CA Nikhil Vadia simplifies income tax laws

Moneylife Digital Team 26 February 2016

Moneylife Foundation organised an interactive session on deductions allowed under different sub-sections of Section 80 for salaried and self-employed

Many salaried people and self-employed professionals end up incorrect taxes as they are unaware of various deductions and exemptions. Some of them put money in tax saving instruments, which exceeds the exemption limit, or make investments which are not eligible. CA Nikhil Vadia, a Voluntary Expert with Moneylife Foundation’s Tax Helpline (www.moneylife.in/taxhelp) , took the audience through an interactive session on deductions allowed under different sub-sections of Section 80 for salaried/employed. With over 19 years of experience in direct and indirect taxation, he simplified the complex provisions of the Income Tax Act.

“Since a deduction is available, I will invest in a particular instrument” is the common wrong approach to investing – and it is wrong. He said that you must make investments on the basis of your needs and not merely because a deduction is available. First, you need to list down your deductions which are in the form of expenses such as tuition fees, home loan repayments etc. After accounting for this, you can work out the investments needed, if required. He said that documentary proof was essential for claiming deductions. Explaining the difference between exemptions and deductions, he went on to explain one of the most important sections for claiming deductions – Section 80C. Section 80C contains many clauses, but 6-7 are the most important. Listing down the different investments that could be made for claiming deductions under this Section, he explained the detailed provisions for each investment head. Understanding income tax is not complete unless you highlight different exceptions to the rules. For instance, coming to Sukanka Samridhi Account for girl child, many people are under the wrong impression that the money will be available when the daughter reaches the age of 21 years. He highlighted that this money is only available after 21 years of investment.

He moved on to the other important sections of Section 80. Explaining deduction in respect of contribution to certain pension funds, he explained issues with respect to withdrawal from National Pension System (NPS). He also highlighted the different conditions under which deduction will be available for medical insurance premium under Section 80D.

'Tax laws create more criminals than any other law' is the popular saying. Deduction for house rent allowance (HRA) is a fit case for this saying, he said. “A large number of queries on Tax Helpline relate to house property”, he remarked, which makes this deduction extremely critical. Vadia explained the conditions under which this deduction along with deduction on interest is available. He highlighted that deduction also allowed for any expenditure incurred towards stamp duty/registration charges for transfer of house. He explained the conditions under which repayment of loans does not qualify as deduction.

Capital gains arise on sale of capital assets. There are methods to reduce your capital gains liability. Section 54 is one such section. If capital gains from sale of residential property are invested in purchase or construction of residential house property, the long term capital gains are exempt under certain conditions. Highlighting different aspects and complexity of Section 54 and Sec 54F, he remarked, “There might probably be a case law for each word in Section 54.” The event ended with an lively Q&A session.

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