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Assignment of
Economic and Business Legislature

Submitted to- Submitted by-

Shri Surendra Nath Mohit Sahni

Roll no-10
Section - B
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Question-How to save income tax on a salary of Rs. 1000000 per annum?

Solution for the problem

Rs 10,00,000 - Income

-Rs 2,40,000 - Senior Citizen exemption ( other than senior citizen it is Rs 1,80,000 for male
and Rs 1,90,000 for female)

-Rs 1,00,000 - Under Sec 80C includes provident fund, NSC , Senior Citizen.

-Rs 50,000 - Under Sec 80G (deducted in respect of donation to contain funds ( either 50% or
100% )

-Rs 1,20,000 - Under Section 10(13A) (HRA) when a rent is paid Rs 10,000 per month

-Rs 20000 - Under Sec 80D - Health Insurance Premium

- Rs 100000 - under sec 24 –house loan 10% of 10,00000

-Rs 3,90,000 Total amount spent under different sections

Rs 10,00,000-Rs 3,90,000 = Rs 6,10,000

So above Rs 5,00,000 the amount is =Rs 1,10,000

The interest on this amount is 20% = Rs 110000 X 20% =Rs 22000

From Rs 5,00,000 subtract Rs 2,40,000 = Rs 2,60,000

On this Rs2,60,000 interest will be 10% = Rs2,60,000X10% =Rs 26,000

Amount to be paid as income tax comes to be =Rs 48,000

On this educational cessof 3% is charged =Rs 1440

Total amount to be paid as income tax comes to be =Rs 46,560

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Solution - Some of the Sections of Income Tax Act, 1961 are detailed below which detail few
exemptions and categories of exempt income that you can take advantage of:

Section 80C: Investment in specified instruments and expenses

Section 80C gives every income tax payer up to a maximum of Rs. 1,00,000 tax free income in a
year if they invest in or buy the following instruments. Please not that this is a combined total
of Rs. 1,00,000 and not an individual figure for every instrument:

1. Premium for Life Insurance or ULIP

2. Provident Fund (PF) contribution

3. Public Provident Fund (PPF) - only up to Rs. 70,000 in a year

4. Repayment of home loan principal

5. Equity Linked Savings Schemes (ELSS) of Mutual Fund Companies

6. Infrastructure Bonds

7. National Savings Certificates (NSC)

8. Tax Saving Fixed Deposits with Banks

9. Tuition Fees of children

Details regarding the Funds in Sec 80C

Public Provident Fund

 PPF (with post offices/banks), statutory provdent fund (deducted and paid by the
employees).
 Minimum Limit - Rs. 100
 Maximum Limit - Rs. 70,000
 Tenure - Minimum 15 years
 Investment has to be made every year

It can be opened at any branch of the SBI or its subsidiaries, at any post office or at the branches
of specially nominated nationalised banks. The withdrawals are restricted to 50 per cent of the
balance standing at the end of the 4th year.

Life Insurance
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 Maximum Limit - Rs. 1 lakh.

 Premium paid in any year should not exceed 20% of the sum incurred (issued after 1
April 2003).
 The sum paid in excess of 20% will not be allowed for any deductions.
 The tax-free status is limited to direct taxes and not to the service tax payable on
insurance maturity.

ULIP

 It is the combination of investment fund and insurance policy.

 Minimum Limit - Rs. 15,000 with annual contribution of Rs. 1,000.
 Maximum Limit - Rs. 2 lakh with annual contribution of Rs. 20,000.
 Age of the investor - 12 - 55 years 6 months.
 It is also exempt from wealth tax.
 Service tax may be charged since insurance cover is taken.

ELSS (Equity Linked Savings Scheme)

 Maximum Limit - Rs. 1 lakh.

 It offers investors a window to benefit from the 'power' of equities, with tax benefits as a
sweetener.
 Lock-in period - 3 years.
 Liquidity option is curtailed.
 It has risk but the return is maximum, even up to 47%.

National Saving Certificates (NSC)

 Offers flexibility like PPF.

 Available at any post office in a denomination as low as Rs. 100.

Infrastructure Bonds

 Investments are in the form of shares/ debentures/ bonds issues by public financial
institutions.
 There is no opportunity of making a capital gain.
 These are useful for investment made for long run.
 Money is returned in a relatively shorter period like 5 years or 3 years.
 The interest rate is the prevailing interest rate.

Monthly Income Scheme (MIS)

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 8% of interest.
 Bonus of 10% on maturity.
 Minimum Limit - Rs. 1,000
 Maximum Limit - Rs. 3 lakh (Rs. 6 lakh for joint account).
 Maturity Period - 6 years
 Lock-in Period - 3 years
 Withdrawal before 3 years there is a deduction of 3.5%
 Withdrawal after 3 years but before 6 years, bonus will not be paid.

KisanVikasPatra

 Money doubles in 8 years and seven months.

 Available at any post office in denominations of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000
and Rs. 50,000.
 Interest is paid only after maturity.

Section 80D: Health Insurance Premium

You can take advantage of an annual deduction of Rs. 15,000 from taxable income for payment
of Health Insurance premium for self and dependants. For senior citizens, this deduction is Rs.
20,000. 

Section 80E: Interest paid on educational loans

You can claim a deduction on the interest paid on loans taken for higher education for yourself,
your spouse and children. There is no limit on the amount of deduction you can claim. 
The only thing to keep in mind is that the program for which the loan is taken should be a
graduate or post-graduate program in engineering, medicine or management or a post-
graduate course in the pure or applied sciences.

Section 80G: Donations to Charitable institutions

You can claim a deduction for any donation that you might have made to a charitable fund or
institution. However, please note that these donations should be made only to specified
institutions. And a proper proof of payment must be provided for the same. Based on the
classification of the charity , you can claim either 100% or 50% of the donated amount as
deduction. The deduction might also be subject to a certain limit again based on the type of
charity that you are donating money
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Section 24: Interest paid on housing loan

Under Section 24, a maximum of Rs 1,50,000 can be deducted from your taxable income as
interest repayment for a self occupied house. Please note that this deduction is not available if
you the house is still under construction and you do not have occupation of the house.

Provisions that you should take advantage of if you are a salaried employee:

Section 10(13A) : House Rent Allowance

You can take advantage of the provisions under this section if you are renting an
accommodation. These provisions will not be available to you if you stay in a rent-free
accommodation or live with your family or in your own house.
Under Section 10(13A), HRA is exempt to the least of the following: i) 50/40 per cent of basic
salary= Dearness Allowance (if, applicable), ii) excess of rent paid over 10 per cent of basic
salary; and iii) actual HRA received. 

Assumptions

HRA per month = Rs 15,000

Basic monthly salary = Rs 30,000
Monthly rent = Rs 14,000
Rental accommodation is in Delhi.

Exemption

The HRA exemption would be the least of the following:

1.Actual amount of HRA: Rs 15,000

2. 50% of salary (basic component + dearness allowance) = 50% x (30,000 + 0) = Rs 15,000
3. Actual rent paid - 10% of salary (basic component + dearness allowance)= Rs 14,000 - [10%
of (30,000 + 0)] = 14,000 – 3,000 = Rs 11,000
Rs 11,000 being the least of the three amounts will be the exemption from HRA. 
The balance HRA of Rs 4,000 (15,000-11,000) would be taxable.
Please note that HRA exemptions are only available on submission of rent receipts or the rent
agreement.

Paying Rent to parents or relatives

If you want to pay rent to your parents or any relatives (like uncle/cousin) whom you are
staying with. You will need to treat them as landlords. And request the owner of the house
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(which will be one of your parents) to declare it in his/ her personal income tax return. This will
prevent any litigation in the future.

Section 10 (14) Rule 2BB(10) : Transport Allowance

Transport allowance granted for commuting between your residence and place of work is
exempt up to Rs. 800 a month. You can take advantage of this provision to get a tax exemption
of Rs 9600 annually by providing your employer with bills or a self declaration.

Section 17(2) : Medical Reimbursement

You can claim exemption up to Rs 15,000 annually on actual expenditure incurred on your
medical treatment or for treatment of any of your dependants. Moreover, there is no
restriction of approved hospitals or clinic for the same. This is exempt only on provision of
actual bills.
However, if the amount is paid out as an allowance not a reimbursement then it would be fully
taxable.