At the end of every financial year, many taxpayers make investments to minimise taxes, without adequate knowledge of the various available options.
At the end of every financial year, many taxpayers make investments to minimise taxes, without adequate knowledge of the various available options. A rush job often leads to mistakes and they end up investing in those schemes which don’t serve their financial needs. Make the Rs 1.5-lakh limit count With three months left to the end of the financial year, it is advisable to start thinking of investment alternatives that not only help you save tax but also increase your wealth. Deduction can be claimed up to Rs 1.5 lakh under Sections 80C and if you are in the 30% tax bracket, you can save up to Rs 45,450 by investing in the following approved tax-saving instruments.
Contribution towards Employee’s Provident Fund @12% of your salary is deductible under Section 80C and the interest earned thereon is tax-free. Contribution towards Public Provident Fund up to Rs 1.5 lakh is deductible under section 80C and the interest is tax free. You can invest in 5-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 National Pension System (NPS) is tax deductible under section 80CCD up to Rs 1.5 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 Rs 50,000 over and above Rs 1.5 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 Rs 1.5-lakh limit. Investment in equity mutual fund schemes with a lock-in of three years is tax deductible up to Rs 1.5 lakh. One can continue to remain invested even after the lock-in period. Capital gains and dividends are not taxed.
Beyond 80C investments
The principal component of a home loan repayment is tax deductible up to Rs 1.5 lakh. Tuition fee for educational institutes in India for full-time education of two persons is also eligible for deduction. Further, contrary to popular belief, Section 80C is not the only section that salaried people can exploit to save maximum tax. General 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.
You can claim deduction up to Rs 30,000 on interest paid on a loan taken for renovation of an existing property. You can claim deduction of up to Rs 5,000 on expenses incurred on health check-ups, subject to the overall limit in Section 80D, under which deduction for medical insurance is available from Rs. 25,000 to Rs 55,000 subject to prescribed conditions. The writer is executive director, Nangia & Co LLP. Inputs from Vasudha Arora