Fintotal News Analysis | Changes in Income Tax Deductions by Budget 2013-14
Changes in Income Tax Deductions by Budget 2013-14
Ruby Jacob, 11 Mar 2013

Budget 2013-14 did not offer surprises for anyone. Status quo has been maintained in most areas affecting the salaried class with minor alterations here and there.

Like this year we won't have deduction on section 80CCF infrastructure tax-saving bonds in 2013-14. However in 2013-14 there will be more tax-free bonds from infrastructure companies than we did this financial year.

Below we have detailed 3 of the major changes in Income Tax deductions brought by this budget.

RGESS

Rajiv Gandhi Equity Savings Scheme (RGESS) introduced last year will have wider scope. Annual income limit for investing in RGESS has been raised to Rs 12 lakhs from Rs 10 lakhs. Tax deduction on the scheme has been extended to 3 years. According to original provisions of the scheme you could get tax deduction for just 1 year on RGESS.

Everything else is same for RGESS. Presently there a couple of close-ended mutual funds, ETFs and shares eligible for RGESS. You need to designate a demat account for RGESS and investments will have a lock-in period of 3 years.

New home loan additional tax deduction

Housing is an area of prime concern for the government. In order to promote house ownership in tier II and tier III cities this year's budget has will give a one-time tax rebate of Rs 1 lakh on interest payable for those who take a housing loan on their first home. There's nothing specifying location but that's where it narrows down to from conditions of the deduction.

The home loan should not exceed Rs 25 lakhs and the residential house should not cost more than Rs 40 lakhs. Home loan should be taken for buying the house between 1st April 2013 and 31st March 2014 from a bank or housing finance company. This deduction is under a new section 80EE and is over and above Rs 1.5 lakhs deduction for home loan interest. If interest does not come to Rs 1 lakh in the first year it can be claimed in 2014-15.

Relaxation in life insurance policy premium limit

Maximum limit of premium to sum assured ratio has been raised from 10% to 15% on life insurance policies on persons with disabilities or suffering from ailments like cancer, AIDS, kidney failure, hematological disorders and a few neurological diseases.

Relaxation in this deduction will be applicable only on policies bought after 1st April 2013. Up to Rs 1 lakh a year can be claimed as deduction on life insurance premiums, under section 80C. The cap of Rs 1 lakh is inclusive of all investments or expenses allowed in section 80C.

Premium relaxation will also hold good for tax exemption on proceeds from new life insurance policies under section 10(10D).

Besides if you make donations from your income note that National Children's Fund has been added to the list of charities that has 100% income tax deduction under section 80G. Also, cash contributions made to political parties cannot be claimed for deduction from the next financial year.

To summarize, this is what your income tax deduction chart would look like for 2013-14. (Only the most common deductions are shown below for entire list check ready reckoner Income Tax Deductions or Sections in Tax page.

Deduction/Exemption

Eligible items

Max limit

80C

EPF, PPF, NSC, ELSS, NPS, Life insurance premium, Home loan principal, Tuition fee, SCSS, 5 yr deposit in FD or Post Office

Rs 1 lakh

80D

Health insurance premium

Rs 15,000 for self & family + Rs 15,000 for parents

80E

Interest on education loan

No limit

80EE

Interest on first home with loan less than Rs 25 lakhs

Rs 1 lakh

80G, 80GGC

Donations to charitable institutions, Contribution to political party

100% of donation or 10% of gross total income as applicable

24

Interest on home loan

Rs 1.5 lakhs if house is self occupied; unlimited otherwise

10(13A)

HRA

Least of HRA, Rent minus 10% of basic and 50% of basic

80CCG

RGESS

Rs 25,000

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