As the current financial year is about to close, many salaried individuals may be looking for last-minute tax saving options. Here's a look at all of them.
As the current financial year is about to close, many salaried individuals may be looking for last-minute tax saving options. It is, however, important to understand the various tax slabs and the component of one’s salary to effectively figure out the requirement of investments to be made for saving taxes.
Thankfully, there are a host of legitimate ways and investment schemes for saving taxes under the head salary income. These include tax-saving mutual funds, NPS, insurance premiums, medical insurance, and many others. In this article, we will cover all the major tax deductions under the Income Tax Act:
Deduction is allowed to salaried individuals up to Rs 40,000 from the gross taxable income.
Investment based deductions
Section 80C includes the following investments and expenses that can be used to claim deductions, with a collective ceiling of Rs 1.5 lakh.
# Pension Scheme – Deductions available to individuals against contributions made to the National Pension Scheme or the Atal Pension Yojana. The maximum deduction permissible under this section is 10% of the salary (basic + DA) or 10% of the gross income of the individual.
# National Saving Certificates – This is a fixed income investment scheme that you can open with any post office. Deduction shall be allowed of the amount invested in NSC in the name of self, spouse or minor children.
# Public Provident Fund – Public provident fund is a deposit scheme run by the Central government. The amount received on maturity shall be exempt from income tax and also annual interest is exempt from income tax. This is a financially lucrative option selected by millions. This investment option is backed with benefits like transparency and high ROI.
# Fixed deposit – Amount invested in select term deposits with a lock-in period of 5 years is allowed as deduction. Principal amount received on maturity shall be exempt. However, annual interest accrued by banks is chargeable to tax. This option is also safe and is liked by various households especially Hindu Undivided Family.
# Five Year Post Office Time Deposit Account – Amount invested in Five Year Time Deposit account is also available as full deduction, However annual interest is chargeable to tax. Nowadays this is not a preferred mechanism as banks have wider reach and reliability than post offices.
# Home loan – The principal portion of home loan repaid in respect of house shall be allowed as deduction. This avenue is often used by the middle class, as there is no specific investment or expenditure necessary for it.
# Life Insurance – This is not an investment option but an expenditure avenue. Deduction shall be allowed to an individual for the premium paid for Life Insurance Policy taken in the name of self, spouse ,and children. Maximum deduction allowed is the amount of premium paid but maximum up to 10% of the capital sum assured. Any payment received on maturity of insurance policy shall be exempt from income tax.
# Payment of tuition fees to School, College, University or any other Educational Institution in India – Tuition fees paid for maximum two children of the taxpayer would be allowed as a deduction. Before you claim this deduction, do take a certificate from school, as not the entire payment to school would be allowed as a deduction.
# Statutory provident fund or Recognised provident fund – Deduction shall be allowed for Employee Contribution to Statutory Provident Fund or Recognised Provident Fund.
# Units of Unit trust of India or mutual fund – Deduction Shall be allowed for investment in Units of UTI or Mutual Fund (including unit-linked insurance plan of UTI or mutual fund).
# Notified Deposit Schemes of NHB – Deduction Shall be allowed for a subscription to Notified Deposit Bonds of NHB. e.g. subscription to Home Loan Account Scheme of NHB.
# Equity shares or debentures etc forming part of an eligible issue – Deduction shall be allowed for Investment in Equity Shares or debentures of an issue made by an Indian Public Limited Company or a Public Financial Institution, a Mutual Fund etc. and the funds so collected are utilised for Developing, Maintaining and Operating Infrastructure Facility.
# Others – Deduction for investment in Senior Citizen Saving Scheme, Sukanya Samridhi Account Deduction shall be allowed only if the amount has been actually paid by the assessee, i.e. if the amount is due but not paid deduction is not allowed. E.g. Premium of Rs 25,000 was due on 27.03.2019 but it was paid on 10.04.2019. In this case no deduction is allowed in the previous year 2018-19, rather deduction shall be allowed in the year 2019-20.
Deduction for Medical insurance
Deduction in respect of Medical Insurance under Section 80D for payment made towards premium up to Rs 25,000 and Rs 50,000 in case of senior citizen. Additionally, the deduction for Preventive Health Check is also available up to Rs 5,000 in aggregate for self, spouse, dependent children and parents.
Deduction for Education Loan
Deduction in respect of Education Loan under section 80E for amount paid by way of Interest on Loan taken by him from any Financial Institution or approved Charitable Institution for the Purpose of Pursuing his higher education or relative.
Deduction for Saving bank interest
Interest on Deposits (not being Time Deposits) in a Saving account with Banking Company, Cooperative Society or Post Office shall be allowed as deduction maximum up to Rs 10,000 for individuals and Rs 50,000 for senior citizens.
Deduction for maintenance of a dependent person
Deduction of Rs 75,000 from Gross Total Income in respect of Previous year in which expense incurred or deposited any amount under a scheme for maintenance of a dependent who is a person with disability. Where there is severe disability, the deduction shall be Rs 125,000.
Deduction for contribution to charitable institutions
Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G. During the year every taxpayer would have a contribution towards Kerala relief fund, Army, Prime minister relief funds or any charitable organization. Taxpayers need to dig deep down and find receipt of investments made by them for eligible funds.
Deduction for Home Loan Interest
An assessee is eligible for certain deductions of interest paid on home loan. Under Section 24 interest paid up to Rs 200,000 during the year can be availed.
Keeping in mind the above-mentioned deductions currently available, a person having an income up to Rs 8.25 lakh doesn’t require to pay any taxes.
(By Rajat Mohan, Partner, AMRG & Associates)