The Income Tax Act, 1961, offers certain tax deductions to both individuals and institutions in India. Under Section 80C of the Income Tax Act, you enjoy a tax deduction up to Rs 1.5 Lakhs a year on certain specified investments like public provident fund (PPF), EPF, post office deposits, ELSS, life insurance premiums and home loan principal among others.
You enjoy tax deductions up to Rs 2 Lakhs a year on home loan interest repaid. In addition to this, you have Rs 50,000 deduction a year on home loan interest under Section 80EE for first-time home buyers.
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If an individual does not meet the conditions of the Income Tax Act, the following are 3 popular tax deductions that can be reversed.
Salaried people enjoy the EPF facility at the time of employment. Both you and the employer contribute equally towards the EPF. In case of a job change, the same EPF account can be continued.
Under Section 80C, you enjoy a tax deduction up to Rs 1.5 Lakhs a year on your contribution towards the EPF. The EPF can be withdrawn after 45 days from the last day of service. If the EPF is withdrawn before 5 years of steady service, the deductions (claimed at the time of making PF contributions) are likely to be reversed. Subscribers are liable to pay taxes on the entire amount in the year of withdrawal. When an employee is asked to leave the job on closure of the company or due to poor health, he/she does not have to pay any taxes on PF withdrawal.
See Also: All You Must Know About Tax Planning
People tend to avail home loans to purchase a house of their choice. The Income Tax Act allows certain tax deductions to people who avail home loans irrespective of the loan type and the loan amount.
Let’s say you have availed a home loan to purchase a house and enjoyed the tax deduction up to Rs 1.5 Lakhs a year under Section 80C. When a house property which was bought with a home loan, is sold within 5 years from the date of procession, then all the deductions claimed under Section 80C are subject to tax in the year of sale of the property.
The tax deductions availed on home loans for interest repayments under Section 24, shall not be withdrawn. Seek the help of a financial advisor to avoid paying extra taxes.
See Also: How To Calculate Your Taxable Income?
Under Section 80C of the Income Tax Act, premiums paid for life insurance policies are exempt from tax up to Rs 1.5 Lakh a year. The life insurance plan must be in your name to avail the tax benefits. Such policies should be obtained in the name of any family member in case of Hindu Undivided Families (HUFs). There are certain restrictions on the tax deduction in this case.
You can surrender life insurance policies anytime, within the tenure. When policies are surrendered within 2 years, the tax deductions are reversed and you are liable to pay tax, in the policy surrender year. You don’t get anything if you surrender the life insurance plan in the first year. You get a portion of the life insurance premium paid, only if you have paid consecutive premiums for 2 years. (This is if the premium paying term is less than 10 years). Its three years, if the premium paying term is more than 10 years.
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