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'How much deductions can I claim out of the House Rent Allowance that I receive from my company?'

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

What is the Cost Inflation Index for this year? Last year it was 351.

-- Neelima Thakor

The Cost Inflation Index for the financial year 1999-2000 (A.Y. 2000-01) is 389 as per Notification no. 11085 dated September 20, 1999 issued by the Central Board of Direct Taxes (CBDT).

I am interested in knowing how I can reduce tax by investing in various schemes. I currently draw a gross salary of Rs 2.01 lakhs p.a. what is the min tax that i must pay?

-- Karan Oberoi

Could you guide me on how to compute income tax if my salary is Rs 8,000 p.m. assuming I do not have any deductible investments like LIC/PPF. Also enlighten me as to which are the best ways to save tax for a salaried employee.

-- Vaishali Kulkarni

I am a salaried employee. All my income is taxable. Can you please let me know all legal avenues of investment by which I can maximise my take home salary? I fall in the highest tax bracket.

-- B Roy

Since the above three questions are broadly concerned with the same issue, let me club their answers:

On your annual salary -

• under Section 16 (i) of the Income Tax Act, 1961, you will be allowed a Standard Deduction of Rs.25,000 (salary more than Rs.1 lakh but not more than Rs.5 lakh) or one-third of gross salary or Rs.20,000 (if salary income is Rs.1 lakh); and

• U/S 16 (iii), the amount of professional tax or tax on employment paid by you will also be allowed as deduction.

Tax will be computed using the tax rates applicable to individuals for the assesment year 2000-01 (financial year 1999-2000) which are as follows:

Income upto Rs 50,000 -- Nil
Rs 50,000 - Rs 60,000 -- @ 10 per cent of the amount by which the total income exceeds Rs 50,000
Rs 60,000 - Rs 150,000 -- Rs 1000 plus 20 per cent of amount by which the total income exceeds Rs 60,000
Rs 1,50,000 and above -- Rs 19,000 plus 30 per cent of amount by which the total income exceeds Rs 1,50,000

Surcharge @ 10 per cent of income-tax is payable if total income of a resident exceeds Rs.60,000.

Tax Saving/Rebate on Tax: Section 88 of the Income Tax Act, 1961 provides an assessee a deduction of 20 per cent of the aggregate of sums invested in specified investments.

Investments which qualify for this section include life insurance premia paid for the assessee and family, contribution to statutory and/or recognised provident funds, contribution to Public Provident Fund, contribution towards approved superannuation funds, any sum deposited under the Post Office Savings Bank (CTD) Rules, 1951, subscription to National Savings Scheme, any sum paid for subscription to National Savings Certificates (NSC) (VI & VII issues), contribution in Unit Linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund, contribution to notified Equity Linked Savings Scheme (ELSS) of a mutual fund or UTI and payment made towards instalment for repayment of principal amount of loan taken for purchase/construction of a new residential house property.

The maximum aggregate amount of investment permitted is Rs.60,000/-. An additional sum of Rs 10,000 can qualify as investment under this section if used to purchase debentures or equity shares of a public company engaged in infrastructure or units of mutual funds referred to in S.10 (23D). The various modes of investments mentioned above involve locking up of the principal amount for periods ranging from 3 to 15 years yielding periodical or cumulative returns. If the assessee disposes the investments before the minimum lock-in period, then the sum thus received will attract tax in the year of receipt. Hence, if liquidity is most important, then you may choose that mode of investment wherein the lock-in period of the principal is the least e.g. contribution to ELSS of a mutual fund or UTI with a minimum lock-in period of 3 years.

How much deductions can I claim out of the House Rent Allowance that I receive from my company?

-- Sumeet Goyal

Section 10 (13A) of the Income Tax Act, 1961 and Rule 2A of the Income Tax Rules, 1962 deal with House Rent Allowance (HRA). The least of the following is exempt from tax:

(a) An amount equal to 50 per cent of salary (if residential house is at Mumbai, Calcutta, Delhi or Chennai) and 40 per cent (if residential house is situated at any other place); or
(b) HRA received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year; or
(c) The excess of rent paid over 10 per cent of salary

Salary for the above purpose means basic salary, Dearness Allowance as also commission linked to turnover achieved by an employee as per terms of contract of employment due for the year. No exemption is granted where an employee lives in his own house or in a house for which he does not pay any rent or pays rent which does not exceed 10 per cent of salary.

I am thinking of taking a housing loan from SBI. Could you tell me, how much rebate will be considered on income tax? In addition to this can you tell me, which is the best source to have a housing loan apart from SBI.

-- Thakur Umeshwar

You can avail a tax rebate U/S 88 of the Income Tax Act, 1961 @ 20 per cent of the amount you would pay annually towards principal repayment, but the amount thus contributed shall be limited to Rs.10,000 and hence the benefit U/S 88 shall be limited to Rs.2000. Further, where the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed before April 1, 2001, the deduction on account of interest will be Rs.75,000. Alternate sources providing housing loans include other banks and housing finance companies.

EARLIER Q&AS:

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