I have been investing every month in an equity-linked savings scheme to avail of Section 80C deduction. I want to know the treatment of dividend reinvested in the scheme. Does each dividend carry a three-year lock-in? Can I also avail of deduction under Section 80C on the dividend declared by the fund house in this financial year?
Under the Income Tax Act, 1961 (“Act”), investment in Equity Linked Saving Schemes (ELSS) can be claimed as deduction under Section 80C of the Act (capped at Rs 150,000 per annum or amount of investment made in the relevant tax year, whichever is lower). The dividend earned and reinvested in the scheme is tax exempt in the hands of the recipient individual.
When dividend is reinvested, it becomes eligible to be allowed as a deduction under Section 80C of the Act. Accordingly, the lock in period of three years would also apply starting from the date of allotment of units of dividend reinvested. Dividend declared and not reinvested will not qualify for deduction under Section 80C.
As a salaried individual, what are the various common deductions I can or can't avail of while filing income tax returns? I was on long leave when we had to submit investment declarations to the employer. As I could not do the paperwork in time, the employer is deducting higher amount from my salary. I may need to claim deductions when filing returns.
The deductions or exemptions that an individual can avail of fall under two broad categories. The first pertain to certain investments or expenditures, such as deductions under Section 80C on life insurance premium, contribution to PPF account,
five-year term deposits, tuition fees of children, principal repaid on housing loan, etc., or even deduction on medical insurance for self and/or family under Section 80D, and so on.
The other category comprises certain benefits that are a part of your compensation, such as medical reimbursement, LTA , HRA, etc. For most of these items under both the categories, individuals can avail the deduction/exemption while filing his or her individual return, except for medical reimbursement. Accordingly, if taxes have been deducted by the employer and the employee avails deductions while filing the return, he will get a refund on his return. Individuals need to ensure that original proofs are retained and relevant conditions for availing those deductions/exemptions are met. It is likely that the tax authorities may call for information to verify the claim for such deductions/exemptions.
Kuldip Kumar, PwC
How are dividends of debt and equity mutual funds taxed?
Under Section 10(35) of the Income Tax Act, 1961 (“Act”), dividend income received by an individual from Sebi-registered mutual funds (both debt and equity) is exempt from tax in the hands
of the recipient. It may be noted that debt-oriented mutual funds are subject to dividend distribution tax which is paid by the mutual funds before any distribution is done to mutual fund unit holders.
After filing my returns for the current assessment year, I got a refund of Rs 28,090. There was some issue and I had to revise my returns. Now it shows another refund of Rs 9,770. Will I get this money or will it be adjusted in my next filing?
In this case, you will get this refund once your revised return is processed by the income tax department and if they find your claim to be legitimate. Your refund will not be adjusted in next year’s filing.
(The writer is partner and leader, personal tax, PwC India. The views expressed are the expert’s own. Send your queries to email@example.com)