WITH just four days left for the financial year to end, those who have not yet done their tax-planning should look at a few tax-saving investment options. Under the Income Tax Act, there are deductions from one’s gross total income which can help an individual reduce his tax burden.
Investments under Section 80C
Section 80C of the Income-Tax Act entitles an individual to certain deductions from the gross total income, up to a maximum limit of R1.5 lakh. Investments in Public Provident Fund, 5-year post office national savings certificates, employee’s contribution to provident fund, equity-linked savings scheme of mutual fund, five-year fixed deposits in banks or post office and premiums paid for life insurance products all come under the purview of Section 80C. Moreover, repayment of principal of housing loan and tuition fees for two children can be deducted from one’s income under Section 80C.
Investment in NPS
Investment in National Pension System (NPS) is ideal for creating a nest egg. The money is invested in equity (index funds), corporate debt and government securities. For equity exposure in life cycle fund, the subscriber has the option of investing up to 25% (conservative), 50% (moderate) and 75% (aggressive). After the subscriber turns 35, the allocation to equity will gradually go down and will increase in debt paper. Tax exemption is allowed for up to R50,000 in a year under Section 80CCD, which is over and above the benefit available on R1.5 lakh under Section 80C. Under Section 80CCD(2), employer’s contribution up to 10% of basic plus DA is eligible for deduction. Employer’s contribution is an additional deduction as it is not part of the Rs 1.5 lakh allowed under Section 80C. So it is also beneficial for the employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account.
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Health insurance premium
Under Section 80D, medical insurance premium of up to Rs 25,000 paid for self, spouse and children will qualify for deduction. To claim deduction, the premium has to be paid by any mode other than cash and the insurer has to be approved by the Insurance Regulatory and Development Authority of India (IRDAI). One can also claim deduction of up to R5,000 for preventive health check-up of self, spouse, dependent children or parents.
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Though not a last-minute tax-saving option, under Section 24 of the Income-Tax Act, up to R2 lakh can be deducted from 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 an individual has not taken possession. Also, under Section 80EE, payment of interest on home loan is available for deduction up to R50,000 per annum provided the loan has been taken between April 1, 2016 and March 31, 2017. The loan amount has to be below R35 lakh and the value of the house not over R50 lakh.
On education loan, an individual can claim deductions on the entire interest amount under Section 80E. The deduction on the interest paid can be claimed for self, spouse and children. One can claim the benefit for eight years in a row, beginning from the year when the interest payment starts. Parents can even claim deduction for interest paid on educational loans taken for higher studies if the child is studying abroad.