It's that time of the year again when people start planning their taxes. Most delay this till the last moment and then invest without giving serious thought to the tax-saving instruments at hand. That's why we thought we should warm you up well in advance so that you can make the best use of all the options.
MAKING RS 1-LAKH LIMIT COUNT
You can claim a deduction of up to Rs 1 lakh under Sections 80C, 80CCC and 80CCD. If you are in the 30% tax bracket, you can save up to Rs 30,900 by investing in the following approved tax-saving instruments.
Employee Provident Fund (EPF):
You must contribute at least 12% of your salary-basic pay, dearness allowance (including cash value of any food concession) and retention allowance-towards EPF. This is deductible under Section 80C.
Premature withdrawal is allowed only under conditions specified by the government. If the amount is withdrawn before five years of subscription to the scheme, the tax benefits that have been availed on it are cancelled.
Public Provident Fund (PPF):
Any resident Indian can invest in PPF and claim income tax deduction. An individual can also contribute on behalf of a Hindu Undivided Family. One can also invest in the name of spouse and children. However, tax deduction is available only on contributions up to Rs 1 lakh. At present, PPF is offering 8.7% annual interest. The interest earned is tax-free.
Senior Citizen Savings Scheme (SCSS):
People above 60 years (or those above 55 years who have taken voluntary retirement) can invest in SCSS. The maturity period is five years, though it can be extended by another three years.
One can deposit only once any amount in multiples of Rs 1,000 but not more than Rs 15 lakh. At present, SCSS is offering 9.2% annual interest, which is paid quarterly. The interest earned is taxable.
National Savings Certificate (NSC):
You can invest in five- and 10-year NSCs. Five-year NSCs are offering 8.5% a year while 10-year NSCs are paying 8.8%. The interest earned is taxed. There is no restriction on the amount that can be invested, though tax deduction can be claimed only up to Rs 1 lakh.
Bank, post-office deposits:
Investment in five-year bank and post-office fixed deposits is eligible for tax deduction. The interest earned is taxable.
National Pension System (NPS):
Employee contribution towards NPS Tier-I account (where no withdrawal is allowed) up to 10% of basic plus dearness allowance is tax deductible.
Life insurance schemes:
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 lakh limit. Returns from these schemes are not taxed. The minimum policy term is five years. Premiums paid for annuity plans of life insurers are also tax deductible.
Tax-saving mutual funds:
These are equity mutual fund schemes with a lock-in of three years. Investment in these funds is tax deductible up to Rs 1 lakh. One can continue to remain invested even after the lock-in period. Capital gains and dividends are not taxed.
Home loan principal repayment:
The principal component of a home loan repayment is tax deductible up to Rs 1 lakh. However, if the property is sold before five years of the purchase, the amount claimed as deduction is taxed in the year the house is sold.
Children's tuition fee:
Tuition fee for educational institutes in India for full-time education of two persons is also eligible for deduction.
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BEYOND RS 1-LAKH LIMIT
By now you must have realised that the Rs 1 lakh limit is too small. That is why you need to look at options under Sections 80C, 80CCC and 80CCD as well.
Rajiv Gandhi Equity Savings Scheme:
Under this, first-time equity investors can invest up to Rs 50,000 in approved stocks and mutual funds and claim tax deduction on 50% of the amount, or Rs 25,000, under Section 80 CCG of the Income Tax Act. But to claim this exemption, their income should not be more than Rs 12
MAKING RS 1-LAKH LIMIT COUNT
You can claim a deduction of up to Rs 1 lakh under Sections 80C, 80CCC and 80CCD. If you are in the 30% tax bracket, you can save up to Rs 30,900 by investing in the following approved tax-saving instruments.
Employee Provident Fund (EPF):
You must contribute at least 12% of your salary-basic pay, dearness allowance (including cash value of any food concession) and retention allowance-towards EPF. This is deductible under Section 80C.
Premature withdrawal is allowed only under conditions specified by the government. If the amount is withdrawn before five years of subscription to the scheme, the tax benefits that have been availed on it are cancelled.
Public Provident Fund (PPF):
Any resident Indian can invest in PPF and claim income tax deduction. An individual can also contribute on behalf of a Hindu Undivided Family. One can also invest in the name of spouse and children. However, tax deduction is available only on contributions up to Rs 1 lakh. At present, PPF is offering 8.7% annual interest. The interest earned is tax-free.
Senior Citizen Savings Scheme (SCSS):
People above 60 years (or those above 55 years who have taken voluntary retirement) can invest in SCSS. The maturity period is five years, though it can be extended by another three years.
One can deposit only once any amount in multiples of Rs 1,000 but not more than Rs 15 lakh. At present, SCSS is offering 9.2% annual interest, which is paid quarterly. The interest earned is taxable.
National Savings Certificate (NSC):
You can invest in five- and 10-year NSCs. Five-year NSCs are offering 8.5% a year while 10-year NSCs are paying 8.8%. The interest earned is taxed. There is no restriction on the amount that can be invested, though tax deduction can be claimed only up to Rs 1 lakh.
Bank, post-office deposits:
Investment in five-year bank and post-office fixed deposits is eligible for tax deduction. The interest earned is taxable.
National Pension System (NPS):
Employee contribution towards NPS Tier-I account (where no withdrawal is allowed) up to 10% of basic plus dearness allowance is tax deductible.
Life insurance schemes:
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 lakh limit. Returns from these schemes are not taxed. The minimum policy term is five years. Premiums paid for annuity plans of life insurers are also tax deductible.
Tax-saving mutual funds:
These are equity mutual fund schemes with a lock-in of three years. Investment in these funds is tax deductible up to Rs 1 lakh. One can continue to remain invested even after the lock-in period. Capital gains and dividends are not taxed.
Home loan principal repayment:
The principal component of a home loan repayment is tax deductible up to Rs 1 lakh. However, if the property is sold before five years of the purchase, the amount claimed as deduction is taxed in the year the house is sold.
Children's tuition fee:
Tuition fee for educational institutes in India for full-time education of two persons is also eligible for deduction.
{mosimage}
BEYOND RS 1-LAKH LIMIT
By now you must have realised that the Rs 1 lakh limit is too small. That is why you need to look at options under Sections 80C, 80CCC and 80CCD as well.
Rajiv Gandhi Equity Savings Scheme:
Under this, first-time equity investors can invest up to Rs 50,000 in approved stocks and mutual funds and claim tax deduction on 50% of the amount, or Rs 25,000, under Section 80 CCG of the Income Tax Act. But to claim this exemption, their income should not be more than Rs 12
