If you are a salaried person and haven’t finalised your tax plan yet, it’s time to do so with just two months left for the financial year to end. In this last-minute rush to save tax, one must guard against falling for an unsuitable financial product that may not be beneficial in the long run.
Section 80C of the Income-Tax Act, 1961, carries an investment limit of Rs 1 lakh and includes investments in Public Provident Fund (PPF), life insurance, national savings certificate of post offices, employee's contribution to provident fund, tax-saving mutual funds and five-year bank or post office fixed deposits. Even tuition fee paid for two children will be deducted from your income under Section 80C; this deduction will be on the actual payment of the fee and not on books, bus fare, private tuition, development fee, etc.
Before you go for a new financial product, it is always prudent to look at the deductions you can get under various heads. Analyse your total income by adding up salary income, business income, capital gains, interest income, rent from house property and income from other sources.
Some of your expenses, for example, health insurance premium payments (under Section 80D) and home loan interest payments (up to Rs 1.5 lakh), will reduce your taxable income. If you have a health insurance, pay your premium by cheque and that too from your own account to avail the tax benefit.
While most taxpayers look at exemptions under Section 80C, there are some other sections where one can get exemption and save tax. These sections are 80CCG, 80D, 80U, 80G, 80GG, 80E and 80DDB, which can significantly lower your tax burden.
Rajiv Gandhi Equity Savings Scheme
Under Section 80CCG, a new retail investor can invest in Rajiv Gandhi Equity Savings Scheme (RGESS). Under the scheme, one can invest in one or more financial years in a block of three consecutive financial years beginning with the initial year in which the deduction has to be claimed. This tax exemption is available to an individual over and above the exemption available under Section 80C of Rs 1