In case you haven’t planned your investments to reap maximum tax benefits, it would be a good idea to plan now and execute before the tax year ends on March 31. Listed below are few avenues which could help you meet the twin objective of investing and getting the maximum tax advantage as a result of such investments.
Public Provident Fund (PPF)
A contribution to public provident fund account may be made which serves as a corpus for retirement and earns a good rate of return. The PPF scheme enjoys the advantage of the EEE (exempt-exempt-exempt) taxation regime which means a deduction from taxable income shall be allowed at the investment stage and the accumulations and maturity proceeds shall be exempt from tax. However, there is a lock-in period of 15 years under the scheme.
National Pension Scheme (NPS)
Investment in NPS provides a very good tax break as an additional deduction of Rs 50,000 is allowed for contribution made to the scheme from the current financial year. An overall deduction of Rs 2,00,000 is now available as against Rs 150,000 until last year.
A deposit with a lock-in period of 5 years with a scheduled bank or with post office will also be an investment eligible for deduction. The interest earned on such deposit would be taxable. Premature withdrawal of the term deposit with the post office shall be taxable in the year in which the amount is withdrawn.
Life insurance premium
The premium payments made for Life insurance premium for self and family (spouse and children) are eligible for tax deductions apart from providing risk coverage. In case where premium paid is in excess of 10% of the actual capital sum assured, deduction shall be restricted to only 10% of the actual capital sum assured.
Equity savings schemes
If you wish to venture into the stock market, you could also invest in listed equity shares or in listed units of an equity oriented fund under a notified scheme (Rajiv Gandhi Equity Savings Scheme is notified currently) in case you are a new retail investor (as defined in the scheme). However, to be eligible to invest, your gross total income should not exceed R12,00,000. The deduction is allowed for three consecutive years in respect of the investments made during the respective years, beginning with the year in which the listed equity shares or listed units of equity oriented fund were first acquired. The deduction is restricted to 50% of the amount invested. Further, the investment shall be subject to lock-in period of three years.
Not only the investments that you make but certain expenses that you incur on medical treatment and medical insurance premium are also eligible for a deduction from your taxable income. Premiums paid up to Rs 25,000 to keep in force mediclaim policies for yourself, your spouse and children are eligible for deduction. Further deduction of Rs 25,000 is available for medical insurance premium paid for parents. The limit of Rs 25,000 gets enhanced to Rs 30,000 if the policy is for a senior citizen/very senior citizen. The above limits also include expenses incurred for preventive health check-ups up to Rs 5,000. One should also consider risk appetite, lock-in period, consequences of premature withdrawal, taxability of the income arising on investment, amounts received at maturity etc.
The writer is a senior director, Deloitte Haskins & Sells. With inputs from Pallavi Dhamecha, manager and Deepti Veera, deputy manager, Deloitte Haskins & Sells