Certain provisions of income tax laws generally go unnoticed and have enormous tax implications. Let’s discuss.
Provisions applicable to life insurance, health insurance premium
The life insurance premium deduction is available for yourself, your spouse and your children. You cannot claim it as part of the life insurance premium paid for your parents even though they are financially dependent on you. On the other hand, you can claim a deduction for health insurance premiums from your parents even if they are not financially dependent on you. You can claim the life insurance premium deduction for children even if they are not financially dependent on you while the deduction for your children’s health insurance can only be claimed for children who are not financially dependent on you. financially dependent on you. You can claim a life insurance premium deduction even for your married son or daughter. There is no restriction on the number of children for whom you can claim tax benefits for health insurance as well as for life insurance, unlike education and travel assistance allowances (LTA) which are only available for two children.
Provision for deductions for mortgage
The tax advantage for the repayment of a mortgage under Article 80 C is only available for a mortgage taken out only for a residential property, while there is no restriction on requesting a mortgage. interest deduction under section 24 (b) which is also available for a residential house. as with commercial property. Likewise, the deduction for repayment of principal is only available if the loan has been taken out with specified institutions and entities such as banks, real estate finance companies, central and state governments, universities, public limited companies, etc., while there is no restriction on what type of lender you can borrow from to claim the interest paid deduction. Even you can claim a deduction for interest paid to friends and relatives as long as you are able to relate the borrowed money to its end use for the home.
The deduction for reimbursement under section 80C is only available for building or buying a house while the deduction for interest is available even for the renovation, repair of the property of the house. If you sell or transfer the residential home within five years of the end of the fiscal year in which possession of the home was taken, the tax benefits available to you for repaying the home loan under the Article 80 C are canceled in the year in which you transfer your property and be taxed, there is no similar provision for the cancellation of tax benefits claimed under Article 24 (b) . In the case of a building under construction, the interest paid during the construction period, called pre EMI, can be claimed in five equal installments from the year of possession, within the overall limits, while ‘There is no provision of deduction claimed in the past for the principal amount repaid during the construction period.
Different holding periods for the qualification of long-term immobilization and for indexation
Holding any fixed asset beyond 36 months is usually the prescribed period for an asset to become long-lived, but in the case of land and building it is 24 months while listed shares in India and Indian fund units are a holding period requirement is only 12 months. The required holding period for unlisted shares in India and shares is more than 24 months, which includes shares of Indian companies as well as foreign companies. Equity units of foreign mutual funds are partially treated with units of debt funds for which the required holding period is greater than 36 months.
Provisions for capital gains on listed shares
Long-term capital gains on the sale of listed stocks and equity mutual funds are fully exempt up to one lakh each year and beyond, taxed at the flat rate of 10% with no profit indexing. However, if you sell these shares off the exchange, they are taxed at the flat rate of 20% with no initial exemption but with the benefit of indexation available to you.
Normal short-term capital gains are taxed at the slab rate applicable to you, but the short-term capital gains tax on the sale of listed shares through a Stockbroker and equity-based plans is taxed at a flat rate of 15% regardless of your slab rate. So, if you are in the 10% tax bracket, you may still have to pay a 15% short-term capital gains tax on listed stocks sold on the recognized exchange.
I am sure you will find this discussion helpful in making financial decisions that have tax implications.
Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter.
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