The Tribune, Chandigarh, India

personal finance
Tax trivia you should know
Balwant Jain

We need to understand certain details in personal taxation to make life simpler:

Life insurance

You cannot claim a deduction under Section 80 C for the life Insurance premium paid in respect of your parents, even if they are financially dependent on you. However, you can claim tax benefits for the life insurance premium paid for your children, even if they are not financially dependent on you. You can claim a deduction even for a married son or a daughter.

Health insurance premium

Under Section 80D, you can claim a deduction for the health insurance premium paid for your family and your parents. It is interesting to note that you can claim the benefit of health insurance premium for your parents, even if they are not financially dependent on you. Likewise, you can also claim tax benefits in respect of your spouse who is financially independent, but for claiming this deduction in respect of your children, they must be financially dependent on you. However, there is no restriction as to the number of children for which you can claim the deduction as within the overall limits prescribed.

Deductions for home loan

Under Section 24b, a deduction in respect of interest payable on a loan can be claimed in respect of a residential property as well as a commercial property whereas a deduction under Section 80C in lieu of repayment of home loans can only be claimed in case of a residential property. The deduction in respect of interest can be claimed maximum up to Rs 1.5 lakh in case the residential property is self-occupied, but in case the property is either let out or is treated as deemed to have been let out, full amount of interest payable is deductible. A deduction under Section 80C can only be claimed if the money has been borrowed from specified entities such as a bank, housing finance company, government employer etc. whereas the deduction under Section 24b can be claimed even on money borrowed from your friends and relatives.

Holding period and indexation

Generally, the holding period requirement for long-term capital gains is 36 months, but in case of shares, Indian-listed securities, units of recognised mutual funds and zero coupon bonds, the holding period requirement is 12 months. For shares, even in any foreign company, will qualify as long-term capital gains if held for more than 12 months, but in respect of the units of mutual funds which are not registered or recognised in India, the holding period should be 36 months.

Capital gains on listed shares

Long-term capital gains on the sale of listed equity shares are fully exempt in case the shares have been sold through a broker on a recognised stock exchange. This way in case, you tender listed equity shares in the open offer or buyback, you will have to pay tax @ 20.60%, even if you have held the shares for more than 12 months. However, for the units of equity-oriented schemes, the long-term capital gains is fully exempt whether you sell these units on the stock exchange or tender to a mutual funds’ house for redemption.

Normal short-term capital gains is taxable at the slab rate applicable to you, but tax on short-term capital gains on the sale of listed shares through a stock broker is taxable @ 15.45% irrespective of your slab rate. So in case you are in the 10% tax slab, you may have to pay short-term capital gains tax @ 15.45% on the listed shares sold on the recognised stock exchange, but you would have paid tax @ 10.30% if you had tendered those shares to the company for buyback or under the open offer scheme.

Deduction for interest on education loan

Under Section 80C, you can claim a deduction for the payment of tuition fee for only two children for their education in India only, but can claim the deduction for interest paid on an education loan under Section 80E for education even outside India. You can claim the deduction for tuition fee under section 80C for your two children, but there is no such restriction as to the number of children for whom you can claim the deduction on interest of an education loan in case you are borrower or co-borrower.

Benefits of LTA

You can claim benefits of Leave Travel Assistance (LTA) for yourself, your spouse, child, parents and siblings. For your spouse and children, you can claim the benefit even if they are not financially dependent on you. For claiming the LTA benefits for parents and siblings, they have to be wholly or mainly dependent on you. The LTA benefit can be claimed only in respect of two children who are born after October 1, 1998, however in case the children are born before this date, you can claim the LTA exemption for any number of children.

Now in this financial year, you can keep these things in mind while working out your tax liability.

The author is CFO, Apna Paisa. The views expressed in this article are his own

Ways to cut down on car insurance premium
Amitabh Jain

Motor insurance premiums are set to rise as third party motor insurance covers have registered an increase as per the recently released regulatory guidelines. Amid a scenario where inflation remains persistently high, an increase in a car insurance premium further adds to the expenses. However, by adopting some measures, you can reduce the impact of the increase in motor insurance premiums.

Buy motor insurance cover online

The online medium seems to have changed our purchase pattern. Today, one can save a lot by searching, comparing and purchasing products online. The same applies to motor insurance. Purchasing insurance products online not only saves money, but also time — it reduces the time required to visit insurance company’s office or relying on an agent. Insurance companies offer instant quotes as well as beneficial packages to encourage customers to buy motor insurance policies directly from their websites. You can, thus, compare and select a policy that meets your requirements.

Opting for deductibles

Deductible is an amount that you pay out-of-pocket for the occurred expenses. There are two types of deductibles— Compulsory Deductible and Voluntary Deductible.

Compulsory Deductible in motor insurance refers to the part, where you are required to pay a pre-decided amount while the insurer will pay the rest of the expense. In the case of Voluntary Deductible, which is an additional deductible, you agree to pay a certain portion at the time of claim and in return you get an additional discount on your insurance premium. You can decide on the expense of the claim that you can pay for and in the process, get benefit from lower premium.

Avail no-claim bonus

The no-claim bonus (NCB) is offered to customers who have not registered claims during the preceding year of the insurance cover. The NCB starts from 10% for a year of no claim and increases with each subsequent year of no claim going up to 50%. Apart from reducing your car insurance premium, the NCB discount can also be transferred to your new car when you opt to buy one. Since the premium of a new car is much higher than an old car, it will allow you to make considerable savings on the insurance premium of your new car.

Install anti-theft devices

With vehicles being vulnerable to theft, installing anti-theft devices in your vehicle can be a proven worthy. Insurance companies also encourage their customers to install anti-theft devices as a precautionary measure. Taking one step ahead, insurers now offer special discounts on premium for installing such devices in cars. Therefore, if you are planning to buy a new car, opt for a car with a prefixed anti-theft device. You can otherwise buy them separately and set it in your vehicle. Moreover, if you are a member of bodies such as the Automobile Association of India or the Western India Automobile Association (WIAA) that are empowered under the Motor Vehicles Act, you can get a special discount on insurance premium.

Declare correct IDV of your vehicle

The Insured Declared Value (IDV) refers to the depreciation applied on your vehicle over the manufacturer’s selling price. It is the maximum amount that an insurance company will pay in case the vehicle needs to be replaced. However, seeking higher than the reasonable IDV would result in increasing the car insurance premium, instead of giving any benefit. Therefore, it is advisable to declare an appropriate IDV to avail some discounts.

Taking these simple steps is an effective way to reduce your recurring expenses on the vehicle. However, fuel expenditure forms the major part of the monthly budget. Following speed limits, avoiding sudden braking or rapid acceleration, switching off the engine at long-duration signals etc. will help you reduce fuel-related expenses.

So go ahead, follow these basic steps and enjoy the drive in your favourite vehicle.

The author is Head - Customer Service Motor, ICICI Lombard General Insurance. The views expressed in this article are his own

tax advice
Gift of over Rs 50,000 from niece is taxable
SC Vasudeva

My wife has received a gift of Rs 2 lakh from my elder brother’s daughter. Will it amount to her taxable income? — Uttam Kumar

As per Section 56(vii) of the Income Tax Act, 1961, (The Act), if an individual receives any sum of money exceeding Rs 50,000 from any person other than a relative, the received sum shall be taxable in the hands of the recipient. Relatives include spouse, siblings of the individual, siblings of the spouse, siblings of parents, spouses of the siblings under all three categories or any lineal ascendant or decedent of the individual or the spouse. In your case, the gift has been received by your wife from her niece. This relation is not covered in the definition of the term ‘relative’. Accordingly, the amount of gift received would be taxable in the hands of your wife as income from other sources.

I took an education loan from a bank in the US for my studies there. Now, I am working in India and servicing the loan from my income. Am I eligible for a tax deduction on the interest or principal amount? — Umesh

The deduction on interest on an education loan is allowable under Section 80E of the Income Tax Act, 1961, if the loan is taken from a notified financial institution or an approved charitable institution.

A financial institution for this purpose has been defined to mean a banking company to which the Banking Regulation Act, 1949, applies, or any other financial institution notified by the Union government. Charitable institutions approved under Section 10(23C) of the Income Tax Act or referred to in Section 80G (2)(a) of the Act are also eligible for granting such education loan.

Since you have not specified the source from which loan has been taken, it is presumed that the loan has been taken from an Indian bank, covered under the Banking Regulation Act, 1949. Such a bank would be an approved financial institution and, therefore, you would be entitled to claim the deduction in respect of interest paid on such loan. The deduction is allowable from the total income in respect of initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid in full, whichever is earlier. The initial assessment year means the assessment year, in which the assessee starts paying interest on such a loan.

Can my grandson, 5 months, become a nominee of my investments (bank FDRs, tax-free bonds and inflation-linked NSCs)? The issue is: Can a minor son of NRI parents open a bank account in India? — Krishan Dev Uppal

It is possible to have a minor as a nominee in respect of the investments held by a resident. However, this will require the particulars of the guardian as well as of the minor to be filled in the required documents. Therefore, in the given case particulars of your grandson and son, who is a natural guardian, shall have to be filled in and your son may also have to sign the nomination form in case it is required.