The financial year is almost coming to its end and many investors will seek various avenues in order to save taxes. Here’s a quick relook at the various investment options in hand.
Investments under Section 80C
Deduction can be claimed up to R1.5 lakh under Sections 80C and if you are in the 30% tax bracket, you can save up to R45,450 by investing in the following approved tax-saving instruments. Contribution towards Employees’ Provident Fund of 12% of your salary is deductible under Section 80C and the interest earned thereon is tax-free.
Contribution towards the Public Provident Fund up to R1.5 lakh is deductible under Section 80C and the interest is tax-free. You can invest in five-year National Savings Certificate to claim deduction under Section 80C, but the interest earned is taxable. You can also invest in five-year bank and post-office fixed deposits for claiming tax deduction, but the interest earned is taxable.
An individual’s contribution towards NPS is tax deductible under section 80CCD up to R1.5 lakh capped at 10% of the salary in case of a salaried individual and at 10% of the gross total income in case of non-salaried. Additional deduction of R50,000 over and above the aforesaid R1.5 lakh is available to an individual assessee for contribution made to NPS.
Investments in Sukanya Samriddhi Scheme is eligible for deduction under Section 80C and payments to the beneficiaries including interest payment on deposit are also exempt from taxation. Investment in a life insurance scheme (unit-linked, traditional endowment or term plan) with sum assured at least 10 times the annual premium is eligible for tax deduction within the R1.5 lakh limit.
Investment in equity mutual fund schemes with a lock-in of three years is tax deductible up to R1.5 lakh. One can continue to remain invested even after the lock-in period. Capital gains and dividends are not taxed. The principal component of a home loan repayment is tax deductible up to R1.5 lakh.Tuition fee for educational institutes in India for full-time education of two persons is also eligible for deduction.
Look beyond the obvious
Contrary to popular belief, Section 80C is not the only section that salaried people can exploit to save maximum tax. Your normal expenditure such as house rent, medical expenses for the family or spending on your children’s school fees have tax exemptions. You have to understand the nature of each tax break; and depending on the shortfall, the remaining amount should be invested in tax-saving instruments. There are host of tax saving options available to individuals, inter-alia, including the following:
You can claim deduction up to R30,000 on interest paid on a loan taken for renovation of an existing property. Also, a deduction of R25,000 can be claimed for investment made in the Rajiv Gandhi equity saving scheme.
Similarly, you can claim deduction of up to R5,000 on expenses incurred on health check-ups, subject to the overall limit in Section 80D, under which deduction for medical insurance is available from R25,000 to R55,000 subject to prescribed conditions.
Finally, under Section 24, the amount of interest you pay on home loan can also be claimed as deduction subject to the limits stated. This is outside the deduction available for principal repayment on the loan available under Section 80C.
The writer is executive director, Nangia & Co