» Tax Rates for Individuals.
» Tax Benefits on Insurance and Pension.
» Tax Benefits on Mutual Funds.

Tax Rates for Individuals

Surcharge is 10% of income tax if net income of an individual , HUF, AOP , BOI exceeds Rs.10,00,000 .
In the case of an artificial juridical person surcharge is 10% of income tax if net income is less than 10,00,000.
Marginal relief : A marginal relief may be provided to ensure that the additional IT payable, including surcharge, on excess of income over Rs 1,000,000 is limited to an amount by which the income is more than this mentioned amount
Education cess : 2% of income tax & surcharge

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Tax Benefits on Insurance and Pension

Life insurance and retirement plans are effective ways of saving taxes. The tax breaks that are available under our various insurance and pension policies are described below:

1. Life insurance plans are eligible for deduction under Sec. 80C.
2. Pension plans are eligible for a deduction under Sec. 80CCC.
3. Health riders are eligible for deduction under Sec. 80D.
4. The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section.

Premiums paid for Life insurance - Deduction under Section 80C

1. Category of assesses allowed deduction : Individual assessee and Hindu Undivided Family assessee.
2. Eligible Savings : Premiums paid or deposited by assessee to effect or to keep in force insurance on the life of following persons:
• In case of individual assessee – Himself/Herself, spouse, children of such individual
• In case of HUF assessee – any member
3. 20% limit : If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured.
4. Limit on amount of deduction : Deduction will be restricted to investments of upto Rs 100,000 in savings specified under Section 80C (including life insurance premiums). If any investments have been made under Section 80CCC and 80CCD, then the qualifying amount under Section 80C will stand reduced to that extent.
5. Deduction limit : The amount of deduction will be equal to the amount by which the income tax payable on such total income is in excess of the amount by which the total income exceeds 100,000.

Premiums paid for Pension plans - Section 80CCC

1. Permitted Deduction : Section 80CCC allows for deduction of premiums paid under a pension plan. As per this Section, premiums paid upto Rs 10,000 by an individual is allowed as deduction from his total income.
2. Disallowance : This benefit will be reversed if the policy lapses / is cancelled.
3. Limit : It may be noted that from FY2005-06, the limit of deduction under Section 80CCC will be part of the overall limit prescribed under Section 80CCE.

Premiums paid for medical insurance - Section 80D

1. Category of assesses allowed deduction : Individual assessee and Hindu Undivided Family assessee .
2. Eligible premiums : Premiums paid by assessee by cheque out of his taxable income to effect or to keep in force an insurance on the health of following persons:
• In case of individual assessee – Himself/herself, spouse, dependant children and dependant parents.
• In case of HUF assessee – any member of HUF
3. Deduction and upper limit : The qualifying amounts under Section 80D is upto Rs 10,000/-. However, a higher amount of upto Rs 15,000/- is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee .

Overall deduction limit - Section 80CCE
A new Section 80CCE has been inserted from FY2005-06. As per this section, the maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC and 80CCD will be limited to Rs 100,000.
Benefits under insurance policy - Section 10(10D)
As per Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax.
However, this rule does not apply to following amounts:
1. sum received under Section 80DD(3), or
2. any sum received under a Keyman Insurance Policy, or
3. any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured.
Rebate in respect of Securities Transaction Tax (STT) paid.

1. Section 88E has been introduced by Finance Act (No 2) of 2004.
2. As per the provisions, where total income of an assessee includes any income under the head ‘Profits and Gains from Business or Profession' arising from taxable securities transactions, he shall be entitled to a deduction from the income tax on such income.
3. Amount of deduction : Amount of STT paid in respect of taxable securities transactions entered into in the course of business during that previous year.
4. The deduction will be allowed if proof of payment of STT is furnished alongwith the return. The proof has to be furnished as per the format prescribed by Income Tax.
5. Maximum deduction shall be equal to the amount of income tax on above income.

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Taxation on Mutual Funds

Highlights

Dividends paid by Mutual Funds (Equity / Debt) are completely Taxfree in the hands of the Investors.

Profits on Mutual funds if redeemed before 12 Months is considered Short Term Capital gains

Short Term Capital Gains on Equity Funds : 10 % plus STT @ 0.20 %

Short Term Capital Gains on all other Funds :Gains added to the Income and taxed as per the Income Tax applicable

Profits on Mutual funds if redeemed after 12 Months is considered Long Term Capital gains

Long Term Capital Gains on Equity Fund : Exempt from Tax but STT @ 0.20 % is payable

Long Term Capital Gains on all Other Funds : 20 % after indexation benefit or 10% flat on gains

Dividend / Income Received is completely taxfree

Income from Mutual Fund received by Unitholders would be tax free in the hands of the Unitholders as per the provisions of section 10(35) of the Income-tax Act, 1961 (the Act).

Gains from repurchase of Mutual Fund units are subject to Capital gains tax.

Mutual fund units are treated as a long term capital asset if the same are held for more than 12 months the gain / loss arising from the sale of units is considered as long term capital gains / loss.

Mutual fund units are treated as a Short term capital asset if the same are held for less than 12 months the gain / loss arising from the sale of units is considered as short term capital gains / loss.

Long Term Capital Gains Tax on Equity Oriented Mutual Fund

As per Section 10(38) of the Act, long term capital gain arising from the sale of units of equity oriented fund is exempt from tax. However the unitholder will have to pay a securities Transaction Tax (STT) of 0.20 % on the value of sale.

Long Term Capital Gains Tax on Funds other than Equity Oriented.

Long-term capital gains arising from the sale of units on any Funds other than Equity Oriented will be chargable under Sec.112 of the act at the rate of 20 % after Indexation benefit or 10 % Flat on the Gains

Short Term Capital Gains Tax on Equity Oriented Mutual Fund.

As per sec.111A , short term capital gain arising from the sale of units of equity oriented fund wherein such transaction is chargeable to securities transaction tax (STT). The Tax on Short Term Capital gains is at the rate of 10 %

Short Term Capital Gains Tax on Funds other than Equity Oriented.

Short Term Capital Gains in respect of units held for not more than 12 months is added to the total income of the assessee and taxed at the applicable slab rates specified by the Act.

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