Rebate u/s 87A only if income less than Rs 5 lakh

S C Vasudeva

a) What is Section 87A and the increase in tax rebate from Rs 2,000 to Rs 5,000 proposed in the Budget for 2016-17?

b) Can an individual taxpayer with no salary/pension income contribute to National Pension System and claim additional rebate besides the rebate up to Rs 1.50 lakh under Section 80C?

c) Whether contribution to a medical insurance scheme for self or parents can earn extra rebate?

d) Whether Post Office MIS, SCSS and five-year term deposit with nationalised banks are also eligible for rebate under Section 80C?

— Lalit Bharatwaj 

a) Section 87A of the Act provides that in case an assessee whose total income does not exceed Rs 5 lakh shall be entitled to a rebate from the income-tax payable on his total income to the extent of an amount equal to 100% of such income-tax or an amount of Rs 2,000 whichever is less. This benefit would be available for tax payable in respect of the financial year 2016-17. 

b) An individual assessee who has in the previous year paid or deposited any amount in his account under the pension scheme notified or as may be notified by the Central Government shall be allowed a deduction in computing his total income of the whole of the amount so paid or deposited as does not exceed 10% of his gross total income. The admissible deduction is limited to a sum of Rs 1,00,000 under Section 80CCD of the Act.

c) Contribution to a medical insurance scheme for self or parents is allowable as deduction from the total income under Section 80D of the Act.  The deduction is admissible to the extent of Rs 25,000 for medical insurance for self and another Rs 25,000 for the insurance on the health of the parents.

d) Deductions covered u/s 80C of the Act include:

(i) Deposits under Senior Citizen Scheme 

(ii) Five-year deposit in an amount under Post Office Time Deposit Rules 1981 and

(iii) As a term deposit for a fixed period of not less than 5 years with scheduled bank in accordance with the scheme framed and notified by the Central Government in this regard.

Kindly refer to your advice on the subject of gifted money and limit thereof:

1. The Tribune dated 1.2.2016 — No rebate on gift to daughter — gift is not taxable in the hands of daughter in view of exception provided by I/Tax Act.

2. The Tribune dated 22.2.2016 — No limit on gifting money to wife — Amount transferred shall be clubbed with one’s income and no limit.

3. The Tribune dated 29.2.2016 — get rebate on Senior Citizen Savings deposit (gift given to son) — The interest earned by your son (who is a major) on the amount gifted is not includible in your income.

(a) My query is when some amount is gifted to a blood relative, can he/she deposit it in his account or an FD with a bank and utilise wherever he likes? Whether interest earned is his liability or added in the income of donor? Please advise.

(b) Whether such gift given on paper document is sufficient and accepted thereof? Is there any specific column for mentioning it in the IT return? 

(c) Please also tell us about the limit if gift is given to a daughter-in-law, grandson/daughter out of love and affection.

(d) I am a senior citizen aged 80 plus.

(e) My wife’s DOB is 4/35 and she completed 80 years on 11.4.2015.  Can she enjoy the status of super senior citizen for financial year 2015-16. Please advise.

— V. Parkash

a) The term ‘relative’ for the purpose of non-taxability of a receipt exceeding Rs 50,000 by an Individual is defined under Section 56(vii)(e) of the Income-tax Act, 1961 (The Act).  The term ‘relative’ for the said purpose means.

(a) spouse of the individual;

(b) brother or sister of the individual;

(c)  brother or sister of the spouse of the individual;

(d) brother or sister of either of the parents of the individual;

(e) any lineal ascendant  or descendant of the individual;

(f) any lineal ascendant  or descendant of the spouse of the individual;

(g) spouse of the person referred to in item (b) to (f).

The taxability of income arising on the amount of gift to a spouse or a minor child is covered by Section 64(1)(iv) and 64(1A) of the Act. Section 64(1)(iv)  of the Act provides that income arising from any asset transferred to a spouse without consideration shall be clubbed with the income of the spouse who has transferred such assets. Section 64(1A) of the Act provides that income arising to a minor unless the same has been earned on account of any manual work done by him or by an activity involving application of skill, talent or specialised knowledge  and experience, shall be included in the total income of  either of the parent.  Therefore, the income arising to a spouse and a minor child on assets transferred to them by the spouse or parent of the minor as the case may be, can be enjoyed by the donees but its taxability is governed by the aforesaid sections.

b) A gift of a movable property does not require execution of a gift deed.  An exchange of letters making a gift and accepting such gift will be sufficient as an evidence of making a gift. The letters should give the complete address of the donor and the donee, including the PAN of both. 

c) A gift can be given to a daughter-in-law as well as grandchildren. The gift so made would not be covered within the provisions of Section 56 of the Act. However, the taxability of income arising on such gifts shall be covered by either the provisions of Section 64 or Section 64(1A) of the Act.

d) There are three categories of income-tax assessees; a person who is not a senior citizen, a senior citizen, and a super senior citizen.  You are covered within the last category.  There is no other category prescribed by the Act.

e) Your wife can claim the benefit of a super senior citizen for the financial year 2015-16.