It is that month of the year when the HR of your company will chase after you to submit your documents to vet the tax liability for fiscal 2019.
In this blog, we seek to discuss the methods by which you can save tax.
Let us look at the tax saving methods available in India.
In this article
- 1.Insurance policy
- 2.Provident fund
- 3.Sukanya Samriddhi Yojana
- 4.National Pension Scheme
- 5.National Savings Certificate
- 6.Equity Linked Savings Scheme
- 7.Post Office Senior Citizen Savings Scheme
- 8. Five Years Fixed Deposit Scheme
- 9. Home Loan
- 10. Tuition Fee for Children
- 11.Health Insurance
- 12.Infrastructure Bonds
- 13.Charitable Contribution
- 14. Preventive Health Check- Up
- 15. Interest Paid on Education Loan
The premium paid for your life insurance is eligible for is eligible for tax benefits under section 80C of the Income Tax Act. Also, if you have a policy with maturity payment, the payment on maturity is exempted from taxation under section 10 (10 D).
You may invest with EPF (employees’ provident fund) or PPF (Public Provident Fund) schemes or both.
- Employee Provident Fund
Generally, a salaried individual’s EPF forms the component of their salary whereby the employer deducts employees share (employee and employer contribute 12% of the basic wage and dearness allowances towards EPF), the same is not available for a business owner.
You can choose to put in additional funds by way of voluntary contribution. Remember, EPF (contribution and accumulated interest) is paid in lump sum at the time of retirement.
The government determines the interest rate on EPF which is currently hovering in the range of 8-9%. Thus, the employee contribution to EPF provides for tax benefit under section 80C.
- Public Provident Fund
PPF is a long-term investment with a lock-in of 15 years which can be extended in a block of five years at a time. The return on PPF is determined by the government and is currently in the range of 7-8% annually.
An individual can invest any amount in PPF but will be eligible for tax benefits of up to Rs 1.5 Lakh only under section 80C of the IT Act.
Also, the interest earned on the amount along with maturity proceed at the end of the term is tax-free.
3.Sukanya Samriddhi Yojana
As the name suggests, the scheme is for a girl child and intends to help parents fulfill their daughter’s education and marriage expenses.
This account can be opened by a parent or guardian of a girl child before her 10th birthday. One can open the account for maximum two girl children.
The interest rate is announced by the government and is generally 8-9% annually. The deposits in this account qualify for tax benefit under section 80C.
Source: Chartered Club
4.National Pension Scheme
National Pension Scheme (NPS) enables an individual to plan for retirement. A part of the corpus accumulated can be withdrawn as a lump sum, and the remaining can be converted into an annuity to receive monthly income post-retirement.
The money that is contributed to NPS is invested in equity funds, corporate funds, and government funds. The investments in NPS is made available for deduction under section 80C. The good news doesn’t end here.
You can get additional deduction of Rs 50,000 under section 80CCD (1B). At the time of redemption, 40 percent of the amount accumulated is exempted from taxation if used to purchase annuity scheme and the remaining amount is taxable.
5.National Savings Certificate
The India Postal Service issues National Savings Certificate (NSC).
The investment and interest on the investment are exempted from tax under section 80C. NSC typically comes with five years and ten years maturity. The interest rate currently in PPF is 7-8%.
6.Equity Linked Savings Scheme
Equity-linked savings scheme (ELSS) is a mutual fund where the money is invested in equities.
Also, ELSS fund comes with a three year lock-in period and seeks to provide higher returns than any other instrument in the market.
The investment in ELSS is eligible for tax deduction up to a maximum of Rs 1.5 lakh under section 80C.
7.Post Office Senior Citizen Savings Scheme
Post Office Senior Citizen Savings Scheme is for people who have attained the age of 60 years.
Besides, individuals who have already opted for Voluntary Retirement Scheme (VRS) can also open the account provided the age when VRS is taken is higher than 55 years.
The investment made under this scheme is eligible to avail tax deduction under section 80C.
8. Five Years Fixed Deposit Scheme
Investing in five-year fixed deposit provides you benefits under section 80C. Most importantly, the interest earned on these are also exempted from tax.
9. Home Loan
If you have a home loan or have availed for a loan to construct your own house, the repayment of the credit provides a tax benefit.
The payment of the principal amount is eligible for tax deduction under section 80C.
While purchasing property, if you have paid stamp duty and registration charges, you can avail tax benefits under section 80C during the year of purchase of the flat or land.
Also, the interest repayment of loan can provide you benefits under section 24 of the Income Tax Act.
10. Tuition Fee for Children
The tuition fee paid towards the education of your child provides you tax deduction under section 80C of the Income Tax Act.
Premium paid for health insurance of self, spouse and children provide you tax benefits under section 80C of the Income Tax Act. The deduction allowed in the category is Rs 25000 and Rs 30000 for youngsters and senior citizens respectively.
If you invest in infrastructure bonds, you get tax benefits under section 80CCF of the Indian Income Tax Act.
If you donate to charitable trust/society which has 80G certification, your contribution provides you tax benefits under section 80G. But, in this case, the declaration needs to be made before December 31 of every year.
14. Preventive Health Check- Up
If you spend Rs. 5000 for a preventive health check-up for yourself or on your family members, your expense is eligible for tax deduction under section 80D of the Indian Income Tax Act.
15. Interest Paid on Education Loan
If you have availed for an education loan, the repayment of education loan can provide you an income tax benefit. As per the IT Act, interest paid on the education loan is eligible for tax deduction under section 80E.
We have covered the majority of the instruments available for saving tax under section 80C. Besides, we have also detailed few other ways of avoiding tax.
Nevertheless, the list is not yet over. For any queries, feel free to connect with us, and we shall be glad to assist.
You have now seen the 15 ways in which you can save tax. It is now up to you to understand which scheme/schemes you want to invest in.
Disclaimer: The views expressed in this post are that of the author and not those of Groww