There are many tax-saving investment options available before the taxpayers, out of which some are physical assets like house, electric cars etc, while most of other options are financial assets. While buying a physical asset needs comparatively bigger investment and also depends on needs and convenience of the investor, investing in financial asset is easier and everybody may do it as per their capacity to save money and/or according to their future financial needs.
Most of the financial assets, that give benefit of deduction in taxable income, fall under Section 80C of the Income Tax Act, under which, a taxpayer may claim total benefit of up to Rs 1.5 lakh, taking into account all the investments made in such assets in a financial year.
Out of the several options available, some of the popular financial assets are – Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificates (NSC), Life Insurance, Unit-Linked Insurance Plans (ULIP), Equity-Linked Savings Schemes (ELSS), Fixed Deposits (FDs) for 5 years or more, approved Shares / Debentures, employee’s own contribution to Employees’ Provident Fund (EPF) etc.
Apart from the above-mentioned financial instruments, within the same limit of Rs 1.5 lakh, some other options like – investment in Pension Plans u/s 80CCC and employee’s own contribution to National Pension System (NPS) u/s 80CCD(1) also come.
Moreover, some expenses like Children Education Fee (Tuition Fee Only), as well as repayment of Housing Loan Principal also eat up the scope of Rs 1.5 lakh per financial year limit.
The other investment option that gives benefit up to Rs 50,000 u/s 80CCD(1B) in a financial year over and above the Rs 1.5 lakh limit is voluntary contribution to Tier-1 Account of NPS.
So, couple with the Rs 1.5 lakh benefit primarily u/s 80C, the additional benefit of Rs 50,000 u/s 80CCD(1B) provides a taxpayer to claim total deduction up to Rs 2 lakh from his/her total income in a financial year.
By taking the full benefit of Rs 2 lakh, a taxpayer having total income of Rs 7 lakh may save his/her entire tax payable of Rs 54,600 (including the Health and Education Cess), as by availing Rs 2 lakh deduction, his/her taxable income will fall to Rs 5 lakh, up to which full rebate in tax payable up to Rs 12,500 is available.
On the other hand, an assessee with total income of Rs 10 lakh would save up to Rs 41,600 by investing Rs 2 lakh in the above-mentioned investment options.
Similarly, assessees in the highest tax bracket of 30 per cent may save up to Rs 62,400 by availing to opportunity to invest up to Rs 2 lakh.