Tax laws specific to students

Tax laws specific to students

How much tax will you pay?

One by six is a criterion that needs to be met when you file your returns. In simpler terms, if you fulfill any one of the six criteria, you will have to file a return of income tax even though your income maybe below the tax-free limit of Rs 1 lakh. At the moment the six criteria are mobile phones, travel abroad, credit card, car, immoveable property, and club membership.

In this Budget, the finance minister has replaced mobile phones with electricity bill exceeding Rs 50,000 per annum. So if you had been filing tax returns because you own a cell phone, even though your annual income is below Rs 1 lakh, you need not do so in the future. As against that, if your electricity bill exceeds Rs 50,000 every year, you will be brought under the net of filing returns.

Do I get special deduction?

While earlier, the total interest plus principal portion of education loan repayment was deductible from income; the finance bill for 2006 says that only the interest portion of the loan repayment would be deductible. The good news is that this is over and above the limit of Rs 1 lakh set under the new section 80C.

For example, if you have taken an education loan of Rs 1 lakh at 12% interest repayable over 5 years, for this year you would get a deduction of Rs 26,688. That is the total interest plus principal repaid in the year. If you were to apply the new laws, you would get a deduction of only Rs 11,165.

Deductions and Exemption

The recent budget has prescribed a consolidated ceiling of Rs 1 lakh as investments allowable deduction under the new section 80C. What this means is that out of your total taxable income, up to Rs 1 lakh will be deductible if you invest in certain specified instruments.

While a number of instruments have been included in this section, the good part is that there are no sub ceilings within these instruments. So you can choose to invest the entire sum of Rs 1 lakh in any one of these instruments or diversify the amount among these instruments in the proportion that you desire.

The following is an exhaustive list of all the instruments that you can invest in to get the benefit of section 80C.

1. Premiums paid towards life insurance policy for self and immediate family

2. Any amount paid towards a deferred annuity scheme like those offered by mutual funds

3. For government and semi-government employees, any amount which is deducted from your salary towards a deferred annuity scheme

4. Your contribution towards a Provident Fund, provided that the fund is covered under the Provident Fund Act

5. Provident Fund opened in the name of immediate family members

6. Contribution to a recognized provident fund

7. Contribution to an approved superannuation fund

8. Contribution to a government savings certificate. This would include post office savings schemes

9. Premium paid towards a ULIP

10. ULIP of UTI Mutual Fund and LIC Mutual Fund

11. Any payments made to keep in effect an annuity plan of any insurance company

12. Equity Linked Savings Scheme (ELSS)

13. Contribution to a pension fund set up by a mutual fund subscription

14. Subscription to any such deposit scheme of, or as a contribution to any such pension fund set up by, the National Housing Bank

15. As subscription to any such deposit scheme of an authorized company which provides long term finance for construction or purchase of residential houses

16. Home loan principal repayment

17. Public offerings of equity shares or debentures

18. Pension policy where benefits were available under section 80CCC. However, here, the sub-ceiling remains at Rs 10,000