It is just over ten days left to accomplish investments for claiming maximum tax exemption for the financial year 2015-16.
It is just over ten days left to accomplish investments for claiming maximum tax exemption for the financial year 2015-16. Every tax assessee plans his/her investments and spreads it out across various instruments specified under section 80C of the Income Tax Act, 1961 (80C investments) to avail maximum tax benefit. The overall total limit for deduction under this section is Rs 1.5 Lakhs. This amount can be claimed irrespective of the assesse is an employee or self-employed.
Section 80C allows certain investments to be tax-exempt. It also allows tax exemption on incurring certain expenditure like principal amount of home loan, education fee for children. Deduction u/s 80C is available only to Individual or a Hindu Undivided Family (HUF).
If you haven’t yet made the investment for tax-saving purposes and are wondering where to invest your savings, there are a lot of options under the Income Tax Act. Below are some of the key investments/expenditure which qualify for the deduction under section 80C which you can choose from before March 31:
Provident Fund (PF) & Voluntary Provident Fund (VPF): PF is deducted from your salary. There are two portions of contributions: employer’s and employee’s. Portion of Employer’s contribution is exempt from tax, whereas employee’s contribution is counted towards 80C investments. An additional amount can also be contributed voluntarily (VPF). Interest on PF is exempt from tax.
Public Provident Fund (PPF): Deposit in PPF is limited to Rs 1.5 lakhs. One can deposit in PPF and count towards section 80C investments. Interest on PPF is exempt from tax.
Life Insurance Premiums: Life insurance premium paid for yourself, your spouse or your children is covered under this deduction. Premiums paid for more than one policies are eligible for counting under this section.
Equity Linked Savings Scheme (ELSS): Some mutual fund (MF) schemes are especially created for offering tax savings, and these are called Equity Linked Savings Scheme, or ELSS.
National Savings Certificate (NSC) (VIII Issue): Investment in NSC instrument is eligible for section 80C tax benefit. NSC is a time-tested tax saving instrument with a maturity period of five and ten years. The accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.
Fixed Deposit with Scheduled Bank: Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.
5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two years, three years and five years, only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C. The Interest is entirely taxable.
NABARD rural bonds: There are two types of bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.
Unit linked Insurance Plan: ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.
Infrastructure Bonds: The investment in infrastructure bonds issued by the infrastructure companies is eligible for deduction under Section 80C.
Pension Funds: Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds uptoRs. 1.50 Lakh can be claimed as deduction u/s 80CCC.
Loan Principal Repayment: The equated monthly instalment (EMI) is made to home loan consists of two components – principal and interest. The principal component of the EMI qualifies for deduction under Sec 80C, whereas the interest component is eligible for tax savings under section 24 of the Income Tax Act.
Stamp Duty and Registration Charges for a home: Stamp duty paid for buying a house is deductible expense under section 80C in the year of purchase of the house.
Sukanya Samriddhi Account: This scheme is a special deposit scheme launched last year for maximum two girl child. The money to be deposited is for 14 years in this account.Interest earned on this account is exempt from tax.
National Pension Scheme (NPS):Beyond the investments allowed under section 80C, section 80CCD(1A)and section 80CCE allows further deduction of contribution towards New Pension Scheme (NPS). This contribution is available in two portions: employee and employer.
Employee contribution in NPS: Eligible for tax deduction of up to 10% of salary or 10% of total gross income under section 80CCD(1A), within the limit of Rs 1.5 lakhs mentioned above.
Eligible for additional tax deduction of upto Rs. 50,000 under section 80CCD(1B) over and above limit of Rs. 1.5 lakhs.
Employer contribution in NPS: Eligible for tax deduction of upto 10% of salary under section 80CCD(2) without any upper cap.
It is the best time when investments can still be made and avail tax benefit for the financial year 2015-16 if not done so far.
The author is managing director – Protiviti India (Tax and Regulatory Affairs)