Tax exemption to those with income up to Rs 5 lakh?

Tax exemption to those with income up to Rs 5 lakh? No taxpayer can avail this:-

 The previous year, just a few weeks before the tax return deadline of 31 July, the Central Board of Direct Taxes (CBDT) exempted those with an income of up to Rs 5 lakh from filing returns. But, as ET Wealth pointed out, the conditions were so restrictive that no one was eligible for the exemption. 

For instance, you were eligible for the exemption if you had reported the interest income from your savings bank account to your employer and tax had been duly deducted on that income. The CBDT had announced this at the end of June 2011, when most companies had already finished preparing the Form 16s of their employees.

The CBDT has woken up early this year. Last month, it announced a similar exemption for the current financial year as well. But the conditions are no less impractical than they were in 2011.

No income from investments

The exemption is for salaried taxpayers who have income only from salary and the interest from their savings bank account. Surely, a person earning Rs 30,000-40,000 a month would have invested in fixed deposits, recurring deposits, bonds and other investments as well. This includes tax saving investments in NSCs, infrastructure bonds and tax saving fixed deposits.

If the taxpayer puts money in any of these options, he would also earn interest from these investments, which will disqualify him for the exemption from filing returns. Only a person who has no tax saving investments and lets all his money idle in a savings bank will be eligible.
Investors in property also won't make the cut. If they have any rental income, they are not eligible. Even if their second house is lying vacant, they will have a notional income from the property.

 Practical difficulties

Even if the taxpayer has no income other than his salary and the bank interest, there is a practical difficulty. The interest on a savings bank account is credited to the account on a half-yearly basis. The interest from October 2011 to March 2012 will get credited after 31 March. But since it accrued this year, tax will have to paid on it right now.

However, the CBDT says that to avail of exemption from filing his return, the taxpayer should have declared his bank interest to his employer. It should be mentioned in the Form 16 and tax should be deducted on it. To do this, the taxpayer will have to estimate the interest income on the basis of his bank balance in the past 5-6 months.

Clarification regarding deduction under Section 80 CCD(pension scheme)

F.No. 275/192/2009-IT (B)
New Delhi Dated the 9th February, 2010.
Sub: Clarification regarding deduction in respect of contribution to pension scheme under Section 80 CCD – matter reg.
            A number of representations have been received regarding deduction under Section 80 CCD for contribution made under pension scheme in the light of Circular No-1 /2010 dated 11th Jan’2010 issued on the subject of Deduction of Tax at Source etc.
           It is clarified that in accordance with the provisions of Section 80 CCD, deduction in respect of contribution made by an individual in the previous year to his account under a pension scheme notified, is allowed in computation of his total income –
(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.
2. It is further clarified that where the Central Government or any other employer makes any contribution to the account of employee for the pension scheme, the assessee shall also be allowed a deduction in the computation of his total income of the whole of the amount contributed by the Central Govt. or any other employer as does not exceed 10% of his salary in the previous year.
3. Salary for the purpose of above section (80 CCD) includes dearness allowance if the terms of employment so provide, but excludes all other allowances and perquisites.
4. It is further clarified that aggregate limit of deduction under this section (80 CCD) along with Sections 80 C, 80 CCC shall not in any case exceed Rs. one lakh.
Yours faithfully,
(Ansuman Pattnaik)
Director (Budget)
To,
All DDOs of Central Government, State Governments, CAG & other persons as per standard list