At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances which could reduce tax liability substantially for the individuals. Here are twenty-two smart tips to help you save more and reduce taxes.
How to maximise tax benefits- 22 best tax saving investment
[1] House Rent Allowance (HRA): It is the most efficient tax saving option. The deduction of tax free rent from the gross salary would be minimum of these three-
a. 40% of the basic salary (50% in metros).
b. Actual rent paid – 10% of the basic salary.
c. Actual house rent allowance received from your employer.
[2] Life insurance premiums(LIC): Deduction is available under Section 80C with respect to premium paid towards life insurance policy for self, spouse and any child. It may be noted that no deduction is available for any late-fee charges paid. The amount received on maturity of the policy is exempt from tax, subject to prescribed conditions.
[3] Public Provident Fund (PPF): Contribution to a PPF account in the name of self, spouse and a child is eligible for deduction under Section 80C. Finance Minister Arun Jaitley in the Budget increased the ceiling on PPF investment to Rs 1.5 lakh from Rs 1 lakh. The annual accretion on the account is also not taxable.
[4] National Saving Certificate (NSC): The amount invested in NSC is eligible for deduction under Section 80C. Further, the interest accrued annually on NSC, though taxable, is deemed to be re-invested and qualifies for deduction (except in the year of maturity).
[5] Five-year bank fixed deposits (FDs): FDs with a scheduled bank, under a notified scheme, with a tenure of five years is eligible for deduction under the above section. However, banks are required to deduct Tax @10% if the interest earned on FD exceeds Rs. 10,000/- in a financial year.
[6] Post office five-year time deposit (POTD) scheme: POTDs are similar to bank FDs. A five-year POTD qualifies for deduction under Section 80C. However, interest accrued on the same is entirely taxable.
[7] Senior Citizen Savings Scheme (SCSS): SCSS is another scheme eligible for deduction under Section 80C. However, it is intended only for senior citizens. The interest accrued on the same is entirely taxable.
[8] Unit-linked insurance plans (Ulip): Investments in Ulips in the name of self, spouse and a child, which covers life with benefits of equity investments, is eligible for deduction under Section 80C.
[9] Rajiv Gandhi Equity Savings Scheme (RGESS): It is a new equity tax advantage savings scheme for equity investors in India. The taxpayer should invest only in BSE-100, CNS 100, NFOs, Mutual Funds, ETF schemes listed on the stock markets and noted scripts only comes under RGESS. The permitted maximum investment to claim tax deduction under RGESS is Rs . 50,000/-.
[10] Mutual fund (MF) and Equity-linked savings scheme (ELSS): Subscription to MFs and ELSSs qualifies for deduction under Section 80C. Currently, dividend and long-term capital gains on equity-oriented funds where securities transaction tax is paid are exempt from tax.
[11] Home loan principal repayment: Equated monthly installments that are paid to repay home loans consists of two components-principal and interest. The principal component qualifies for deduction under Section 80C, provided the loan is taken from a prescribed lender (banks, PSU, etc.). The interest component can save your income tax as a deduction from rental income, subject to prescribed conditions.
[12] Stamp duty and registration charges for a home: Stamp duty and registration charges paid for transfer of property qualify for deduction under Section 80C.
[13] Tuition fees: Tuition fees paid for full-time education in an Indian university, college, school, educational institution, for any two children are eligible for deduction under Section 80C.
[14] NABARD rural bonds: Investment in rural bonds issued by NABARD qualify for deduction under section 80C.
[15] Contribution to pension funds: Contributions to certain pension funds of LIC or any other insurer are eligible for deduction. Contribution to the National Pension Scheme is also eligible for deduction.
[16] Infrastructure bonds: For tax payer, who completed total savings under section 80C of I-T Act up to Rs 1.5 Lakh, can opt to invest in Infrastructure bonds to avail extra tax benefits up to Rs 20,000/- under Section 80CCF of Income Tax Act. Interest accrued to this Infrastructure bond comes under taxable income. If the annual interest is less than Rs 2,500/- will not considered to taxation.
[17] Medical insurance premium: The budget has hiked deduction for health insurance premium by Rs 10,000, which will benefit policyholders who are paying a high premium for medical insurance. For ordinary taxpayers, deduction limit has been enhanced from Rs 15,000 to Rs 25,000 and for senior citizens from Rs 20,000 to Rs 30,000.
[18] Maintenance, including treatment, of disabled dependent: Your expense of medical insurance can also give you the opportunity to save some more tax. Under section 80D of the income tax act, you can get the tax benefit for the insurance premium. Well, there are other tax saving options under section 80C, But section 80D gives you additional tax benefit. You can get a tax deduction of up to Rs 75,000 under the section 80D. The deduction is increased to Rs 1.50 lakh if the disability is severe-over 80%.
[19] Medical treatment: Deduction of up to Rs 40,000 (Rs 60,000 for senior citizens) is available under Section 80DDB per financial year on medical expenses incurred for treatment of specified diseases (self and dependent). It is further proposed to provide that in case of a very senior citizen, a deduction up to Rs. 80,000/- would be allowed.
[20] Donations: An amount donated to a prescribed charitable institution qualifies for deduction under Section 80G. It would need to be claimed at the time of filing your personal tax return.
[21] Rent: This deduction is usually associated with salaried taxpayers. However, a deduction is also allowed for individuals who do not receive HRA under Section 80GG. The deductible amount is the rent paid in excess of 10% of total income-subject to a maximum of Rs 2,000 per month or 25% of total income, whichever is less.
[22] Interest on education loan: Interest paid on an education loan qualifies for deduction under Section 80E. It is available for eight years starting from the financial year in which the individual starts paying interest.
(For Any Professional tax-planning advice or assistance, you may contact Ms. Rohini Mishra at rohinimishra.cs@gmail.com or whatsapp at +91-7042097499)
