#classroom
Tax saving instruments and avenue especially for salaried individuals
We are almost halfway through this financial year 2016-17, however, many of us has got the revised paycheques with increment and bonus only in July/ August. The accounts team have given reminders for tax declaration forms. Let us quickly look at the lists of investment options where we can save some tax as well as utilise the fund in building wealth and help good cause.
Tax saving investments can be divided in 4 parts – 1. #Investments 2. #Insurance 3. Expenses 4. #Donations and social causes. In this post I intend to only identify the areas of investments. The next post will elaborate on the best ways to manage tax savings.
Tax savings instruments are introduced by government to promote savings practices, participating in the overall economy growth, encourage donation and charities for good causes and also rewarding investing in environmental-social sectors. It is not to be used as tax evasion tool in any form.
In the Income Tax act of India act, section 80C to 80U covers the tax exemption areas.
Tax saving eligible investments options
Categories
|
Details
|
Lock-in period
|
Minimum and maximum investment per year
|
Other benefits
|
Tax benefits
|
EPF
|
The amount is deducted from the salary by the employer. Employer also for makes equal contribution to the fund. This is a compulsory contribution.
|
As per new laws, one need to mandatorily keep the fund until 58 years of age
|
Minimum if 12% of Basic and DA. Benefit upto Rs. 1,50,000 investment per year
|
Employee can avail loan benefits and partial withdrawal allowed on resigning job. This account is transferable on job change
|
Maturity amount is complete tax free above 5 years
|
VPF
|
Voluntary Provident Fund, can be opted by an employee, carries same interest rate as
EPF
|
The lower limit not specified, however, upper limit is at 1,50,000
|
Loan facility/ partial withdrawal facility available
|
Tax free on maturity
|
|
PPF
|
Long term saving scheme by banks, return over 8% annually
|
15 years
|
Minimum Rs. 500 a year and maximum Rs. 1,50,000
|
Enjoys triple tax benefit. Partial withdrawal allowed 6th year onwards
|
Enjoys triple tax exemption benefit.
|
NSC
|
Eligible for deduction in the year they are purchased.
|
5 years, 10 years
|
The interest earned is non-taxable except last year
|
The interest earned in the last year is taxable.
|
|
Sukanya samridhi Yojana
|
Special saving scheme promoting development of girl child, enjoys higher interst rate than PPF
|
Until daughter turns 18 years
|
Minimum investment of Rs. 1000 year, upto 1,50,000
|
Enjoys triple tax exemption benefit. No tax on interest earned
|
Enjoys triple tax exemption benefit.
|
Tax Saving Fixed deposits
|
Eligible for deduction n the year purchased, banks and post office have this facility
|
5 years
|
Maximum Rs. 1,50,000
|
Interest earned is taxable on maturity
|
|
Senior citizen savings scheme
|
Deposit schemes in banks for senior citizens
|
Also enjoys higher interest rate
|
|||
Insurance/ annuity plans (80CCC)
|
Premium paid for deffered annuity plans, life insurance schemes
|
NA
|
The upper limit is at 1,50,000
|
Enjoys triple tax exemption benefit
|
|
ELSS
|
Mutual Fund scheme, with 3 year lock-in period
|
3 year lock –in period
|
Minimum 5,000 Maximum investment 1,50,000 per year
|
Enjoys triple tax exemption benefit
|
Rs. 1,50,000
|
Contribution towards pension account 80CCD(1)
|
Maximum deduction allowed is 10% of salary, and 10% of gross income for self-employed,
|
limit – Rs. 1,50,000
|
Upto Rs. 1,50,000
|
||
Self contribution – Pension Fund/ Atal pension Yojana- 80CCD(1B)
|
Towards NPS/ Atal Pension Yojana
|
Deduction is allowed on contribution up to Rs 50,000. (This is additional to the available 1,50,000 limit)
|
Rs. 50,000
|
||
Employer’s contribution -Section 80CCD(2)
|
Deduction is allowed for employer’s contribution to employee’s pension account up to 10% of the salary of the employee.
|
There is no monetary ceiling on this deduction.
|
Upto 10% of employee’s salary
|
||
Equity Savings scheme 80CCG
|
A 50% deduction on tax on the investment. Person with salary less than 12 lakh
|
Rs. 50,000 is the upper limit
|
50% deduction on the investment year
|
Other earnings eligible for tax saving
Categories
|
Details
|
Benefit
|
Interest earned from savings account
|
Tax savings claimed can be made on interest earned on savings account
|
Exemption upto Rs. 10,000 per year
|
#classroomseries
Expenses eligible for tax exemptions (Insurance and expenses)
Categories
|
Details
|
Benefit
|
Life Insurance premium
|
Premium paid is eligible for tax benefit (for self, spouse, child)
|
valid on insurance policies if the premium is less than 10% of sum assured
|
Premium paid for medical insurance
|
Benefit upto 15,000 for self, spouse and children. Can be upto 20,000 if self/spouse is above 60 years
|
Additional deduction for 15,000 for parents and 20,000 if parents are above 60 years
|
Medical expenditure on handicap relative (80DD)
|
Expense on treatment, maintenance, rehabilitation and care
|
For 40-80% disability, fixed deduction of 50,000
Severe disability over 80% – 1,00,000
|
Medical expense of self/ dependant (80DDB)
|
For the diseases specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor.
|
The maximum amount of deduction allowed from gross total income on condition that no medical reimbursement is received from any insurance company or employer for this amount
|
Person suffering from physical disability (80U)
|
Individual who suffers from a physical disability (including blindness) or mental retardation
|
Deduction of Rs. 50,000/-
|
Tuition fee
|
For children of the tax payer, school, college, university or any other institute within India
|
Capped at Rs. 1,50,000
|
Home loan
|
Principal repayment of home loan
|
Capped at Rs. 1,50,000
|
Home loan interest payment (80EE)
|
First time home buyers can avail this facility for self-occupied property
|
The value of the house should be less than 50 lakhs and loan amount is less than 35 lakh. This is over and above the 2,00,000 limit
|
Stamp duty and registration for home buyers
|
Allowed under 80 C
|
Capped at Rs. 1,50,000
|
Deduction on house rent (80 GG)
|
This is available in case no HRA is attached in the salary structure and not allotted accommodation by the employer
|
Maximum of Rs. 60,000 per annum can be claimed
|
Education loan for higher studies (80E)
|
Interest on the loan is eligible for tax benefit, can be upto 8 years or the interest payment completed whichever is earlier
|
Capped at Rs. 1,50,000
|
Social causes and donations
Categories
|
Details
|
Benefit
|
Donation towards social causes (80G)
|
Deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. click here for details
|
Donation over 10,000 cannot be by cash
|
Deductions on Contribution by Individuals to Political Parties (80GGC)
|
Political party registered under section 29A of the Representation of the People Act.
|
Cash contribution not allowed
|
(80RRB)
|
Deductions on Income by way of Royalty of a Patent
|
up to Rs. 3 lakhs
|
#classroomseries
information used/referred from bankbazaar, cleartax, taxguru etc.