Most people believe that all that they have to do for the
purpose of claiming a deduction is to complete the process required and then
the benefit will be available to them. While this might be true for most
situations there are some cases where the individual could find themselves
being unable to claim the deduction as there are several conditions that need
to be fulfilled. This is especially true when they relate to those that are
claimed under Section 80. Here is a look at a situation where this would happen
and how the individual can ensure that they are not trapped in such a position.
Common benefits
There is a benefit of Rs 1 lakh of deduction that is available for making investments in specified instruments like Public Provident Fund, National Savings Certificates, Senior Citizens Savings Scheme, life insurance premium and so on under Section 80C. Other benefits include those for medical insurance premium payment, treatment of specified diseases, donations etc. Most people undertake the required action and then believe that the benefits will come to them in their tax calculations. However there are some situations where this might not be possible because these variations are clearly outlined as those that will restrict its applicability. There are some common situations when this might actually be visible.
There is a benefit of Rs 1 lakh of deduction that is available for making investments in specified instruments like Public Provident Fund, National Savings Certificates, Senior Citizens Savings Scheme, life insurance premium and so on under Section 80C. Other benefits include those for medical insurance premium payment, treatment of specified diseases, donations etc. Most people undertake the required action and then believe that the benefits will come to them in their tax calculations. However there are some situations where this might not be possible because these variations are clearly outlined as those that will restrict its applicability. There are some common situations when this might actually be visible.
Short term capital gains
The taxpayer could be an individual and there could have been short term capital gains that have been generated during the year. This would have to be short term capital gains from equities or equity oriented mutual funds. The other condition is that there should also be a securities transaction tax that has to be paid on the transaction. This would make the applicable rate of tax on the amount of gains that have been earned at 15 per cent so this is a situation where some difference will be seen in the applicability of the deductions. The conditions state that when there are such gains then the deduction from Section 80C to Section 80U is not available for these gains. This will bring a long list of deductions from medical insurance premium to treatment of specified diseases and even donations under this restriction and would turn out to be a tough proposition for many people.
The taxpayer could be an individual and there could have been short term capital gains that have been generated during the year. This would have to be short term capital gains from equities or equity oriented mutual funds. The other condition is that there should also be a securities transaction tax that has to be paid on the transaction. This would make the applicable rate of tax on the amount of gains that have been earned at 15 per cent so this is a situation where some difference will be seen in the applicability of the deductions. The conditions state that when there are such gains then the deduction from Section 80C to Section 80U is not available for these gains. This will bring a long list of deductions from medical insurance premium to treatment of specified diseases and even donations under this restriction and would turn out to be a tough proposition for many people.
Applicability
There are a couple of situations under which you could find that the benefit is limited. The first is where there is a position where most of the income is from short term capital gains. This could be the situation for a senior citizen who might have some small amount of regular income but could have ended up with a large short term capital gains either because the markets were good or because they ended up selling some bonus shares where the cost is zero. In this case they would need to pay the required tax and not have the benefit of the deduction for which they might have made the investment.
There are a couple of situations under which you could find that the benefit is limited. The first is where there is a position where most of the income is from short term capital gains. This could be the situation for a senior citizen who might have some small amount of regular income but could have ended up with a large short term capital gains either because the markets were good or because they ended up selling some bonus shares where the cost is zero. In this case they would need to pay the required tax and not have the benefit of the deduction for which they might have made the investment.
The other situation when this could possible happen is where
there is income being earned but at the same time this is not very high and
then there is a large amount of one time short term capital gains earned. In
such a situation once again the individual would find that they are not able to
make use of the deduction for which they had planned.
One of the ways in which this situation can be tackled is to
look at the overall position right at the beginning before any transaction is
made and hence this will give an idea about the taxability that would arise.
This is a good way of going about the process as there would be some additional
planning that can be undertaken when there is a possibility that the benefits
could end up being disallowed.
The author can be contacted at arnavpandya@hotmail.com
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