The issue whether there is overlapping of contribution between Sec. 80C and 80CCC has been answered by the Board Circular No.1 of 2010 dated January 11, 2010.

According to the paragraph 19(b) of the Circular if the payment has been made towards an annuity plan of Life Insurance Corporation of India or any other insurer covered by Sec. 10(23 AAB), it will be eligible for deduction only under section 80CCC up to Rs. 1 lakh. Such amount will not qualify for deduction under Section 80C.

It also stresses on the point that the aggregate deduction under Section 80C, 80CCC and 80CCD will not exceed Rs. 1 lakh. According to the board, there is no overlapping of the contribution made for deferred income policies under Section 80C and 80CCC so that the return of income from policies covered by Section 80C will be exempt, while those covered by Section 80CCC will be taxable under the EET Scheme. Therefore clubbing of both under the common ceiling is not sensible.

Equity-linked saving schemes (ELSS) are set to rule the roost in 2010. This is a category of mutual funds where a major portion is invested in equity and equity-related instruments. Under sections 80 C investments up to Rs 1 lakh is exempted from income however there is a lock of three years before which you cannot withdraw the money. There is no upper limit on investments and long term capital appreciation is a big tool for tax savings as well. Even the dividends which are received by the investor are tax free.

Equity-linked tax saving schemes are a great instrument for tax-planning if you are looking for good returns. The only thing required is careful steps and sufficient time to understand the right fund.

The monthly home loan installment which you pay back to your lender consists of two components. One is part repayment of the original loan and the other one is interest on the loan. The former is also known as the principal repayment. Both part and interest repayment entitle you to tax benefits.

Section 80 C allows the deduction for principal repayment and the amount which gets deducted is Rs. 1 lakh per annum. However if you take this whole deduction towards principal repayment, then you wont be eligible for other 80C options like an insurance policy or ELSS. The balance amount can be spread across other 80C options only if you take a part deduction towards the principal repayment.

Section 24(b) allows the deduction for annual interest payments under the following scenarios:

• The deduction for the annual interest payment shall be counted from the year in which the property was purchased or constructed.

The interest paid from the date of the loan and up to the beginning of the financial year in which property is purchased or construction is completed shall be allowed 1/5th in next successive five years along with the interest repayment of that particular financial year.

Is there any limit for the interest deduction on a home loan taken for a self-occupied house?

Yes! For self-occupied property the annual the deduction limit on interest repayment is Rs. 1.50 lakhs for any particular year including 1/5^th interest of construction period. However if the construction is not complete within there years from the date of loan, the Rs. 1.50 lakhs limit is restricted to Rs. 30,000.

If I let-out my house, what would be my interest deduction?

The interest deduction shall be allowed in full if you let-out your house. It means that the interest you have paid in the current financial year along with 1/5^th of the interest paid during construction period shall be fully allowed without any cap of Rs. 1.50 lakhs.

For example, suppose Ravi took a home loan and has given his home for rent. He paid home loan interest of Rs. 3 lakhs during the current financial year. Rs. 5 lakh was the interest paid during the construction period. However since Ravi has given his house for rent, the deduction available shall be the entire amount of interest paid during current period and 1/5^th of the interest paid during the construction period. In this case Rs. 4 lakhs. (Rs. 3 lakhs plus 1/5^th of Rs. 5 lakhs)

Had Ravi’s property been self-occupied then the maximum allowable deduction would have been restricted to Rs. 1.50 lakhs.

What will happen if I own two properties, none of which are given on rent and there is home loan outstanding for both?

In such a case you can claim for either of the property as a self-occupied while the other shall be deemed to be let-out. For the former the interest deduction shall be restricted to a maximum of Rs. 1.50 lakhs and for the later one the entire interest deduction shall be allowed without the cap of Rs. 1.50 lakhs.

In case if I co-own a property along with someone what would be the tax treatment on the interest payments?

If I co-own a property with another person what is the tax treatment of the interest payment?

In such a case it shall be assumed that there are two separate properties according to the share of each co-owner. The benefits entitled will be allowed for two separate properties.

Late take an example, Sonia and Ravi, a marred couple co-own a house in Delhi in the ratio of 40%: 60%. Both of them have been paying the EMI towards the loan they have taken for this home. Both of them are allowed a deduction up to Rs. 1.50 lakhs individually in their tax returns.

Will I be eligible for any deduction if I take a loan for some major repairs and renovation of my house?

Yes. You will be eligible for a deduction up to Rs. 30,000 in such a case. However it is essential to make sure that the repair is major or something which results in the substantial change in the structure. For example constructing a new marble floor is a major repair however whitewashing your house is not.

RBI Bonds or RBI Relief Bonds

RBI bonds are instruments issued by the RBI and are tax saving bonds with a special provision that allows an investor to have a tax benefit.

While the maturity period of these bonds is five years, the interest is compounded half-yearly.

Infrastructure Bonds

Infrastructure bonds include names like ICICI Safety bonds and IDBI Flexibonds. These bonds are available through issues of ICIC and IDBI. They provide tax benefit under Section 88 of the Income Tax Act, 1961, for the investor.

Company Fixed Deposits

Deposits in any company which earn a fixed rate of return over a period of time are known as company fixed deposits. Financial institutions and Non-Banking Finance Companies also accept such deposits.

1. Medical insurance- The annual deduction for medical insurance has been raised up to Rs.35,000
2. Home loan repayment allows you a deduction up to Rs.2.5 lakhs.
3. Investment of at least 1 lakh in a pension plan helps you in tax savings.
4. 1 lakh can be deducted if you have a Life insurance premium.
5. Investment of Rs. 1 lakh in the equity market via ELSS can also help you save tax.
6. Interest paid on an Education Loan is deductible without limit.
7. Under 80C School tuition paid for your children’s education is also deductible.
8. Stamp duty and registration fees paid towards a house is deductible under 80C.
9. Under 80GG, you can also get a deduction for rent up to Rs. 24,000.
10. You can claim HRA exemption if you are living in your spouse/fathers house and paying rent to them.

Here are a few changes that will have some impact on your personal taxation going forward.

1. Marginal Increase in Tax Exemption
2. Higher Deduction under Section 80DD
3. Expanded Scope of Section 80E
4. Elimination of Surcharge
5. Abolishment of Fringe Benefit Tax (FBT)
6. Increase in Wealth Tax Exemption
7. Automation of Tax Filing Procedure

Marginal Increase in Tax Exemption: While personal income tax exemption limit has been raised for senior citizens by Rs. 15,000 and for others by Rs. 10,000.

Higher Deduction under Section 80DD: From Rs 75,000, the annual deduction in respect of maintenance has been raised to Rs. 1 lakh. It includes medical treatment for a dependent with severe disability.

Expanded Scope of Section 80E: Annual deduction for interest on loans taken for higher studies has been expanded from the current list of restricted courses to all other fields including vocational studies which can be pursued after schooling.

Elimination of Surcharge: There has been a huge respite for high income earners. Those earning above 10 lakh annually will no longer have to pay the 10% surcharge.

Abolishment of Fringe Benefit Tax (FBT): FBT on the value of fringe benefits provided by employers to employees has been abolished. Reimbursements will be taxed as perquisites at the marginal tax rate. This might increase the tax burden on employees.

Increase in Wealth Tax Exemption: For wealth tax the exemption limit has been increased to Rs 30 lakh from 15 lakh.

Automation of Tax Filing Procedure: In the near future the tax filing process will be simplified even further, with the prospect of quicker refunds.