Tax

A tax (from the Latin taxo; "I estimate") is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many administrative divisions. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent.

According to Black's Law Dictionary, a tax is a "pecuniary burden laid upon individuals or property owners to support the government. A payment exacted by legislative authority." It "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is any contribution imposed by government, whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.

Overview The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. For example, some transfers to the public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by creating money (e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the Public sector levied on a basis of predetermined criteria and without reference to specific benefit received. In modern taxation systems, taxes are levied in money; but, in-kind and corve taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly

debated in politics and economics. Tax collection is performed by a government agency such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her Majesty's Revenue and Customs (HMRC) in the United Kingdom. When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) may be imposed on the non-paying entity or individual.

History The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC in the first dynasty of the Old Kingdom. The earliest and most widespread form of taxation was the corve and tithe. The corve was forced labour provided to the state by peasants too poor to pay other forms of taxation (labour in ancient Egyptian is a synonym for taxes). Records from the time document that the pharaoh would conduct a biennial tour of the kingdom, collecting tithes from the people. Other records are granary receipts on limestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis (chapter 47, verse 24 - the New International Version), it states "But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children". Joseph was telling the people of Egypt how to divide their crop, providing a portion to the Pharaoh. A share (20%) of the crop was the tax. Later, in the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC; the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. It was the responsibility of the Satrap to collect the due amount and to send it to the emperor, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer maximum opportunity for rich pickings). The quantities demanded from the various provinces gave a vivid picture of their economic potential. For instance, Babylon was assessed for the highest amount and for a startling mixture of commodities; 1,000 silver talents and four months supply of food for the army. India, a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents. Egypt was known for the wealth of its crops; it was to be the granary of the Persian

Empire (and, later, of the Roman Empire) and was required to provide 120,000 measures of grain in addition to 700 talents of silver. This was exclusively a tax levied on subject peoples. Persians and Medes paid no tax, but, they were liable at any time to serve in the army. The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three languages "led to the most famous decipherment in historythe cracking of hieroglyphics". In India, Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th century. It was abolished by Akbar.

Heads of Income The total income of a person is segregated into five heads: Income from Salary Income from house property Income from business or profession Capital Gain and Income from other sources

Income from Salary All income received as salary under Employer-Employee relationship is taxed under this head, on due or receipt basis, whichever arises earlier. Employers must withhold tax compulsorily (subject to Section 192), if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income.

All other Perquisites are to be calculated according to specified provision and rules for each. Only two deductions are allowed under Section 16, viz. Professional Tax and Entertainment Allowance (the latter only available for specified government employees).

Income from House property Income under this head is taxable if the assessee is the owner of a property consisting of building or land appurtenant thereto and is not used by him for his business or professional purpose. An individual or an Hindu Undivided Family (HUF) is eligible to claim any one property as Self-occupied if it is used for own or family's residential purpose. In that case, the Net Annual Value (as explained below) will be nil. Such a benefit can only be claimed for one house property. However, the individual (or HUF) will still be entitled to claim Interest on borrowed capital as deduction under section 24, subject to some conditions. In the case of a self occupied house deduction on account of interest on borrowed capital is subject to a maximum limit of Rs.1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For let-out property, all interest is deductible, with no upper limits. The balance is added to taxable income. The computation of income from let-out property is as under:Gross Annual Value (GAV) Less: Municipal Taxes paid Net Annual Value (NAV) Less: Deductions under (xxx) section 24 Income from House property xxxx xxxx (xxx) xxxx

 The GAV is higher of Annual Letting Value (ALV) and Actual rent received/receivable during the year. The ALV is higher of fair rent and municipal value, but restricted to standard rent fixed by Rent Control Act. Only two deductions are allowed under this heaad by virtue of section 24, viz., 30% of Net annual value as Standard deduction Interest on capital borrowed for the purpose of acquisition, construction, repairs, renewals or reconstruction of property (subject to certain provisions).

Income from Business or Profession The income referred to in section 28, i.e., the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44 (AA) deals with maintenance of books and section 44 (AB) deals with audit of accounts. In summary, the sections relating to computation of business income can be grouped as under: -

Specific deductions

Sections 30 to 37 cover expenses which are expressly allowed as deduction while computing business income. Sections 40, 40A and 43B cover inadmissible expenses.

Specific disallowance

Deemed Incomes

Sections 33AB, 33ABA, 33AC, 35A, 35ABB, 41.

Special provisions Presumptive Income

Sections 42, 43C, 43D, 44, 44A, 44B, 44BB, 44BBA, 44BBB, 44DA, 44DB. Sections 44AD, 44AE.

The computation of income under the head "Profits and Gains of Business or Profession" depends on the particulars and information available.[5] If regular books of accounts are not maintained, then the computation would be as under: Income (including Deemed Incomes) chargeable as income under this head xxx

Less: Expenses deductible (net of disallowances) under this head

(xx)

Full value of consideration Less: Cost of acquisition Less: Cost of improvement Less: Expenditure pertaining to

xxx (xx) (xx) (xx)

transfer incurred by the transferor Income from Capital Gains

Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects. Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset extinguishment of rights in an asset, etc. Certain transactions are not regarded as 'Transfer' under section 47.

Computation of Capital Gains: In case of transfer of land or building, if sale consideration is less than the stamp duty valuation, then such stamp duty value shall be taken as full value of consideration by virtue of Section 50C. The transferor is entitled to challenge the stamp duty valuation before the Assessing Officer. Cost of acquisition & cost of improvement shall be indexed in case the capital asset is long term. For tax purposes, there are two types of capital assets: Long term and short term. Transfer of long term assets gives rise to long term capital gains. The benefit of indexation is available only for long term capital assets. If the period of holding is more than 36 months, the capital asset is long term, otherwise it is short term. However, in the below mentioned cases, the capital asset held for more than 12 months will be treated as long term:

Any share in any company Government securities Listed debentures

Units of UTI or mutual fund, and Zero-coupon bond

Also, in certain cases, indexation benefit is not be available even though the capital asset is long term. Such cases include depreciable asset (Section 50), Slump Sale (Section 50B), Bonds/debentures (other than capital indexed bonds) and certain other express provisions in the Act. There are different scheme of taxation of long term capital gains. These are: 1. As per Section 10(38) of Income Tax Act, 1961 long term capital gains on shares or securities or mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. STT has been applied on all stock market transactions since October 2004 but does not apply to off-market transactions and company buybacks; therefore, the higher capital gains taxes will apply to such transactions where STT is not paid. 2. In case of other shares and securities, person has an option to either index costs to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains. The cost inflation index rates are released by the I-T department each year. 3. In case of all other long term capital gains, indexation benefit is available and tax rate is 20%. All capital gains that are not long term are short term capital gains, which are taxed as such:

Under section 111A, for shares or mutual funds where STT is paid, tax rate is 10% from Assessment Year (AY) 2005-06 as per Finance Act 2004. With effect from AY 2009-10 the tax rate is 15%.

In all other cases, it is part of gross total income and normal tax rate is applicable. For companies abroad, the tax liability is 20% of such gains suitably indexed (since STT is not paid). Besides exemptions under section 10(33), 10(37) & 10(38) certain specific exemptions are available under section 54, 54B, 54D, 54EC, 54F, 54G & 54GA.

Income from Other Sources This is a residual head; under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be always taxed under this head. 1. 2. 3. 4. 5. 6. 7. Income by way of Dividends. Income from horse races/lotteries. Employees' contribution towards staff welfare scheme. Interest on securities (debentures, Government securities and bonds). Any amount received from keyman insurance policy as donation. Gifts (subject to certain conditions and exemptions). Interest on compensation/enhanced compensation.

Insurance

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. Principles Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.

History of insurance History of insurance refers to the development of a modern business in insurance against risks, especially regarding ships, cargo, and buildings ("property" and "fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of medical treatment (health insurance). The industry has been profitable and has provided attractive employment opportunities for white collar workers. It helps eliminate risks (as when fire insurance companies demand safe practices and the availability of fire stations and hydrants), spreads risks from the individual or single company to the larger community, and provides an important source of long-term finance for both the public and private sectors. In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of

insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.

The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector and 24 General Insurance Companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

Life insurance Life insurance is a contract between an insured (insurance policy holder) and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. The advantage for the policy owner is "peace of mind", in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders. It is possible for life insurance policy payouts to be made in order to help supplement retirement benefits; however, it should be carefully considered throughout the design and funding of the policy itself. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.

Life-based contracts tend to fall into two major categories:

Protection policies designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life and variable life policies.

History of life insurance Insurance began as a way of reducing the risk to traders, as early as 2000 BC in China and 1750 BC in Babylon. Life insurance dates to ancient Rome; "burial clubs" covered the cost of members' funeral expenses and assisted survivors financially. Modern life insurance originated in 17th century England, originally as insurance for traders. Merchants, ship owners and underwriters met to discuss deals at Lloyd's Coffee House, predecessor to the famous Lloyd's of London. The first society to sell life insurance was the Amicable Society for a Perpetual Assurance Office.

The first insurance company in the United States was formed in Charleston, South Carolina in 1732, but it provided only fire insurance. The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. Prior to the American Civil War, many insurance companies in the United States insured the lives of slaves for their owners. In response to bills passed in California in 2001 and in Illinois in 2003, the companies have been required to search their records for such policies. New York Life, for example, reported that Nautilus sold 485 slaveholders life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation. Market trends Stranger originated Stranger Originated Life Insurance or STOLI is a life insurance policy that is held or financed by a person who has no relationship to the insured person. Generally, the purpose of life insurance is to provide peace of mind by assuring that financial loss or hardship will be alleviated in the event of the insured person's death. STOLI has often been used as an investment technique whereby investors will encourage someone (usually an elderly person) to purchase life insurance and name the investors as the beneficiary of the policy. This undermines the primary purpose of life insurance, as the investors would incur no financial loss should the insured person die. In some jurisdictions, there are laws to discourage or prevent STOLI. Criticism Although some aspects of the application process (such as underwriting and insurable interest provisions) make it difficult, life insurance policies have been used to facilitate exploitation and fraud. In the case of life insurance, there is a possible motive to purchase a life insurance policy, particularly if the face value is substantial, and then murder the insured.

The television series Forensic Files has included episodes that feature this scenario. There was also a documented case in 2006, where two elderly women were accused of taking in homeless men and assisting them. As part of their assistance, they took out life insurance for the men. After the contestability period ended on the policies, the women are alleged to have had the men killed via hit-and-run car crashes. Recently, viatical settlements have created problems for life insurance providers. A viatical settlement involves the purchase of a life insurance policy from an elderly or terminally ill policy holder. The policy holder sells the policy (including the right to name the beneficiary) to a purchaser for a price discounted from the policy value. The seller has cash in hand, and the purchaser will realize a profit when the seller dies and the proceeds are delivered to the purchaser. In the meantime, the purchaser continues to pay the premiums. Although both parties have reached an agreeable settlement, insurers are troubled by this trend. Insurers calculate their rates with the assumption that a certain portion of policy holders will seek to redeem the cash value of their insurance policies before death. They also expect that a certain portion will stop paying premiums and forfeit their policies. However, viatical settlements ensure that such policies will with absolute certainty be paid out. Some purchasers, in order to take advantage of the potentially large profits, have even actively sought to collude with uninsured elderly and terminally ill patients, and created policies that would have not otherwise been purchased. These policies are guaranteed losses from the insurers' perspective. 12 different types of life insurance policies The life insurance policies are of many types. Life insurance products come in a variety of offerings catering to the investment needs and objectives of different kinds of investors. Following is the list of broad categories of life insurance products: (1) Whole life Policy: Under this policy premiums are paid throughout life and the sum insured becomes payable only at the death of the insured. The policy remains in force throughout the life of the assured and he continues to pay the premium till his death. This is the cheapest policy as the premium till his death. This is the cheapest policy as the premium charged is the lowest under this policy. This is also known as ordinary life policy. This policy is suitable to persons who want to provide for payment of estate

duty, make bequeathments for charitable purposes and to provide for their families after their death. (2) Limited payment life policy: In the case of whole life policy there is one disadvantage in that the assured must continue to pay the premium even during his old age when he is no more employed. Under the limited payment life policy premiums are payable for a selected number of years or until death, if, earlier. The assured knows how much he will be required to payable only at the how long he lives. The sum insured becomes payable only at the how long he lives. The sum insured becomes payable only at the death of the insured. It is a suitable policy to meet the family needs. (3) Endowment policy: It runs only for a limited period or up to a particular age. Under this policy the sum assured becomes payable if the assured reaches a particular age or after the expiry of a fixed period called the endowment period or at the death of the assured whichever is earlier. The premium under this policy is to be paid up to the maturity of the policy, i.e., the time when the policy becomes payable. Premium is naturally a little higher in the case of this policy than the whole life policy. This is a very popular policy these days as it serves the dual purpose of family and ole age pension. (4) Double endowment policy: Under this policy the insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of the policy. This policy is suitable for persons with physical disability who are otherwise not acceptable for other classes of assurance at the normal tabular rates. Premiums are to be paid for a selected term of years or until death, if earlier. (5) Joint Life Policy: This policy covers the risk on two lives and is generally available to partners in business. Policies are however, issued on the lives of husband and wife under specified circumstances. Sum assured becomes payable at the end of the selected term or on the death of either of the two lives assured, if earlier.

(6) With or without profit policies: Under the with profit or participating policies, the policy holder is allowed a share in the profits of the corporation in the form of bonus and it is added to the total sum assured and paid at the time of maturity of the policy. In the case of without profit or non-participating policies, no such profit is allowed. Premium in the first case is higher and is lower in the later case. (7) Convertible whole life policy: This policy initially provides maximum insurance protection at minimum cost and offers a flexible contract which can be altered at the end of five years from the commencement of the policy to endowment insurance. (8) Convertible term assurance policy: This policy meets the needs of those who are initially unable to pay the larger premium required for a whole life or endowment assurance policy but hope to be able to do so within a few years. It would also enable such persons to take final decision at a later date about the plan suitable for their future needs. (9) Fixed term (marriage) Endowment policy & education annuity policy: It is a policy suitable for making provisions for the marriage or education of children. Premiums are payable for a selected term or till prior death. The benefits are payable for selected term or till prior death. The benefits are payable only at the end of selected term. In case of the marriage endowment, the sum assured is paid in lump sum, but in case of the educational annuity, it is paid in equal half-yearly installments over a period of five years. (10) Annuities: It is a policy under which the insured amount is payable to the assured by monthly or annual installments after he attains a certain age. The assured may pay the premium regularly over a certain period or he may pay the premium regularly over a certain period or he may pay a lump sum of money at the outset. These policies are useful to persons who wish to provide a regular income for themselves and their dependants.

(11) Sinking fund policy: Such a policy is taken with a view to providing for the payment of liability or replacement of an asset. (12) Multipurpose policy: This policy meets several insurance needs of a person like provision for himself in old age, income for his family and provision for the education, marriage or the start in life of his children. It gives maximum protection to the beneficiaries in the event of the early death of the assured, as it provides: i) Regular monthly income during the unexpired term; ii) Additional monthly income for a period of two years from the date of death; iii) Payment of a part of the sum assured on death and iv) Payment of the balance sum assured at the end of the selected period On maturity the assured may get the sum assured in cash, in the form of monthly pension, or an increased sum payable on death. Premiums are payable during the selected term or till death, it earlier. Section 80C Deductions

Deduction under this section is available only to an individual or an HUF. Section 80C of the Income Tax Act allows certain investments and expenditure to be deducted from total income up to the maximum of 1 lac. The total limit under this section is- 1, 00, 000 ) which can be any combination of the below: 1. Contributions to approved superannuation fund/public provident fund/recognized provident fund/statutory provident fund. Provident fund contribution should not exceed 1/5th of salary & public provident fund.

2. Payment of life insurance premium. It is allowed on premium paid on self, spouse and children even if they are not dependent on father or mother (subject to a maximum of 20% of sum assured). 3. 4. 5. Payment in respect of non-commutable deferred annuity. Unit linked Insurance policy of UTI/LIC Mutual fund Dhanraksha. Subscriptions to National Savings Certificates VIII issues.

6. Principal part of loan taken for acquiring Residential House Property; provided that the house should not be transferred within 5 years. Loan for land cost for residential house is also qualified. 7. 8. 9. Notified annuity plan of LIC or of any other approved insurer. Equity linked savings scheme (ELSS). Notified pension fund by UTI or approved mutual fund.

10. Tuition fees (not including donation or development fees) towards full-time education including play-school activities, pre-nursery & nursery classes, of any 2 children of an individual, paid to University, College or School in India. 11. 12. Any sum deposited as 5 years time deposit under Post Office Term Deposit. Any sum deposited in Senior Citizen Savings Scheme.

13. Any sum deducted from salary of Government employee (subject to maximum 20% of salary) towards deferred annuity plan for benefit of self, spouse or any children. 14. Term deposit with scheduled bank for a period of not less than 5 years as per scheme notified by Central Government.

Premiums paid for Life Insurance Plans

Category of Assessees eligible for Deduction: Individual

Hindu Undivided Family assessee Eligible Payments: Premiums paid or deposited in the Financial Year by assessee to effect or to keep in force insurance on the life of following persons: In the case of Individual Self, spouse and children In the case of HUF - Any member of HUF (incl. Karta) The Finance Bill, 2012 has proposed that the deduction from your income under Sec 80C, for premiums payable on life insurance policies issued on or after 1st April, 2012, shall be available only to the extent of 10% of the Actual Capital Sum Assured* If the insurance contract is terminated in case of single premium insurance policy within 2 years from the date of commencement of insurance or in other cases before premiums have been paid for 2 years, tax deduction allowed earlier would become taxable as income. Premium paid for Annuity Plans Premium paid during Financial Year for deferred Annuity Plan or Government notified annuity Plan is also eligible for tax deduction under Section 80C. Premium can be paid for deferred Annuity Plan on the life of self, spouse and children. Limit on Amount of Deduction Deduction under Section 80C is available upto a maximum of Rs.100,000, the overall limit provided under the Income-tax Act for payments/deposits specified under Section 80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) in aggregate. * "Actual Capital Sum Assured in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account (i) the value of any premium agreed to be returned; or (ii)any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person "Please note that tax laws and benefits under the said laws are subject to change. Please consult your tax advisor for the latest tax benefits on Life Insurance plans."

Section 80CCC As per section 80CCC, where an assessee being an individual has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the Fund referred to in clause (23AAB) of section 10, he shall, in accordance with, and subject to the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued or credited to the assessee's account, if any) as does not exceed the amount of one lakh rupees in the previous year. A payment made to LIC or to any other approved insurer under an approved pension plan is admissible for deduction under this section. Then pension plan policy should be for individual himself out of his taxable income. The deduction is least of the amount paid or Rs. 100000.

Deductions under Section 80CCC - Premiums paid for Pension Plans 1. Permitted Deduction: Section 80CCC allows to an individual, tax deduction for amount paid during the financial year out of income chargeable to tax, towards specified Pension Plan. Maximum deduction allowed is Rs.100,000, the overall limit provided under the Income-tax Act for payments/deposits specified under Section 80C, 80CCC and 80CCD (contribution to pension scheme of Central Government) in aggregate. 2. Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan, (including accrued interest / bonus) and amounts received as Pension are taxable as income in the year of receipt if deduction has been allowed earlier for the contribution (premiums) made to the said Pension plans. "Please note that tax laws and benefits under the said laws are subject to change. Please consult your tax advisor for the latest tax benefits on Life Insurance plans."

Tax Save - Under Sec 80C, 80CCC, 80D March 31st is approaching and everyone is investing to save tax. Just wanted to share some points with you on Sec 80C, 80CCC, 80D for tax purpose Life Insurance premium Any Premium in excess of 20% of sum assured is not eligible for tax rebate under sec 80C. E.g. You have policy of sum assured Rs. 4,00,000/- and you are paying premium every year Rs. 85,000/-. Than you can claim maximum up to Rs. 80,000/under section 80C. So invest in life insurance after keeping in mind the above rule. ULIPs If you are looking for tax rebate under ULIPs policies, than you must note that you have a lock-in period of 5 years for 80C deduction purposes. So next time if any sales person tell you that just invest for 3 years, get good return and exit after 3 year. Think twice. Taxman will catch you. Health Insurance Premium The annual deduction under sec 80D is of Rs. 15,000/- from taxable income for payment of Health Insurance premium for self, spouse, children. For senior citizens, the maximum deduction is Rs. 20,000/-. Pension Funds The aggregate deduction under Sec. 80C and the contributions to annuity plans or pension funds under Sec. 80CCC or Sec. 80CCD should not exceed Rs. 1 lakh. The maximum amount deductible under section 80C is Rs. 1,00,000. Also the total amount of deductions under sections 80C, 80CCC and 80CCD is Rs. 1,00,000. Surrender value Surrender value received is taxable in the year of receipt in the hands of the assessee or nominee

INCOME-TAX AND TAX BENEFITS FROM LIFE INSURANCE

Income Slabs Individual & HUF below age of 60 years Income upto Rs.2,00,000 Rs.2,00,001 to Rs.5,00,000 Rs.5,00,001 to Rs.10,00,000 Above Rs.10,00,001 Individual 60 years of age and more but less than 80 years Income upto Rs.2,50,000 Individual 80 years of age and more

Tax Rates

Income up to Rs. 5,00,000

NIL

Rs.2,50,001 to Rs.5,00,000 --

10%

Rs.5,00,001 to Rs.10,00,000 Above Rs.10,00,001

Rs.5,00,001 to Rs.10,00,000 Above Rs.10,00,001

20%

30%

A] INCOME-TAX RATES FOR ASSESSMENT YEAR 2013-2014 (FINANCIAL YEAR 2012-2013)

Education Cess: An additional surcharge called as 'Education Cess' is levied at the rate of 2% on the amount of Income tax in all cases shall be levied. Secondary and Higher: An additional surcharge, called the "Secondary and Higher Education Cess on income - tax" at the rate of 1% of income-tax and

surcharge (not including the "Education Cess on Income - tax") in all cases shall be levied.

B] SOME IMPORTANT INCOME TAX BENEFITS AVAILABLE UNDER VARIOUS PLANS OF LIFE INSURANCE ARE HIGHLIGHTED BELOW:

1) Deduction allowable from Income for payment of Life Insurance Premium (Sec. 80C).

(a) Life Insurance premium paid in order to effect or to keep in force an insurance on the life of the assessee or on the life of the spouse or any child of assessee & in the case of HUF, premium paid on the life of any member thereof under an insurance policy, ( other than a contract for a deferred annuity,) issued on or before the 31st day of March 2012 shall be eligible for deduction only to the extent of 20% of the actual capital sum assured.

(b) Life Insurance premium paid in order to effect or to keep in force an insurance on the life of the assessee or on the life of the spouse or any child of assessee & in the case of HUF, premium paid on the life of any member thereof , under an insurance policy , ( other than a contract for a deferred annuity,) issued on or after the 1st day of April 2012 shall be eligible for deduction only to the extent of 10% of the actual capital sum assured.

(c) Contribution to deferred annuity Plans in order to effect or to keep in force a contract for deferred annuity, on his own life or the life of his spouse or any child of such individual, provided such contract does not contain a provision to exercise an option by the insured to receive a cash payment in lieu of the payment of annuity is eligible for deduction.

(d) Contribution to Annuity Plans - New Jeevan Dhara, New Jeevan Dhara I & Jeevan Akshaya - VI

2) Jeevan Nidhi Plan & New Jeevan Suraksha - I Plan (U/s. 80CCC)

A deduction to an individual for any amount paid or deposited by him from his taxable income in the above annuity plans for receiving pension (from the fund set up by the Corporation under the Pension Scheme) is allowed.

NOTE: The aggregate amount of deduction under u/s 80C, 80CCC & 80CCD (1) shall not in any case exceed one lakh Rupees. However, there is no sectoral cap i.e. the limit of Rs.1, 00, 000/- can be exhausted by paying premium under any of the said sections. . 4) Deduction under section 80D

a) Deduction allowable upto Rs.15,000/- if an amount is paid to keep in force an insurance on health of assessee or his family (i.e. Spouse & dependent children) or any contribution made to the central Government Health Scheme or on account of Preventive health check - up of the assessee or his family . b) Additional deduction upto Rs.15,000/- if an amount is paid to keep in force an insurance on health of parents or on account of Preventive health check - up of the parent of the assessee, whether dependent or not .

c) In case of HUF, Deduction allowable upto Rs.15, 000/- if an amount is paid to keep in force an insurance on health of any member of that HUF d) In Case the amounts are paid in (a) or (b) or (c) on account of preventive health check up , the deduction for such amounts shall be allowed to the extent it does not exceed in aggregate Rs. 5,000 /-. e) For the purpose of deduction, the payment shall be made by

i. Any mode, including cash. In respect of any sum paid on account of preventive health check up. ii. Any mode other than cash in all other cases.

Note: If the sum specified in (a) or (b) or (c) is paid to effect or keep in force an insurance on the health of any person specified therein who is a senior citizen, then the deduction available will be upto Rs.20,000/-. Here senior citizen means the person who is of sixty year or more during the previous year.

Provided that such insurance is in accordance with the scheme framed by a) The General Insurance Corporation of India as approved by the Central Government in this behalf or; b) Any other insurer and approved by the Insurance Regulatory and Development Authority.

5) Jeevan Aadhar Plan (Sec.80DD) : Deduction from total income upto Rs.50000/- allowable on amount deposited with LIC under Jeevan Aadhar Plan for maintenance of an handicapped dependent (Rs.1,00,000/- where handicapped dependent is suffering from severe disability)

6) Exemption in respect of commutation of pension under Jeevan Suraksha & Jeevan Nidhi Plans: Under Section 10(10A) (iii) of the Income-tax Act, any payment received by way of commutations of pension out of the Jeevan Suraksha & Jeevan Nidhi Annuity plans is exempt from tax under clause (23AAB).

7) Income tax exemption on Maturity/Death Claims proceeds under Section 10(10D)

Under the provisions of section 10(10D) of the Income-tax Act, 1961, Maturity/Death claims proceeds of life insurance policy, including the sum allocated by way of bonus on such policy (other than amount to be refunded under Jeevan Aadhar Insurance Plan in case of handicapped dependent predeceases the individual or amount received under a Keyman Insurance Plan) ,is exempted from income- tax. However any sum ( not including the premium paid by the assessee ) received other than death claim under an insurance policy issued on or after the 1st day of April 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured will no longer be exempted under this section . Further any sum ( not including the premium paid by the assessee ) received other than death claim under an insurance policy issued on or after the 1st day of April 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent of the actual capital sum assured will no longer be exempted under this section.