For tax-related investments, most people look at financial products that give exemptions under Section 80C of the Income-Tax Act, such as EPF, PPF, five-year bank deposits, life insurance premium, National Savings Certificates, and so on. But before calculating the tax liability, one must look at all sections for deductions. Here are some options:
National Pension System (NPS) — Section 80CCD
A pure defined contribution pension product, NPS was introduced in 2004 for government employees and, in 2009, it was extended to all private sector employees. It is an ideal investment tool for retirement planning. For non-government employees, up to 50% of the contribution can be invested in equities (index funds) and the rest between corporate and government debt paper. From this year, the government allowed tax benefit on investment of up to Rs 50,000 in a year under Section 80CCD, which is over and above the benefit available on Rs 1.5 lakh under Section 80C.
However, investments in NPS are not tax-free at the time of withdrawal though the investment and interest accumulations are not taxed. Products like PPF and EPF, on other hand, are tax-exempt at all the three stages — investment, accumulation and withdrawal. Subscribers of NPS Tier-1 account can now make partial withdrawal of up to 25% of contributions for certain specified circumstances after 10 years of being in the scheme.
Medical Insurance — Section 80D
Under Section 80D of the Act, medical insurance premium of up to Rs 25,000 paid for self, spouse and children will qualify for deduction. Health insurance premium and medical expenditure incurred for parents would get tax exemption of up to Rs 30,000 a year. Also, money spent on the medical treatment or rehabilitation of handicapped dependent children can be claimed as deduction up to Rs 75,000 under Section 80DD. In case of severe disability, however, deduction allowed is Rs 1,25,000. One can also claim deduction of up to Rs 5,000 for preventive health check-up of self, spouse, dependent children or parents. For the purpose of deduction under Section 80D, payment can be made by any mode, including cash, in respect of any sum paid on account of preventive health check-up and by any other mode other than cash in in all other cases.
Donations — Section 80G
Donations to trusts, charitable institutions and approved educational institutions will entail tax exemption. The exemptions can be up to 50% or 100% of the donations made.
Funds in which the donations are eligible for tax exemptions include the National Defence Fund, Prime Minister Drought Relief Fund, National Foundation for Communal Harmony, National Children’s Fund, Prime Minister’s National Relief Fund, etc.
From this year, 100% deduction is given for donations made to National Fund for Control of Drug Abuse. Similarly, donations made to Swachh Bharat Kosh and Clean Ganga Fund will also qualify for full deduction from the total income. Any monetary contribution to any political party or electoral trust is eligible for tax exemption. To get exemption, one should not pay in cash for over Rs 10,000.
Education Loan — Section 80E
By taking an education loan for higher studies, one can claim deductions on the entire interest amount. The deduction on the interest paid can be claimed for a loan taken for education of not only the child but also for self and spouse.
Only the interest paid is deducted from the income and one can claim the benefit for eight years in a row, beginning from the year when the interest payment starts. However, the deduction is given only to an individual and not to Hindu Undivided Family.
Interest paid on housing loan — Section 24
The equated monthly instalment on housing loans has two components — interest and principal — and both these can help the taxpayer minimise the tax outgo and build a long-term asset. Under Section 24 of the Income-Tax Act, up to R2 lakh can be deducted from your taxable income as interest repayment for a self-occupied house.
However, this deduction is not available if the house is still under construction or if you have not taken
possession. The principal repaid is eligible for deduction under Section 80C, which has a limit of Rs 1.5 lakh.
Moreover, one-time stamp duty charges paid for registration also get tax exemption under Section 80C of the Income-Tax Act.
House rent — 80GG
If a salaried employee or a self-employed person stays in a rented accommodation and does not get any HRA from the employer, he can claim a deduction of up to Rs 2,000 a month. However, the taxpayer cannot avail the exemption if spouse owns any residential accommodation.
– Section 80CCD: For non-government employees, up to 50% of the contribution to NPS can be invested in equities and the rest between corporate and government debt paper
– Section 80D: Medical insurance premium of up to Rs 25,000 paid for self, spouse and children will qualify for deduction
– Section 80G: Donations to trusts, charitable institutions and approved educational institutions will entail tax exemption
–Section 80E: By taking an education loan for higher studies, one can claim deductions on the entire interest amount
–Section 24: Up to Rs 2 lakh can be deducted from your taxable income as interest repayment for a self-occupied house
–Section 80GG: If a salaried employee or a self-employed person stays in a rented accommodation and does not get any HRA from the employer, he can claim a deduction of up to Rs 2,000 a month