Financial Year 2015-16 : 4 Key Points For Income Tax Investments...!

By Ms. Parizad Sirwalla, KPMG

As we progress through the new financial year (FY) 2015-16, many employers have announced revised salaries for their employees.

The Finance Bill is also on the cusp of becoming a law with only president's nod awaited. This is an appropriate time to assess investments for this FY from an income tax (IT) perspective.

The following are some key points to be considered while planning your investments.

Ms Parizad Sirwalla,
KPMG

1. Exhausting limit available for deduction under section 80CCE of IT Act, 1961

Section 80CCE of the IT Act provides for a deduction of Rs. 1,50,000 per annum for various investments / expenses etc.

Hence, one should evaluate the amount he/she is already going to invest in the eligible schemes under section 80C on account of mandatory salary related deductions (e.g. employee provident fund) or / prior commitment (e.g. principal repayment of housing loan etc.).

The balance post such deductions can be evaluated to be invested in other eligible investments like public provident fund (PPF), equity linked savings schemes (ELSS), eligible pension schemes, employee / individual contribution to national pension system etc.

Hence it's needless to say that the lock in period & rate of return for each investment option will need to be evaluated independently before taking final decision.

2. Enhanced deduction limits for individual / family...!

The deduction limit with respect to payment for health insurance premium by an individual for self and family and by Hindu Undivided Family (HUF) for its members has been enhanced from Rs. 15,000 to Rs. 25,000 per annum.

Similarly, deduction limit in case of resident senior citizens (age between 60 & 79 years) has been enhanced from Rs. 20,000 to Rs. 30,000 per annum.

Very senior citizens (80 years and above), who are not often able to get health insurance coverage, shall be allowed a deduction to the extent of Rs. 30,000 per annum on account of medical expenditure incurred for them.

For National Pension System (NPS), there is an enhanced limit of deduction of Rs. 50,000 per annum in addition to the limit under section 80CCE.

The NPS now offers three tax benefits. Firstly, Employee contribution up to 10% of basic salary is eligible for deduction within the Rs. 1,50,000 section 80CCE limit.

Secondly, employer contribution does not exceed 10% of salary is eligible for separate deduction.

Finally, an additional deduction to the extent of Rs. 50,000 per annum shall be allowed on account of employee contribution.

3. Sukanya Samridhi Account scheme..!

Introduced last year for the welfare of girl child, contribution to the said scheme will now be eligible for deduction under the overall limit of Rs. 1,50,000 per annum under section 80CCE.

Further, any accretion on deposits or withdrawal from such account will be exempted from tax.

Donations to Swachh Bharat Kosh, Clean Ganga Fund and National Fund for Control of Drug Abuse is now eligible for 100% deduction.

4. Interest on housing loan & principal repayment..!

If you are intending to buy a house, you should keep certain benefits in mind. Interest on housing loan is allowed as deduction. Limit of such deduction (whether full interest or / restricted to Rs. 2.00,000) will need to be determined based on whether the property is self-occupied or rented / deemed to be rented.

Secondly, principal repayment as well as stamp duty / registration charges is allowed as deduction under the overall limit of section 80C.

Finally, in case both (husband, wife) members of the household are earning, taking a joint housing loan can lead to tax benefits.

The act allows both principal repayment (under section 80C) and interest payments as deductions from the income of respective spouse funding such payments.

About the author..  

The writer is partnerand national head, global mobility services and tax, KPMG

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