InFin Series – Deductions under section 80C in specified modes of investments PART 3

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In the previous columns, we discussed about some of the major investment modes under section 80C. Continuing along similar lines, I am discussing the following contributions available as deductions.

1. Contribution to National Savings Certificate issued under the government savings certificates act, 1959):

  • Subscriptions to National Savings Certificates (VIII Issue) also qualify for deduction in full [Notification No. S.O. 1560(E), dated 3-11-2005].
  • If contribution to such Certificates is made in joint names, the person who has contributed the money is eligible to claim deduction.
  • Even an individual can claim deduction in respect of certificates purchased in the name of spouse/minor child—Circular No. 105, dated 15-1-1985.
  • According to rule 15 of the NSC (VIII Issue) Rules, 1989, the interest as specified in the Table below shall accrue to the holder or holders of the certificate at the end of each year and the interest so accruing at the end of each year up to the end of the fifth year (fourth year if NSC VIII purchased after 1-12-2011) shall be deemed to have been re-invested on behalf of the holder and aggregated with the amount of face value of the certificate. The interest accruing every year under the VIII Issue should be calculated at the following rates, and added to the qualifying amount for the respective years.

AMOUNT OF INTEREST (INR) ACCRUING ON CERTIFICATES OF INR 100 DENOMINATION

When NSC was purchased.
(The year for which interest accrues)
On or after March 1, 2002 but before March 1, 2003On or after March 1, 2003 but before December 1, 2011On or after December 1, 2011 but Before April 1, 2012On or after April 1, 2012 but before April 1, 2013On or after April 1, 2013
First year9.208.168.588.788.68
Second year10.058.839.319.569.43
Third year10.979.5510.1110.4010.25
Fourth year11.9810.3310.9811.3111.14
Fifth year13.0911.1711.9212.3012.11
Sixth year14.2912.08NANANA

Illustration: Suppose the taxpayer has purchased the NSCs on the following dates :

  1. 1/3/2011: ₹15,000
  2. 1/3/2012: ₹15,000
  3. 1/3/2013: ₹ 20,000
  4. 1/3/2014: ₹ 20,000
  5. 1/3/2015: ₹ 25,000
  6. 1/3/2016: INR 20,000
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The accrued interest which will qualify for deduction for the assessment year 2016-17 will work out as follows:

  1. On item (i) [Fifth year] 150 X 11.17 = 1675.50
  2. On item (ii) [Fourth year] 150 X 10.98 = 1647.00
  3. On item (iii) [Third year] 200 X 10.40 = 2080.00
  4. On item (iv) [Second year] 200 X 9.43 = 1886.00
  5. On item (v) [First year] 250 X 8.68 = 2170.00
  6. On item (vi) NIL

Total 9458.50

2. Contributions to Mutual Funds

  1. Unit Linked Insurance Plans of the Unit Trust of India or LIC Mutual Fund ((formerly known as Dhanraksha – 1989 Plan) or LIC Mutual Fund, referred to in section 10(23D):
    • Unit Linked Insurance Plans cover Life insurance with benefits of equity investments. They have attracted the attention of investors and tax savers not only because they help us save tax but they also perform well to give decent returns in the long term. Such contributions will qualify for deduction in full [Notification No. 1561(E), dated 3-11-2005].
    • The contributions can be made in the name of the assessee, or his spouse, or any child of the assessee in case of an individual. In case of a Hindu Undivided Family, contribution to be made in the name of any member of the HUF
    • ULIP of UTI is an open ended insurance and tax saving cum investment plan.
    • Participation in these plans is generally spread over 10 years or 15 years and an assessee must make the agreed contributions during at least the first five years of the plan.
    • If an assessee terminates his participation before the expiry of this five-year period, either by notice to that effect or by failing to pay any contribution, no deduction will be allowed in the year in which such termination or default occurs. In addition, the aggregate deductions allowed in the earlier years will be deemed as income of the previous year in which termination or default occurs, and brought to tax in the relevant assessment year.
  2. Approved annuity plans of LIC (New Jeevan Dhara and New Jeevan Akshay, New Jeevan Dhara I and New Jeevan Akshay I, II and III) or any other insurer (Tata AIG Easy Retire Annuity Plan of Tata AIG Life Insurance Company Ltd.) as the Central Government may, by notification in the Official Gazette, specify in this behalf
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3. Contribution to pension fund: Contribution by an individual to a pension fund set up by any Mutual Fund referred to in section 10(23D) or by the Administrator or the specified company as the Central Government may specify.

4. Payment towards purchase or construction of a residential house property:

Payment towards purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property” (or which would, if it had not been used for the taxpayer’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of:

  1. any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
  2. any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
  3. repayment of the amount borrowed

Such loan/ borrowing should be from:

  • Central Government or any State Government,
  • Any bank (including a co-operative bank), or National Housing Bank; or LIC,
  • Any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes [eligible for deduction under section 36(1)(viii)]
  • Any company in which the public are substantially interested or any cooperative society, where such company or co-operative society is engaged in the business of financing the construction of houses,
  • Assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act,
  • Assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society
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Such loan/ borrowing should not be for:

  • admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member;
  • Cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or
  • Any expenditure in respect of which deduction is allowable under the provisions of section 24

5. Contribution towards Term deposit:

  1. for a fixed period of not less than five years with a scheduled bank; and
  2. which is in accordance with a scheme framed and notified, by the Central Government, in the Official Gazette for the purposes of this clause

6. Contribution towards tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,

  1. to any university, college, school or other educational institution situated within India;
  2. for the purpose of full-time education of assessee’s children [max- 2]

However, you should keep in mind that only tution fees is included and not the complete school fees.

7. Other contributions:

  1. Subscription to such bonds issued by the National Bank for Agriculture and Rural Development
  2. In an account under the Senior Citizens Savings Scheme Rules, 2004- To be retained for 5 years
  3. 5-year time deposit in an account under the Post Office Time Deposit Rules, 1981