, and more so while it comes to filing of Income Tax returns. During this time we most prominently encounter terms like Assessment Year and Financial Year. We are providing simple understanding for Assessment Year and Financial Year for the benefit of Employees as well as people from all section of life, who have the obligation to file Income Tax returns. What is Financial Year or FY (As it is termed by Income Tax Department of India) Financial year is the Year in which a person has earned his income. In simple terms, if you have been employed from 01st of April 2009 to 31st of March 2010, then this period is termed as your Financial Year. However it is not restricted only to an employee or an individual. In the Income Tax Of Indias list of Jargon or terms of usage, Financial year is applicable to all entities, whether it is employee, small and medium enterprise, large corporates etc. In fact it is applicable to every entity which generates revenue / or manages revenue (Like Trusts) in a given Financial Year. It must be understood that in India always the Financial Year starts on 01st of April of every Year, and ends on 31st of March next year. So, if you have generated income in Financial Year (FY) 2009 2010, then it means that you have generated that income between 01st of April 2009 to 31st of March 2010. What is Assessment Year or AY (As it is called by Income Tax Department of India)

Assessment year is the year in which you file your returns for the Income earned for the financial year, which had just ended. For example if you are filing income tax returns in July 2010, then you would be filing returns for Financial Year 2009 2010 & this is what is called Assessment Year. Why so? Please note that you have earned your income in Financial Year 2009 2010 (whose definition has been already explained) and you are now approaching Income Tax Department of India for Assessment of Your Income earned in last financial year, in the current financial year which is 2010 2011 (As July 2010 falls in the financial year 2010 2011, since Financial year 2010 starts on 01st April 2010 and ends on 31st March 2011), that is precisely the reason the Income Tax Department Terms your Assessment of Income as Assessment Year. In other words, the running financial year (which is 2010 2011) is also Assessment Year 2010 2011 for the purpose of Income Tax returns submission.