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Enhancement of Section 80C Deduction Limit from Rs 100,000 to Rs 150,000

Limit for deduction under Section 80C of the Income Tax Act, 1961 has been enhanced from Rs 100,000 to Rs 150,000 in the Union Budget 2014. Enhanced deduction is applicable from Assessment Year 2015-16 corresponding to Financial Year 2014-15. Potential tax savings will be from Rs 5,000 to Rs 15,000 (excluding education cess and surcharge) depending on the applicable income tax rate of the assessee.

Section 80C is an important tax planning tool available to Individuals and Hindu Undivided Family (HUF). Not only will it benefit people with reduced tax liability but also force increased savings. Hence it is advisable to ensure maximum possible deduction under this section is availed by the assessee while computing income tax liability. Please see Saving Income Tax through Smart Tax Planning – Guide to Section 80C Deductions to understand the various eligible investments and payments allowed for this deduction.

Income Tax Rates for AY 2015-16 (FY 2014-15) - UNION BUDGET

Income Tax Rates applicable for Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI) in India as proposed in the Union Budget for FY 2014-15 is as under:




Assessment Year 2015-16, Relevant to Financial Year 2014-15 

For Individuals below 60 years age (including Woman Assessees):
Income
Tax Rate
Upto 250,000
Nil
250,000 to 500,000
10% of the amount exceeding 250,000
500,000 to 1,000,000
Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.125,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 60 years and above but below 80 years (Senior Citizen):
Income
Tax Rate
Upto 300,000
Nil
300,000 to 500,000
10% of the amount exceeding 300,000
500,000 to 1,000,000
Rs.20,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.120,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 80 years and above (Very Senior Citizen):
Income
Tax Rate
Upto 500,000
Nil
500,000 to 1,000,000
20% of the amount exceeding 500,000
1,000,000 & above
Rs.100,000 + 30% of the amount exceeding 1,000,000

Tax Credit: Finance Bill 2014 is silent on the Section 87A, which was introduced by Finance Bill 2013 with effect from AY 2014-15 and provides a rebate of Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000. Hence this provision continues for AY 2015-16 as well.

Surcharge on Income Tax: 10% of the Income Tax payable, in case the total taxable income exceeds Rs.10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs.10,000,000.

Education Cess: 3% of Income Tax plus Surcharge

Note: The above Income Tax rates have been proposed in the Union Budget for FY 2014-15 presented by the NDA government. These rates supersedes the proposal in the Vote On Account presented by the erstwhile UPA government pending Lok Sabha elections. 

Motor Third Party Liability Insurance - Premium Rates Increase

As we have seen in “Understanding Motor Insurance Premium”, Third Party Liability insurance is mandatory for all vehicles plying on public roads in India. Motor vehicles can cause bodily injury to third parties or cause damage to public or private property. To cover this risk, Liability Only Policy is compulsorily required by law. This policy covers Third Party Liability for bodily injury and/ or death and Property Damage. Personal Accident Cover for Owner-Driver is also included.

The premium cost for Third Party Risk cover is decided by the Insurance Regulatory and Development Agency (IRDA) and is the same for all companies providing car insurance in India. Every year, IRDA calculates fresh third-party motor premiums depending on parameters such as average claim amounts, frequency of claims, expenses involved in servicing the motor third-party business and cost of inflation index for the year of review. Accordingly IRDA issued a circular in last week of March 2014 to increase the third-party premium rates for motor vehicles for financial year 2014-15 with effect from 1st April 2014. 

Third Party liability insurance premium rates for Private Cars before and after revision were as under:

Private Cars
Third Party Liability Premium (Rs)
For 2014-15
For 2013-14
Increase (%)
Not exceeding 1000 cc
1,129
941
20%
Exceeding 1000 cc but not exceeding 1500 cc
1,332
1,110
20%
Exceeding 1500 cc
4,109
3,424
20%
                           
Third Party liability insurance premium rates for Two Wheelers before and after revision were as under:

Two Wheelers
Third Party Liability Premium (Rs)
For 2014-15
For 2013-14
Increase (%)
Not exceeding 75 cc
455
414
10%
Exceeding 75 cc but not exceeding 150 cc
464
422
10%
Exceeding 150 cc but not exceeding 350 cc
462
420
10%
Exceeding 350 cc
884
804
10%



Understanding Motor Insurance Premium

Motor Insurance / Auto Insurance / Car Insurance is a subject we normally struggle with every year at the time of annual renewal of car insurance policy. Proper understanding of various terms and how premium is determined will not only enable us to understand different component of the insurance premium but also let us negotiate better deal.

Motor Insurance policies are broadly of two types:

A.    Liability Only Policy: Motor Insurance policy is required to be taken for all motor vehicles plying on road. Motor vehicles can cause bodily injury to third parties or cause damage to public or private property. To cover this risk, Liability Only Policy is compulsorily required by law. This policy covers Third Party Liability for bodily injury and/ or death and Property Damage. Personal Accident Cover for Owner-Driver is also included.

B.    Package Policy: Also referred to as Comprehensive Policy, it covers loss or damage to the vehicle insured in addition to (1) above. It is more prudent to take a Package Policy which would give a wider cover, including cover for your vehicle. Majority of the motor insurance policies are package policies. Premium for Package policy can be arrived at by adding Own Damage Premium to premium for Liability Only Policy.

Premium for Liability Only Policy

Third Party Liability insurance is mandatory for all vehicles plying on public roads in India. This covers Liability for injuries and damages to others that you are responsible for. The premium cost for Third Party Risk cover is decided by the Insurance Regulatory and Development Agency (IRDA) and is the same for all companies providing car insurance in India.

Premium for Liability Only Policy is sum of the following:

1.     Basic Third Party Liability: Rates applicable are as follows:

Private cars
Third Party Premium from 1-Apr-2014 (Rs)
Not exceeding 1000 cc
1,129
Exceeding 1000 cc but not exceeding 1500 cc
1,332
Exceeding 1500 cc
4,109

It is to be noted that the Third Party Premium rates were revised by IRDA with effect from 1st April 2014. Rates applicable prior to revision was as below:

Private cars
Third Party Premium from 1-Apr-2013 (Rs)
Not exceeding 1000 cc
941
Exceeding 1000 cc but not exceeding 1500 cc
1,110
Exceeding 1500 cc
3,424

2.     Compulsory Personal Accident Cover for Owner-Driver: Rs 100 is charged and Sum Insured is Rs 2 lakhs.

3.     Optional Personal Accident Cover for persons other than Owner-Driver: Rs 100 is charged and Sum insured is Rs 2 lakhs, for unnamed passengers as per the registered carrying capacity of the vehicle.

4.     Legal liability for paid driver: Rs 50 is charged

Premium for Package Policy

Premium for Package Policy is arrived at by adding Own Damage Premium to premium for Liability Only Policy.

Own Damage Premium: Calculation of Own Damage Premium depends on the factors such as Insured’s Declared Value (IDV), Tariff Rate, No Claim Bonus and Discounts. Premium is arrived at by multiplying IDV with Tariff Rate, and deducting No Claim Bonus and various discounts thereon. Let us understand each of the terms.
  
1.     IDV of the vehicle: IDV is the Sum Assured or the cover provided by the insurer. IDV is the maximum amount which the insurer agrees to compensate you with in case your vehicle is stolen or damaged beyond repair. IDV is calculated as the market value of the car at the time of insurance. For new cars, IDV is calculated on the basis of car's ex-showroom price. While renewing the insurance, the IDV will be adjusted for any depreciation it has undergone over the time, as per below table:

Age of the Vehicle
% of Depreciation for Fixing IDV
Not exceeding 6 months
5%
6 months to 1 year
15%
1 to 2 years
20%
2 to 3 years
30%
3 to 4 years
40%
4 to 5 years
50%

The IDV of vehicles aged over 5 years is calculated by mutual agreement between insurer and the insured.

2.     Tariff rate: refers to the rate at which insurance premium is payable. These rates are prescribed by IRDA and vary according to geographical location, cubic capacity and age of the vehicle.

i.      Geographical Zones: Motor insurance premium depends on registration place of vehicle. The premium in Tier I cities is comparatively more than Tier II and Tier III cities. That is because probability of insurance claim is more in Tier I cities because of higher costs, higher possibility of thefts, etc. For the purpose of Tariff Rates, two zones as below are prescribed:

·        Zone A: Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune
·         Zone B: Rest of India

ii.    Cubic Capacity: refers to the capacity of vehicle engine. More the cubic capacity of the vehicle, higher will be the insurance premium.

iii.   Age: Older the vehicle, higher is the premium.

Tariff Rates for Own Damage cover is as below:

Age
of
the
vehicle
Zone B
Zone A
Cubic Capacity
Cubic Capacity
Less than
1000 cc
More than 1000 cc but Less than 1500 cc
More than 1500 cc
Less than
1000 cc
More than 1000 cc but Less than 1500 cc
More than 1500 cc
Less than
5 years
3.039%
3.191%
3.343%
3.127%
3.283%
3.440%
More than 5 years but Less than 10 years
3.191%
3.351%
3.510%
3.283%
3.447%
3.612%
More than 10 years
3.267%
3.430%
3.594%
3.362%
3.529%
3.698%

3.     No Claim Bonus (NCB): is an important variable which affects the premium amount. NCB discount is available if no claim is made in the previous year. NCB gets accumulated over the years and can go upto 50%. However, NCB is lost as soon as any claim is made. It is to be noted that NCB can be earned only on Own Damage Premium. NCB is available at the renewal of a policy after the expiry of the full duration of 12 months. No Claim Bonus, wherever applicable, will be as below:


Discount
No claim made during preceding 1 year of insurance
20%
No claim made during preceding 2 years of insurance
25%
No claim made during preceding 3 years of insurance
35%
No claim made during preceding 4 years of insurance
45%
No claim made during preceding 5 years of insurance
50%

4.     Discounts: In addition to NCB, IRDA has prescribed discount on Own Damage Premium for Installation of anti-theft devices, membership of Automobile Association of India, opting for voluntary deductible/excess, etc.

Most important factor to keep in mind while finalizing motor insurance premium is the discount on Tariff Rate. Motor Insurance premium rates are largely tariff driven and prescribed by IRDA. While Tariff Rate for own damage premium are prescribed by IRDA, insurance companies have freedom to offer discount on the Tariff Rate. Negotiate with insurance company for higher discount on Tariff Rate in order to lower Motor Insurance premium.