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Have a query on Section 80C?

RelaxWithTax


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July 05, 2006

You have a question about house rent allowance, medical allowance or even a general tax query.

Here's where we step in with our experts, Relax With Tax.

Got a question for Relax With Tax? Please write to us!

I do understand that the amount invested in ELSS under Section 80C is eligible for a tax deduction to a limit of Rs 1,00,000. This has a lock-in period of three years.

1. When I sell the units, will the profit made be tax free?

2. Will the initial amount invested be added to my personal income and taxed to me again when I have sold the units?

3. What if I do not sell the units but transfer the amount into an equity fund under the same Asset Management Company (something like from HDFC [Get Quote] Tax Saver to HDFC Equity)?

- Darshit Damania

Let's say I invest Rs 50,000 in an ELSS and Rs 50,000 in PPF. By these investments, I have touched my Rs 1,00,000 deduction under section 80L.

Now let's say that after six months, I sell the fund units and pay the exit load plus the short-term capital gains tax.

Does the ELSS still hold valid for the Rs 1,00,000 deduction?

- Pankaj Badhe

You are right. The amount invested in an Equity Linked Savings Scheme is eligible for a deduction under Section 80C upto Rs 1,00,000.

This investment has a lock-in period of three years. This means you cannot sell the units before this time frame.

Once you sell, it is eligible for capital gains. Because these are mutual funds that invest in shares, long term capital gains is zero. So, when you sell after three years, you pay no tax on your profit.

Moreover, the amount invested (which is the principal amount invested) would not be added to your income when you sell.

The same applies to a transfer of units like you asked. But, if you transfer (or even sell for that matter) the units before the completion of the lock-in period (three years), then the amount of tax saved in the year of investment would be deemed to be recoverable from you in the year of transfer.

Let's say you invested in an ELSS in FY 2004-05 and saved tax of Rs 20,000. In FY 2005-06, you transferred the units. In this year (FY 2005-06), the income tax department will recover this Rs 20,000 from you.

If I invest in a bank fixed deposit for a five year tenure, will this be exempt under Section 80C?
- Arti Mahalaha

Investment in a term deposit with a bank for a minimum tenure of five years would be eligible for deduction under Section 80C.

Last month I got a letter from my insurance company saying that due to the Budget increase in Service Tax my premium was increased. Now I would have to pay around Rs 10,800.

The service tax rise is only 2%, so the premium should have risen by approx Rs 200 (considering 2% for Rs 10,000).

I got an answer saying that, until now they were bearing the service tax and starting this year, they have levied the entire service tax to the consumer.

So what it means is the entire 12.24 % on the net premium is charged to the customer and this is a company wide policy.

My question: When I claim my insurance premium under Section 80C, can I claim the entire amount of Rs 10,800?

- Arumugam

Yes, you can claim the entire Rs 10,800 as eligible deduction under Section 80C.

Got a question for Relax With Tax? Please write to us!

Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

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Illustration: Dominic Xavier


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