I am given to understand that if the EPF (Employees Provident Fund) contribution by employer is less than 12%, the same would not be included in the employee?s earning for calculation of income tax. I am an employee in a central government public sector undertaking. Under NPS (new pension scheme) there is a deduction 10% (BP+DA+DP) from my salary. My question is whether this 10% contribution made under employer share under NPS scheme taxable or not as the employee`s income?

Madan Lal Singla

Sec. 80CCD, which is related with the pension scheme of Central Government, was inserted by Finance (No. 2) Act with retrospective effect from April 1, 2004. It offers deduction of the employee?s contribution to the scheme up to 10% of his salary as well as the matching contribution made by the employer. When the assessee or his nominee eventually withdraws any amount from this pension account, the amount withdrawn is fully taxable in the hands of the recipient. Similarly, any pension received from the account is taxable. All the tax concessions are in the nature of EEE or ETE (E => Exempt, T => Taxable). The new pension plan is EET in nature.

Every year, CBDT issues out a circular which guides all the employers in deducting tax at source. For FY 08-09, Circular no. 9 /2008 [F.NO.275/192/ 2008- IT (B)], dated 29-09-2008 Para 5.4.C states, ?As per the provisions of section 80CCD, where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme as notified vide Notification No. F.N. 5/7/2003- ECB&PR dated 22.12.2003, he shall be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed ten per cent of his salary in the previous year.

Where, in the case of such an employee, the central government makes any contribution to his account under such pension scheme, the employee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the central government as does not exceed ten per cent of his salary in the previous year.

The aggregate amount of deduction under sections 80C, 80CCC and 80CCD shall not exceed Rs.1,00,000/- (Section 80CCE).

I wish to invest in Rs. 1 lakh in ELSS tax saving mutual fund. If I invest in the name of my son with myself as guardian will I get tax exemption or I have to invest it in my name please.

Sanjay

ELSS investments made in the name of child, major or minor, are not eligible for the benefit of deduction u/s 80C.

Following is my query regarding NSC accrued interest for deduction u/s 80-C.

If NSC is purchased during a financial year, say on 13-09-2008, then which is the first year for calculating accrued interest on NSC, i.e., whether FY 2008-09 or 2009-10 ?

Arpit Parekh

NSC-VIII is a cumulative scheme where the amount invested along with the accrued interest is paid at the end of the term. However, the interest, though compounded on half-yearly basis is exigible to tax on annual basis. If the NSC is purchased on 13-9-2008, then you may include the return for the first year in the return for FY 09-10.

In one of your past Q&As, you have mentioned that ELSS is an eligible investment for deduction under Sec. 67 of proposed Direct Taxes Code as an eligible investment. Is it correct? I have studied the code to a small extent but could not come across the provision for ELSS investments being eligible for tax saving. Please confirm as there is some confusion over this issue.

Sudhir Kaushik

ELSS is indeed an eligible investment for claiming tax deduction under the new Code. The only difference is that instead of a direct investment, in the new regime, the investment has to be routed through one’s account with the permitted savings intermediary.

A minor child has inherited Rs. 15 lacs as gift which is tax free. Now, if he were to invest this money in any product, can he submit Form 15G to avoid tax deduction at source on the income accrued on investments?

Gopal

All the income earned by a minor child is taxed in the hands of the parent who has an Indian income more than that of the other, unless the child has a physical or mental handicap or the child earns an income by virtue of its special skills or knowledge. There is a an exemption of Rs. 1,500 per year per child. Once the child becomes a major, the amount that was being clubbed when he was a minor, ceases to be clubbed.

Since the interest will be clubbed in the hands of the guardian, the guardian can file form 15G if the tax payable by the guardian on his or her total income including the clubbed income from the child is nil and his/her income from interest is less than the threshold applicable to him/her.

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