ELSS Dividend Reinvested Is Eligible For Deduction Under Section 80C

I have an investment in equity-linked savings scheme (ELSS) under the dividend reinvestment option. Will the reinvestment qualify for rebate under Section 80C of the Income-tax Act, 1961?

Answer: Yes. The dividend reinvested is treated as a fresh investment, and so, it is eligible for deduction under Section 80C within the overall limit of Rs 1.50 lakh during the financial year in which the dividend is reinvested.

Do note that each such reinvested dividend will have a lock-in period of three years. The dividend so reinvested is taxable in your hands in the year in which it is reinvested even if the dividend is not credited in your bank account.

I would advise you to opt for the growth option of ELSS instead of going for the dividend option. If you need money, you can opt for the dividend pay-out option.

Under the reinvestment option, the money automatically gets invested without you having any say in the matter. It is always advisable to receive the dividend and reinvest it in the best option available, rather than investing it in the same scheme which may or may not be performing well at that relevant time. Moreover, the reinvestment plans create an infinite loop for your investment, as each dividend gets locked in for the next three years.

I have a single house in Delhi and my net equated monthly instalment (EMI) outgo is Rs. 6 lakh per annum for which I receive a rent of Rs 90,000 per annum from that property. I stay on rent in Mumbai. What income tax benefit I can avail against this home loan?

Answer: Since the property is rented out, the full interest in respect of the home loan can be claimed against the rental income under Section 24b of the Income-tax Act, 1961.

The rent received will be treated as income from house property and will be taxable. You can claim tax benefit of up to Rs. 1.50 lakh for the home loan principal repayment under Section 80C, including the EMI.

You will get a standard deduction of 30 per cent of the rent received, while the balance 70 per cent will be taxable. The taxable income of the let out property will be arrived at by deducting full interest in respect of such property from the 70 per cent of the rent received by you.

Though the full interest paid in respect of the let out property is deductible, any loss under the head house property can be set off only up to Rs. 2 lakh against other income from the same year, and the unabsorbed loss has to be carried forward for set-off in eight subsequent years to be set off against the house property income.

In case you are salaried and in receipt of house rent allowance (HRA), you can also claim exemption for HRA for staying in a rented property in Mumbai, provided you are able to prove that you are staying in a premises not owned by you and you are actually paying rent for it.

If you do not receive any HRA from your employer, or you are self-employed, you can claim deduction for rent paid under Section 80GG up to a maximum of Rs. 5,000 every month.

If I skip my home loan EMI, will the bank allow any concession period for paying the EMI? If not, then what charges will the bank levy? Will it have any impact on my credit score?

Answer: In case your EMI bounces, the bank will not give you any grace period to pay the EMI. It will also charge you a penalty for bouncing the EMI. The bank will also charge you a penal interest for the period of delay.

If a cheque or ECS instruction has bounced, the bank can also charge for the cheque return or bouncing charges. This amount will vary from bank to bank.

It is advisable to pay the EMIs on time to avoid spoiling your credit history. Banks can take legal action against you if you continue defaulting on your EMIs.

A one-odd instance of EMI bounce will not have a significant impact on your credit score, but consistent default will affect your overall credit history or score, which would ultimately adversely impact your ability to avail credit in future.

Balwant Jain is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)