The accounts department in my office is asking for investment proof to claim tax deductions. I wish to know of the tax savings options that are available to save on my income tax liability.
-Rakesh Mohan
The calendar year end marks the beginning of the tax savings season. Taxpayers and distributors of financial products get into the frenzy of making investments and savings that qualify for tax deductions. Saving or investing to just save tax is undesirable as it runs the risk of non optimal use of money. The way to optimise savings and investments is to align tax planning with one’s financial plans and act accordingly. Section 80C offers a window of investment opportunities up to Rs 1 lakh investment in each financial year. This benefit is available to everyone, irrespective of their income levels.
The Section 80C is the most widely known Income Tax Section under which one can claim tax deductions through both savings and investments. Individuals and HUFs qualify to claim deduction under this section. Under this section one can save and invest across several financial instruments (see table: All under Section 80C).
The available investment option ranges from fixed return instruments to market-linked options. Life insurance premiums, home loan principal; wherein the principal portion of the home loan EMI qualifies for deduction under Section 80C. This benefit is over and above the Section 24 benefit where the interest on home loan with a maximum deduction of Rs 1.5 lakh as interest payment on home loan for self-occupied property and unlimited for property that is let out is available.
There are options to save towards retirement in the form of the employees provident fund (EPF) where 12 per cent of your salary is deducted every month and an equal amount is contributed by your employer and put into a fund maintained by the Government or your company’s provident fund trust. Only your contribution towards the fund is eligible for deduction from taxable income of the basic salary towards EPF. For taxpayers who do not have the option to contribute to EPF, there is the self-funded pension plan; the public provident fund (PPF). Likewise, there are benefits for retired senior citizens with the Senior Citizens Savings Scheme (SCSS).
Another advantage for taxpayers with children is that tuition fees for a child’s education can be claimed, as long as the fee is paid to school, college, university or other educational institution, situated within India. However, the fee does not include payment towards development fees or donation. Further, savings in notified term deposits in scheduled banks with a minimum five years under the bank term deposit scheme, 2006. Savings in post office time deposits with 5-year lock-in, the 5- and 10-year National Savings Certificate, investments equity-linked savings scheme (ELSS) are other available options.
Besides Section 80C, there is the Section 80D under which individuals can claim tax deductions against premiums paid towards health insurance. Premium payments towards medical insurance for self, spouse, children and parents qualify for deduction. The limit is Rs 15,000 for self, spouse and dependent children. Further, an additional deduction up to Rs 15,000 for parents and going up to Rs 20,000 if the parent is a senior citizen. Given the myriad tax savings option available, it would be in your interest to choose the option that best matches your financial needs and life stage.
This article was originally published on February 13, 2013.
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