Section 80EEB – Deduction for Interest paid on Loan for E-Vehicle

In order to promote and motivate individuals to buy electric vehicles, the Government of India in Budget 2019 announced to provide a deduction for the purchase of an electric vehicle. A new section 80EEB was introduced. It allows deduction on the interest paid on the loan for the purchase of an electric vehicle.

Who is Eligible to Claim Deduction Under Section 80EEB?

Only Individuals can claim deductions under section 80EEB of the Income Tax Act. Any other entity i.e. a partnership firm, HUF, a company or AOP cannot claim deduction under this section.

Deduction under section 80EEB is not allowed if the taxpayer opts for the new tax regime
Tip
Deduction under section 80EEB is not allowed if the taxpayer opts for the new tax regime

What are the Conditions to Claim Deductions Under Section 80EEB?

  • The loan that is taken for the purchase of an electric vehicle must be taken from a financial institution or an NBFC
  • The loan taken for the purpose of buying an electric vehicle must be sanctioned between April 1, 2019 and March 31, 2023
  • Deductions under section 80EEB are effective from AY 2020-21
  • A deduction can be claimed on the loan for the purchase of 2 wheeler as well as 4 wheeler
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What is the Deduction Amount available Under Section 80EEB?

An individual taxpayer can claim interest on loan of an electric vehicle of upto INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. Additionally, you can also claim depreciation as a business expense on the asset. It is to be noted that in order to claim the business expense the vehicle is registered in the name of the owner or the business enterprise. Individual taxpayers must also make sure to have all the necessary documents when filing an income tax return.

FAQs

Can I claim a deduction u/s 80EEB for the repayment of principle amount on the loan that is taken for an electric vehicle?

No, one can only claim a deduction u/s 80EEB on the interest payment of the loan.

For how many years can I claim a deduction under section 80EEB?

An individual can claim a deduction under this section until the repayment of the loan.

I have taken a loan from a relative to purchase an electric vehicle. Can I claim a deduction u/s 80EEB?

No, in order to claim a deduction under section 80EEB the loan must be taken from a financial institution or an NBFC

How to claim expenses on Freelance Income?

Income earned by freelancers is covered under the income head income from business and profession. The taxpayer can claim expenses on freelance income while filing their ITR on the Income Tax e-Filing portal. Freelancers/ Professionals also have an option to opt for the presumptive taxation scheme under the income tax act.

ITR for Professions u/s 44ADA (Presumptive Scheme)
A professional having a gross revenue upto Rs 50 lakhs can opt for the presumptive scheme of tax wherein he can straightaway offer 50% of the gross revenue as his taxable income.
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ITR for Professions u/s 44ADA (Presumptive Scheme)
A professional having a gross revenue upto Rs 50 lakhs can opt for the presumptive scheme of tax wherein he can straightaway offer 50% of the gross revenue as his taxable income.
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Claim Expenses on Freelance Income

  • RENT
    • If you’ve set up your small office in rented premises. You can claim the rent paid as an expense from your income. If the property was rented for part of a year, No issues. In such cases, the freelancers may claim the actual amount of rent paid as an expense. It’s a good practice to keep the rent paid receipts on record for future references.
  • REPAIRS
    • Nowadays, your laptop or workstation usually becomes your whole office and you need to take the utmost care of it. So if you have incurred any expenses on repairs of the laptop, furniture, or any other equipment. You can claim them as a deduction. For example, any payments made in order to repair the lenses can be claimed as an expense if you are a freelance photographer.
  • OFFICE SUPPLIES
    • Expenditure such as stationery for staff, tea coffee expenses, etc can also be claimed.
  • ELECTRICITY
    • Deduction on electricity costs can be claimed from income. And in case you are working from home, you may claim the electricity expenses proportionally from your income.
  • FUEL EXPENSES
    • If your work involves commutation, you can claim fuel expenses for the same. If in case the fuel expenses are not exclusively for the work purpose, you may claim the fuel expense proportionally.
  • MEMBERSHIP FEES
    • The freelancer can claim the membership fees paid by him as an expense. The membership fees can be claimed only if it is related to his work purpose. For example, a writer can claim the amount paid for becoming a member of the writer’s club. However, if he pays membership fees of a golf club for his recreational purpose, it cannot be claimed.
  • ADVERTISEMENT EXPENSE
    • For example, if you are a website developer or a domain specialist. And you have advertised your talent at various websites to offer your services, you can claim these payments as expenses from your Income.
  • BOOKS, MAGAZINES, REFERENCE MATERIAL
    • The freelancer can claim the expense of both books ordered for recreational purposes and reference purposes.
  • TRAVELING EXPENSES
    • If as a freelancer, you need to travel to places. You can claim the traveling payments like tickets, meal expenses, stay expenses as a deduction from your income.
  • DEPRECIATION
    • Depreciation means claiming the cost of the asset as expense over the life of the asset. As per the income tax act, we cannot claim the cost of the asset as an expense but we can always claim the depreciation on the asset as an expense. For example, You have purchased a high-end computer for Rs 10 lakhs. You can claim the deduction of the computer by way of depreciation at the income tax rates. The depreciation rate is 60%. Hence, you can claim 6 lakhs as depreciation in the 1st year (10,00,000*60%). And can carry forward the remaining amount to next year.

Points to Remember for Freelance / Consultants to Claim Expenses

  • Preserves the bills/acknowledgments or any other proofs of the payments made.
  • Maintain Books of Accounts for incomes earned during the year. However,
    in the Case of freelancers/ Professionals, it is not mandatory to maintain books of accounts if turnover / gross receipts do not exceed Rs. 50 lakhs.
  • It shall be noted that TDS is to be deducted where certain services are availed by the freelancer. For example, Mr. Vivek a freelance web designer obtained the services of a professional Chartered Accountant for auditing his books of accounts and other related services. Now while making payment to Chartered Accountant, Mr. Vivek shall deduct TDS u/s 194J and pay the amount net of TDS.
  • As a freelancer, it is possible that you make a payment for expenses in cash. At that time one needs to keep in mind that cash payment made to a single person in a day does not exceed Rs. 20,000.
  • You can also claim deductions under chapter VI-A of the Income Tax Act. You can claim deductions under section 80C from your salary for payment of ELSS, PPF, FD, etc. Also under section 80D, 80E, etc you can claim the payments made towards medical insurance premium and interest on an educational loan.

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FAQs

Do freelancers get tax refunds?

Freelancers must file an annual tax return on Income Tax Portal, if you overpay your estimated tax, you’ll receive the excess amount back in the form of a tax refund.

At what rate shall freelancing income be taxable?

The same taxation slabs apply to the freelancing individuals as well. Incomes up to INR 2.5 lakhs are not taxed upon, income between the values 2.5 lakhs to 5 lakhs are taxed at 10%, 5 to 10 lakhs at 20%, and above 10 lakhs at 30%.

What do you mean by presumptive income?

Presumptive taxation scheme (PTS) allows you to calculate your tax on an estimated income or profit. However, the assessee is allowed to willingly declare income at a higher rate than the minimum of 6-8% of the total turnover.

Income from Salary & Taxes

What is Income from Salary?

Salary Income is simply the paycheque you get every month from your employer. An amount received from your employer in the form of bonus, allowance, perquisites, etc. is a part of your Salary Income only.

Pension received by you after your retirement (not family pension) is also a part of the head Salary Income.

So first let’s have a look at components of salary income:

  • Wages
  • Annuity or Pension
  • Gratuity
  • Fees, Commission, allowances, perquisites or profits in lieu of salary
  • Advance of Salary
  • Amount transferred from unrecognized provident fund to recognized provident fund
  • Contribution of the employer to a Recognised Provident Fund in excess of the prescribed limit
  • Leave Encashment
  • Compensation as a result of variation in Service contract etc.

Moreover, this is an inclusive and not an exhaustive list.

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What is the Pension Income?

The employer pays a certain amount to his employee after retirement on a periodic basis for the services rendered by him during his job. This is known as Pension. Pension is taxable under the head Income From Salary.

There are mainly two types of pension:

  • Uncommuted Pension: A periodical payment of pension received by the employee after retirement. Uncommuted pension is fully taxable to Government and Non-Government employees under the head Income from Salaries.
  • Commuted Pension: A lump sum payment received by the employee at the time of retirement. In the case of Government employees commuted pension is fully exempt. Whereas in the case of non-government employee it is as follows:
Particulars Tax Treatment
Gratuity Received by pensioner ⅓ of the pension which he is normally entitled to receive is exempt from tax
Gratuity Not Received by pensioner ½ of the pension which he is normally entitled to receive is exempt from tax

Please keep in mind that ‘pension’ and ‘family pension’ are two separate things. An employer receives a pension after his/her retirement, and therefore, it is taxable under the head Salary. Whereas family pension is received by the nominated family members of the employee after his death. Additionally, for family members who receive a family pension, it is taxable under the head Income from Other Sources.

A salaried individual can file ITR 1ITR 2ITR 3, and ITR 4. Of Course, the applicability of ITR depends upon all the sources of income but salary income can be filed in all these ITRs.

Understanding Salary Income and Salary Slip

From the taxability point of view, it is very important that you understand your salary slip and its components. Additionally, the salary structure may vary from employer to employer. Salary Slip is divided into the following two parts:

Earnings

  1. Basic Salary,
  2. HRA (House Rent Allowance),
  3. LTA (Leave Travel Allowance),
  4. Conveyance Allowance,
  5. Dearness Allowance,
  6. Special Allowance.

Deductions

  1. Professional Tax,
  2. Employee’s Provident Fund (EPF/PF),
  3. TDS/ Income Tax.

Why Should Salaried Person File ITR?

It is mandatory to file the ITR if the gross total income exceeds the limit of INR 2,50,000 in the FY, subject to certain conditions. The limit for senior citizens is INR 3,00,000. Furthermore, it is also important to file an ITR for such individuals to:

  • Avail tax refunds
  • Has assets outside of India
  • Required to carry forward loss under any other head of income, etc

Which ITR should a Salaried Person File?

The Income Tax Department (ITD) requires salaried individuals to file the ITR 1 Form. In this case, their total salary should be under INR 50 lakhs, inclusive of both salary income and income from other sources. Furthermore, the individual should not have more than one house property and their income from agriculture (if any) should not exceed INR 5,000. They can also file ITR 2 if they have income from salary, more than one house property, income from capital gains and IFOS. Individuals can file ITR 3 if they receive income from business and profession in addition to the above mentioned incomes.

Calculate the Taxable Income from Salary

Salary Income is taxable on the basis of accrual or payment whichever is earlier. Hence in simple terms even if you receive your March months salary in April of next financial year it would still be taxable in the current financial year only.

Taxable Salary Income can be calculated in the following manner:

  1. Add up all the amounts you received from your employer

    Be it in the form of remuneration, wages, gratuity, commission, allowances, perquisites, bonus, etc.

  2. Deduct all the allowances to the extent they are exempt u/s 10.

    Like House rent allowance (HRA), Transport allowance, Medical Allowance, Uniform Allowance, etc.

  3. Deduct section 16 deductions i.e, the Professional tax, Standard Deduction, and Entertainment Allowance.

    This resulting figure will be your taxable salary income.
    In your Form 16 Part B, this figure will be reflected against the line no. 6 “Income chargeable under the head Salaries”

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Difference Between CTC and Take Home Salary

What is CTC?

CTC stands for Cost to Company, which is actually the cost company bears for an employee. CTC includes the basic salary, all the allowances/ benefits, and employer’s contribution to retirement benefits. Allowances and benefits include HRA, LTA, Special Allowance, Free Meals, etc. And retirement benefits include the Employee Provident Fund (EPF), Gratuity, etc.

CTC = Basic Salary + All Allowances + All the Benefits + Retirement Benefits
Tip
CTC = Basic Salary + All Allowances + All the Benefits + Retirement Benefits

What is Take Home Salary?

The salary that gets credited to your bank account is your Take Home Salary. Take-Home Salary is also known as Net Salary. Take-Home Salary is computed after deducting taxes & contributions from CTC. As a result, your Take Home Salary will be lower than your CTC.

Example

Vijay is a fresher and the following is the salary offered to him.

Components Amount 
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Free meal (Non-Monetary Benefits) 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Employer’s Contribution to EPF (12% of basic salary) 60,000
Employee’s Contribution to EPF (12% of basic salary) 60,000
Bonus 1,00,000
Taxes/TDS 66,785

Following will be the CTC for Vijay

 

Components Amount
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Free meal (Non-Monetary Benefits) 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Employee’s Contribution to EPF (12% of basic salary) 60,000
Employer’s Contribution to EPF (12% of basic salary) 60,000
Bonus 1,00,000
Taxes/TDS 66,785
CTC  10,85,985

 

Following will be the Take Home Salary of Vijay

Components Amount 
Basic Salary 5,00,000
House Rent Allowance 1,00,000
Leave Travel Allowance 15,000
Conveyance Allowance 19,200
Special Allowance 1,50,000
Bonus received 80,000
Total Salary 8,64,200
Less: Employee’s Contribution to EPF (12% of basic salary) (60,000)
Less: TDS (66,785)
TAKE HOME SALARY 7,37,415

Conclusion

  • As you can see that the major differentiators between the CTC and the Take Home Salary are Non-Monetary Benefits, employee’s contribution to EPF, and Taxes.
  • Here the free meals worth Rs. 15,000 as per Vijay’s CTC will not be paid to him but he may be given coupons. Which can be redeemed for availing the benefit of a free meal. As a result, it will not form part of his Take Home Salary.
  • Vijay’s contribution to EPF will be deducted since it’s a mandatory investment. And it is not paid out to him every month.
  • At last, after deduction of the TDS & Professional tax, Vijay will get his Take Home Salary.
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Tax Deductions on Income from Salary

Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

For eg,

  • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
  • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
  • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

How to Calculate Tax on Income from Salary?

Income from Salary is taxed at the applicable slab rate. In the case of salary, TDS is deducted by an employer every month. The employer deducts TDS after taking into account the Investment Declaration (Form 12BB) submitted by the employee. You can know this TDS amount from your Form 26AS or Form 16 Part A.

Although it is the responsibility of the employer to deduct the tax from salary. An employee needs to calculate Tax liability while e-filing ITR. An employee ends up with tax dues if TDS deducted by an employer does not match with income tax payable.

Income tax rates for individuals below the age of 60 years are as follows:

Income Slab Tax rate (For FY 2019-20 )
Up to Rs. 2,50,000* No Tax
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Rs. 10,00,000 and above 30%
Surcharge @ 10% of the total income tax if total income exceeds Rs. 50 Lakhs and up to Rs. 1 Cr. Surcharge @15% if total income exceeds Rs. 1 Cr.  
Health & Education Cess @ 4% on the total of income tax and surcharge.  

* In case of senior citizens (within the age group of 60 – 80) the basic exemption limit is Rs. 3,00,000. In the case of a super senior citizen (aged above 80 years) the basic exemption limit is Rs, 5,00,000.

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Document Checklist for Filing ITR for Income from Salary

Form 16 or salary certificate

Any salaried individual, whose TDS has been deducted from his salary by the employer, receives Form 16 from his/her employer. Form 16 is a detailed statement that shows the salary earned during a Financial Year along with deductions, exemptions, and tax deducted from the salary in that year. If no tax is deducted even then the employee can ask for the issue of salary certificate.

Form 26AS

Form 26AS is a consolidated Tax Credit Statement which provides the following details to a taxpayer.

  • ​Details of taxes deducted from the taxpayer’s income.
  • ​Details of taxes collected from taxpayer’s payments.
  • Advance Taxes, Self Assessment Taxes and Regular Assessment Taxes paid by the taxpayers.
  • Details of the refund received during the year.
  • Details of any high-value transactions (for eg. Shares, Mutual Funds, etc.).

It is very important to check Form-26AS before e-filing the Income Tax Return because no one would want their tax credits to be unclaimed.

Salary Slip

Salary slip is given by the employer to you on a monthly basis. It will also include your gratuity leave encashment as well. An Individual must keep the details of gratuity or leave encashment that has received or is yet to be received no matter if it is taxable or not while filing their ITR.

If an individual, changes their job in the middle of the Financial Year, all Form 16 submitted by him/her should be considered.

Pension Certificate

Employee pension is also treated as salary income and therefore becomes taxable. It is wise to collect the Pension certificate through Form 16 from the bank as per requirements.

PF Passbook

Provident Funds are set up to encourage social security for both employees. Employees contribute a fixed amount of their basic pay towards this fund and the employer also contributes the same amount in many cases. The entire amount credited to the employee’s account can be taxable or not taxable. But for references, he/she should have their Provident Fund Passbook ready with all the details.

Form 12BB

Form 12BB also known as Investment Declaration/Investment proof is basically a disclosure of all their tax-saving investments in that particular Financial Year. It is required by the employer for an accurate calculation and deduction of TDS on salary income. It needs to be submitted at the beginning of every financial year.

FAQs

What is a tax exempt allowance?

Allowances are fixed periodic amounts, apart from salary. Therefore, they are paid by an employer for the purpose of meeting some particular requirements of the employee. E.g., House Rent Allowance, Transport Allowance, Uniform Allowance, etc. 
There are generally three types of allowances for the purpose of the Income-tax Act
1. Taxable allowances,
2. Fully exempted allowances and
3. Partially exempted allowances​

Is pension income taxable?

Yes, Pension income is taxable as salary income. However, family pension will be taxable under the head income from other sources.

Is leave encashment taxable?

It is taxable if received while in service. However, leave encashment received at the time of retirement is exempt in the hands of the Government employee. Moreover, in the hands of non-Government employee leave, encashment will be exempt subject to the limit prescribed by the Income-tax act.​

What is the tax treatment of Arrears of Salary?

Any arrears of salary received are taxable under section 15 of the Income Tax Act. It is taxable in the year of receipt under the head Income from Salary. However, relief u/s 89 is available on the same.

Which ITR needs to be filed by a salaried individual?

Salaried individual needs to file ITR-1 every year by 31st July of the next year. ITR-2 needs to be filed if the total salary is more than Rs. 50 lakhs.

What is the tax treat of advance salary received?

Advance salary received is taxable in the year of receipt u/s 15 of the income tax act. It is taxable under the head Income from Salary and relief u/s 89 is available on the same.