Save a Month Salary in Taxes

Paying for taxes creates a considerable financial burden. But, every countryman must abide by the custom of the nation. However, there are certain tips and tricks that help in deducing the tax burden. When investment can be done in a planned manner considering all these factors, then it creates considerable savings. The Income Tax Act is there to help every interested investor, depending on the individual risk appetite, to satisfy the investment requirements most cost-effectively. The 3 sections of the Income Tax Act Section 80C, Section 80D and Section 80G mentions the options of tax redemption.

Tax-saving scenario

How to Save in Taxes

Section 80C

• Equity Linked Savings Scheme (ELSS)

With a lock-in period of 3 years, this is the only type of mutual fund that offers tax reduction under Section 80C of the Income Tax Act. Here, the investments are oriented towards the equity market and thus comes with better prospects of higher returns when compared to any other similar investment tool. Depending on the choice of the investor, there are 2 methods of investment—lump sum or SIP. However, premature withdrawal before the completion of the lock-in period is not allowed here. This carries moderate to high risk however, it evens out in the long run. 

• Senior Citizens Savings Scheme (SCSS)

This is one of the best options for the retirees or those who have applied for voluntary retirement. Securely backed by the Government of India, this is a long-term investment option. The maximum tenure is 5 years which can be extended up to 3 more years on maturity. The current rate of interest is 8.6% p.a. Premature withdrawal is allowed after the completion of the first year of investment. 1.5% penalty charge is deducted if the account is closed within 2 years of opening. The interest earned is taxable and if it exceeds 10,000 INR within a financial year, then TDS is applicable. 

• National Pension Scheme (NPS)

Administered by the Pension Regulatory Fund Authority of India, NPS is one of the best retirement benefit schemes. The total amount of investment largely depends on the age of the investor; the earlier it is begun, the more savings made. After reaching the 60 year age bracket, 60% of the maturity amount can be withdrawn while the remaining 40% is utilised for purchasing an annuity for the pension benefit. After 3 years of investment, up to 25% of the premature withdrawal can be allowed.

• Term Life Insurance Premium

The premiums paid for a term insurance policy are eligible for tax deduction under Section 80C, provided the premiums are paid for self, dependent children, spouse or any other dependent member of the HUF. If the premium exceeds 20% of the total assured amount, then it becomes deductible. The insurance covers the financial security of the entire family despite the death of any member. 

• Public Provident Fund (PPF)

This is a long-term investment option of 15 years offering tax benefits. The current interest rate is 7.9% p.a. and has a lock-in period of 15 years. This means premature withdrawal is not allowed except the 7th year, that too, partially. A meagre 100 INR is enough to open a PPF account while the maximum limit is 1.5 lakh INR. There is no scheme of paying taxes on the deposit or the interest accumulated during withdrawal.

• National Savings Certificates (NSCs)

Offered by the government, this is a fixed-income investment option. Post offices generally operate this type of investments. The lock-in period is 5 years and the current interest rate is 7.9% p.a. These certificates are available in the denominations of INR 100, INR 500, INR 1,000, INR 5,000, INR 10,000. If the certificates have been forfeited under any circumstances or if the holder has passed away, then only premature withdrawal is allowed. This scheme possesses the backing of the government, therefore, is safe and secured.

• Tax-saving FDs

The maximum limit of the tax deduction is INR 1.5 lakh under this scheme. The total tenure is of 5 years and the lock-in period is also the same. So, premature withdrawal is not allowed. The minimum investment amount differs from one bank to another. The amount can be re-invested and the interest payout can be chosen between monthly or quarterly. Submission of 15G/H negates the TDS issue, applicable on the interest earned.

• Home Loan Repayment

A portion of the EMI in case of any home loan is eligible for a tax deduction. However, the interest payable does not qualify for this.

• Tuition Fees

The tuition fees payable for the child’s education is eligible for a  tax deduction. This is applicable for a maximum of 2 children per individual parents or guardians. The educational course must be a full-time course under any recognised institution.

Section 80CCD

This offers tax deductions for the NPS. Section 80CCD(1) discusses the tax benefits for the Indian senior citizens as well as the NRIs. The maximum allowable tax deduction is 10% of the gross salary including basic+DA. For self-employed individuals, this limit is 20%. Section 80CCD(1b) provides an additional deduction of INR 50,000. 

Section 80D

This allows tax deductions up to INR 1 lakh for investments in the health insurance sector. The tax deduction claims under Section 80D are added benefits over the benefits offered by Section 80C. It is applicable for the HUFs and individuals.

Section 80E

Repayment of the interest towards the educational loan undertaken for the child of the self, spouse or for any student for whom the concerned tax-payer is the legal guardian, is eligible for tax benefits. Moreover, the loan should be issued by any recognised bank or any other financial institution. 

Section 80EE

This allows tax benefits on the interest paid for a home loan in case of a first time home buyer. A maximum tax deduction of INR 50,000 can be availed under this option.

Section 80G

This allows tax deductions in case of payments in charitable organisations.

Section 80GG

In the case of a salaried employee, there is the provision for house rent allowance and claim tax deduction for it. Even if there is no HRA, and the individual is living in any rented living accommodation then also this facility can be claimed.

Section 80TTA

A deduction of up to INR 10,000 can be claimed under this scheme. It is applicable for the savings bank account, savings account with any co-operative society involved in banking activities and the interest on the savings account in any post office. If the interest income is below INR 10,000, then the entire amount is eligible for a tax deduction. If it exceeds the mark of INR 10,000, then it is applicable up to INR 10,000. The excess amount won’t fall within the purview.

Section 80DD

This section of the Income Tax Act allows tax benefit provisions for the differently-abled individual. 

Section 80DDB

This offers tax deductions for certain specific types of health ailments. The deduction is applicable only for the cost incurred for treating the enlisted ailments for the self, dependent spouse, sibling or parent.

Section 80U

Certified as 40% disabled by the recognised medical authorities are eligible to claim this tax benefit option. The ailments are—blindness, low vision, leprosy cured, hearing loss, locomotor disability, mental illness. Up to INR 75,000 can be claimed for up to 40% disability, with 80% or above disability, the limit is INR 1,25,000.

Section 80GGC

This allows tax deductions in case of contributions to political parties. Up to 50-100% of the tax deduction applies to the total contributed amount.

Summary

Tax planning is a must, but before selecting any tax-saving tool, careful consideration of all the relevant risk factors and the lock-in period terms must be made for the maximum benefit and the best interest.