Article Details

Save additional tax by investing in NPS

TAX TALK-11.07.2016-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

Save additional tax by investing in NPS

Query 1]
My parents joint holder of residential house sold property in February 2016. LTCG was 5 Lakh each. My parents wanted to invest in capital gain bond u/s 54EC. My father expired in June 2016 before investing in bonds. My mother is now legal heir. How can she invest in capital gain bonds on his behalf? She has made her part of investment in LTCG bonds. As a legal heir she needs to file returns for AY 16-17. Please guide. [Yogendra Kale- ]
Opinion:
1.      Even death doesn’t absolve person from the tax liability. After the death of your father, the income tax return would be required to be filed by the legal heir in a representative capacity. Obligation to file Income tax return and liability to pay taxes on income of deceased is same as that of alive person. All the tax payments like outstanding tax demand, advance tax, self assessment tax, etc are also to be made by the legal representative. Further, the legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he was alive as automatic charge is generated over the property left [Section 159 of the Income Tax Act-1961].
2.      Your father had earned long term capital gain tax. The question arises as to whether legal heir can claim long term capital gain exemption by investing the LTCG amount in NHAI/REC specified bonds?
3.      Where a person had sold the property during his life time and the legal representative fulfills the required stipulated conditions for exemption (u/s 54, 54F or 54EC etc), the benefit of exemption could be granted to the legal representative in view of following judicial pronouncements
a] C.V. Ramanathan Vs. CIT (1980) 125 ITR 191 (Mad)
b] Late Mir Gulam Ali Khan Vs. CIT (1987 165 ITR 228 (AP)
c] CIT Vs. R. Subramanya Bhat (1981) 165 ITR 37 (Kar).

Query 2]
I am a govt. Employee and I am member of NPS. My employer CG State Power Generation Co. Ltd. have deducted Rs. 82,277/- from my salary as employee’s contribution (10% of Basic + DA) under NPS in FY 2015-16.
I have also invested Rs. 1,50,000/- in PPF in FY 2015-16 on which I want to claim tax rebate under section 80C. Recently I have received Form -16 given by my employer, in which deduction of employee contribution of Rs. 82,277/- plus PPF investment Rs. 1,50,000/- is shown under section 80C. However the deduction of employee contribution Rs. 82,277/- should be shown under section 80 CCD (1B). They have also not given the benefit of extra deduction of Rs. 50,000/- under section 80 CCD(1B) and deducted extra TDS. Now, what I want to know is, I have exhausted my limit of Rs. 1,50,000/- under section 80C by investing in PPF, to get extra deduction of Rs. 50,000/- under section 80 CCD(1B), can I use my employee contribution Rs. 82,277/- which is deducted from my salary as employee’s contribution (NPS), means can I use this Rs. 82,277/- not under 80C and can I use it under 80CCD (1B)? Should I go for correction in Form - 16 from my employer or should I file the Income tax return and claim the refund? [S.K. Sahu- NC 128, AB Type, CSEB Colony Korba East-CG 495677]
Opinion:

With a view to promote social security measures and to provide the citizens with pension support, National Pension scheme was originally introduced for the Government employees long back in 2004. The scope of scheme was later on extended in 2009 so as to cover the private sector employee. And now, the benefit of the scheme has been extended so as to include self employed citizens also.
Being a new product, many taxpayers are not aware of NPS as a tax saving tool. NPS is a voluntary pension scheme regulated by Pension Fund Regulatory and Development Authority (PFRDA). Any citizens of India between 18 - 60 years of age, whether resident or non-resident, are eligible to subscribe NPS. With fund management charge of mere 0.25% p.a., NPS is cheapest market linked online financial product. Being a low cost portable & transparent pension system, it has been able to garner more than 1 lakh crore in the FY 2015-16
Section 80CCD(1B) in the Income Tax Act-1961 offers an additional deduction of Rs. 50,000/- to the taxpayer for contribution in the National Pension Scheme (NPS). The deduction is over and above the deduction of Rs. 1.50 Lacs available u/s 80C for contribution in LIC/PPF/NSC etc. Deduction of Rs 50,000/- under 80CCD (1B) is exclusively for investments in NPS and cannot be availed against any other investment.
Tax Benefit:
Tax benefit is one of the key consideration for arriving at an investment decision.
NPS tax benefits are available through 3 sections – 80CCD(1), 80CCD(2) and 80CCD(1B), as under:

Employee Contribution is eligible for deduction u/s 80CCD (1) subject to overall maximum cap of Rs. 1.50 Lacs available u/s 80C. [Deduction u/s 80C, 80CCC & 80CCD(1) taken together cannot exceed Rs. 1.50 Lakh: Section 80CCE]
Employer Contribution is also allowed as deduction in the computation of total income of the employee to the extent that it does not exceed 10% of employee’s salary. Deduction of employer contribution is available over & above the deduction of Rs. Rs. 1.50 Lacs as mentioned in (1) above [Section 80CCD(2)].
Self Employed and others:
In addition to deduction as mentioned in (a) & (b) above, an additional deduction of Rs. 50,000/- is also provided u/s 80CCD (1B) for contribution in NPS. It is over and above & is in addition to deduction u/s 80C. Deduction from income simply means that, higher the tax bracket- higher the benefit, lower the tax bracket- lower is the benefit. But benefit is there if an individual has taxable income. For example, an individual in the 30% tax bracket could save tax of Rs. 15,450/- whereas those in 20% & 10% tax bracket would be able to save tax of Rs. 10,300/- & Rs. 5,150/- of the tax amount respectively.

In your specific case, deduction u/s 80C has exhausted as a result of investment in PPF of Rs. 1.50 Lacs. However, option of claiming deduction u/s 80CCDD(1B) up to Rs. 50,000/- is available to you. Deduction u/s 80CCD(1B) is in addition to and above the deduction available u/s 80CCD(1), 80C, 80CCC & 80CCE. You can request your employer to consider your claim for deduction u/s 80CCD(1B). Whether the employer considers it or not, you can claim the deduction while filing your individual income tax return.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]