Investment Tips to Save Income Tax

Other Tax Savings Options Beyond Section 80C

There are other deductions available under Section 80 that you can employ in addition to the 80C deductions to reduce your taxable income. Tax advantages on house loan interest and health insurance payments are a few: 

1. Rs.50,000 will be claimed as the medical insurance premium. (Rs.25000 for self, spouse, and children; Rs.25000 for dependant parents under 60 years of age.) If older citizens are enrolled, they can get medical insurance premium payments up to Rs.1,000,000 annually. The maximum amount of medical expenses that can be claimed under section 80D for older individuals is Rs.50,000 if they do not have health insurance.
2. The principal component of a home loan can be deducted under Section 80C up to Rs.1.5 lakh, and the interest portion can be deducted from income from real estate, which would also assist you in lowering your taxable income.

1. Section 24 allows for a deduction of up to Rs.2 lakh for interest on housing loans. In addition, section 80EE enables you to deduct interest paid on home loans that exceed Section 24's limit by up to Rs 50,000. The deadline for applying for an additional interest loan of Rs.1.5 lakh under the Section 80EEA affordable housing program is 31 March 2022.
2. Under section 80E, interest paid on education loans is deductible.
3. Under section 80G, any donation to notified organisations or funds is eligible for a tax deduction.

To save on taxes you can either invest your money in insurance and markets or put them in savings instruments for the future. Even the various allowances provided by the employers can be used to save on taxes. Here is a brief explanation of some.

Section 80C

The Income Tax Act of 1961's Section 80C lowers your tax obligations by providing deductions from your annual total taxable income. Taxpayers may deduct any investments, contributions, or payments made to financial products and schemes that are allowed by the Income Tax Act of 1961 under Section 80C of that statute. On 1 April 2006, Section 80C took the place of the previous Section 88. Currently, a financial year may only deduct up to Rs.1,50,00 under Section 80C. Previously, up to FY 2014–15, the cap stood at Rs.1,00,000.

Unit Linked Insurance Plan (ULIP)

ULIPs are another tax-saving investment that not only exempts investors from paying taxes but also enables them to earn substantial returns on their capital over an extended period of time. The latest generation ULIPs that the insurance firms have introduced come with no premium allocation fees and no administration fees, which improves returns for investors. Additionally, by combining the advantages of insurance and investing, one can benefit from the exemption from income taxation provided by section 80C of the Income Tax Act for the premium paid for the policy. Also exempt from taxation under Section 10(10D) of the IT Act are investment returns. ULIP plans give investors convenience of investment and have a five-year lock-in term.

The investors also have investment flexibility because they can select from a variety of fund options. Additionally, ULIPs allow for free fund switching three to four times a year. The earnings on ULIPs are fully dependent on the market performance of the fund, despite the fact that they are a lucrative option for tax-saving investments.  

Sukanya Samridhhi Yojana

Sukanya Samriddhi Yojana is yet another alternative for investments that save on taxes. It is a small deposit program that is especially aimed toward young girls. As part of the ‘Beti Bachao Beti Padhao’ program, the strategy is being introduced. At the moment, the Plan offers a 7.6% interest rate and the benefit of tax exemption. Under section 80C of the IT Act, Sukanya Samriddhi Yojana investments are eligible for tax exemption up to a maximum of Rs. 1.5 lakh.

ELSS Mutual Fund

The equity-linked saving scheme (ELSS) is a type of diversified mutual fund that has two distinct features: first, investments made in ELSS are subject to a three-year lock-in period and are eligible for tax deduction up to a maximum of Rs.1.5 lakh under section 80C of the Income Tax Act.  The interest rate on ELSS funds ranges from 5% to 18%. An equity-linked saving plan, however, offers variable rewards that are based on the fund's market performance rather than being fixed. According to their needs or preferences, investors in ELSS funds may choose a dividend or growth option. The dividends in an equity scheme are 10% taxable as of 1 April 2018, nonetheless. Investors who chose the growth option over the dividend option will therefore probably see returns that are tax-effective.

Based on the exposure to the industry and market size, investors can diversify their investments across multiple ELSS schemes in order to reduce risk and increase long-term capital gains. This tax-saving investment plan provides flexibility and liquidity, and it is most ideal for people who are willing to take on a lot of risk. Along with the advantage of tax exemption, the ELSS scheme provides a high return on investment over a lengthy period of time. In addition, ELSS investments provide transparency and ease of investment because it is easy and convenient to track investments online.

Senior Citizens Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is a government savings program for anyone over 60 years of age. It provides a reliable and stable source of income for people's post-retirement years and delivers relatively high returns.  Up to a maximum of Rs.1.5 Lakh, the principal amount deposited in a SCSS account is eligible for tax deductions under Section 80C of the Income Tax Act, 1961. However, only under the current tax system is this exemption valid. If an individual decides to file tax returns using the new framework established by Union Budget 2020, it is not permitted.

National Pension Scheme (NPS)

The PFRDA, or Pension Funds Regulatory and Development Authority, oversees the NPS, or New Pension Scheme. It is open to all Indian citizens between the ages of 18 and 60. Due to the minimal fund administration fees, it is quite reasonable. The money is managed by the fund managers in three separate accounts with different asset profiles, viz Equity (E), Corporate bonds (C) and G Government securities (G). Investors can choose to manage their portfolio actively (active choice) or passively (auto choice).

Under Section 80CCD of the Income Tax Act, contributions made to the NPS are tax deductible. Together with Sections 80C and 80CCC, this section's combined deduction limit cannot exceed Rs.1.5 lakhs.

Term Life Insurance Plan

If you have purchased life insurance, your premiums may qualify for Section 80C tax deductions. Paying insurance premiums for oneself, a spouse, dependent children, and any other members of the Hindu Undivided Family qualifies. The annual premium, up to 20% of the assured total, becomes deductible from income if the insurance was issued on or before 31 March 2012. 10% of the sum assured for insurance plans issued on or after 1 April 2012, is tax deductible. Everyone should purchase life insurance since it will support your family financially in the event of your untimely death. An additional benefit is the tax break. Select a life insurance policy that is suitable for both you and your family.

National Savings Certificates

The Government of India provides a fixed-income investment known as the National Savings Certificate. Visit a nearby post office to make an investment in this plan. The current interest rate is 7.9% per year, with a five-year lock-in period. An NSC certificate can be purchased for as little as Rs.100. Certificates come in denominations of Rs.10,000, Rs.5,000, Rs.1,000, Rs.500, and Rs.100 dollars. Premature withdrawals are only permitted in the event of the decease of the certificate holder or the forfeiture of the certificates. The scheme is secure due to the backing of the Indian government, which guarantees the security of your money. Furthermore, only interest collected in the last year is subject to tax.

Tax Saving FDs

You can invest in tax-saving fixed deposits and get up to Rs.1.5 lakh in tax deductions. The lock-in term is five years, which means you cannot withdraw the money before five years, and the interest rate is what the current five year FD rate is. Only a single lump sum deposit is permitted, and early withdrawals are not permitted. Your bank will choose the minimum investment amount, but the maximum investment is limited to the 80C limit, or Rs.1,50,000. You have the option of choosing monthly or quarterly dividends or reinvesting the interest. The interest you earn on your FD is subject to TDS, but you can prevent it by submitting Form 15G or Form 15H.

Public Provident Fund (PPF)

Public Provident Scheme is an investing tool for tax reduction. A PPF account must first be opened at the post office or specific branches of public and private sector banks. It is a long-term savings and investment program. A guaranteed rate of interest is earned on contributions to the PPF account. These deposits are eligible for Section 80C deductions worth up to R.1.5 lakh each fiscal year.

After the seventh financial year from the date of inception, partial withdrawals are permitted annually from the PPF account. Partial withdrawals are permitted as long as they don't go over 50% of the available balance. An individual may only withdraw one time every financial year.

PPF, a government-initiated savings program, makes investing simple because one may open a PPF account with as little as Rs.500 and contribute up to Rs.1.5 lakh every year. Additionally, investors can choose to make a one-time contribution or monthly instalments. The annual donation cap is set at a maximum of 12 instalments.

House Rent Allowance

This is a facility provided under section 10(13A) only to salaried individuals. If you live in a rented accommodation then you are eligible for HRA which is calculated as the least of actual rent paid less 10% of basic salary, 50% of basic salary and HRA received from the employer. 

Education Fee 

If you have children who are currently being educated then the amount that you pay towards their education is eligible for deductions under sections 10(14) and 80C. Under 10(14) an allowance of Rs. 100 per month, per child for two children is provided and under section 80C deductions up to Rs. 1 lakh are permitted for amounts paid towards tuition fees.

Section 80CCD

The tax deductions available to taxpayers with regard to investments in the National Pension System are covered by Section 80CCD. Given below are the two subsections:

Section 80CCD (1)

Under this section, tax deductions for investments in NPS are permitted. Any citizen of India between the ages of 18 and 60 may invest in NPS and take advantage of this tax deduction. Non-Resident Indians (NRIs) can also make use of this benefit. The most you may deduct from your salary (base salary plus Dearness Allowance) under this provision is 10%. The cap for self-employed people is 20% of their gross annual revenue. Additionally, the annual maximum benefit available to you under this clause is Rs.1.5 lakh.

Section 80CCD (1b)

On investments in NPS, this clause offers a further deduction of 50,000. In addition to the Rs.1.5 lakh provided under Section 80 CCD (1). Therefore, when you invest in NPS each year, you can receive a total tax deduction of Rs.2 lakh.

Section 80D

For contributions made to medical insurance premiums purchased for covering yourself, your spouse, your children, and your parents, you may deduct up to Rs.1 lakh under Section 80D of the Income Tax Act. In addition to the exclusions you can claim under Section 80C, there are deductions under 80D. Individuals and Hindu Undivided Families may apply for this benefit (HUFs). The cost of insuring yourself and your family is deductible if you file your taxes as an individual. Here are the other details:

1. A maximum deduction of Rs.25,000 can be claimed in a fiscal year on the health insurance premium for self and family.
2. Senior citizens can claim a maximum deduction of Rs.50,000 on a financial year.
3. You can claim up to Rs.25,000 per year from your taxes for the health insurance premiums you paid for your parents if they are under 60.

In a nutshell, if you have a life insurance policy for you and your family (including your parents), you can claim a maximum deduction of Rs.50,000. However, if your parents are more than 60 years of age, you can claim a deduction of up to Rs.1 lakh under Section 80D.

Section 80E

As per Section 80E of the Income Tax Act, if you are paying Equated Monthly Installment (EMI) of your education loan, it will be qualified as a deduction from your total income. The loan needs to be taken for self, children, or spouse from a bank or any other approved financial institution. There is no maximum amount you can deduct; rather, the entire amount paid toward loan interest repayment in a given fiscal year is considered the deduction amount. You must obtain a certificate from the bank that separates the principal portion of the repaid student loan from the interest component.

Section 80EE

As per Section 80EE of the Income Tax Act, 1961, the taxpayer is allowed to get tax benefits on the interest being paid on a home loan for the first time home buyer. The taxpayer can claim a deduction of up to Rs.50,000. This deduction limit is higher than the ones stipulated in sections 80C and 24 of the IT Act, 1961. 

A taxpayer has to fulfill the following conditions to claim this deduction:

1. On the day the loan is sanctioned, you should not be the owner of any other residential property.
2. The house should not be worth more than Rs.50 lakh. The loan cannot be used to purchase a business property.
3. The loan amount should be less than Rs.35 lakh.
4. It is not mandatory for the taxpayer to stay in that property.
5. The tax deduction will be done on the interest amount of the home loan.

Section 80G

You are able to deduct tax payments made to charity organisations under Section 80G of the Income Tax Act. Only contributions provided to organisations registered under Section 12A are eligible for tax deductions. The contributions had to originate from taxable income sources. Only contributions that were made with cash, a check, or a demand draught will be accepted. Indians who are not residents are also qualified taxpayers. Over Rs.2,000 in cash donations are not eligible for a tax deduction. Donations over Rs.2,000 must be made through alternative payment methods in order to be eligible for a tax deduction. Under Section 80G, the various donations are allowed for a deduction of up to 100% or 50%, with or without limitations.

To save on taxes you can either invest your money in insurance and markets or put them in savings instruments for the future. Even the various allowances provided by the employers can be used to save on taxes. Here is a brief explanation of some.

Examples on How to Save Tax on Investment Plans 

Let us assume that your taxable income is Rs. 5.5 lakhs that means that your total tax liability will be Rs. 35,000. 

Now if you invest Rs. 30,000 in life insurance your taxable income comes down to Rs. 5.2 lakhs (5,50,000 – 30,000). This means that now the tax you have to pay is Rs. 29,870.

Let us assume that you then submit medical bills worth Rs. 12,000 as a part of your medical allowance. Now your taxable income is down to Rs. 5.08 lakhs which means that the tax due is Rs. 27, 398. 

Now we add house rent allowance deductions of Rs. 83,000 which brings the taxable income further down to Rs. 4.25 lakhs which means that the new tax you have to pay is just Rs. 15,965 which is less than half of what you started with. 

The best way to save on taxes is to ensure that you plan well in advance and continue to make your investments throughout the year otherwise you will be near the end of the year scrambling to make investments and might not be able to take all the advantages you could. You should also remember that in case you are not liable to pay tax, you might be required to submit form 15G & form 15H while investing in certain instruments like fixed deposits. 

How to Plan Your Tax Savings Investment for the Year

The tax-saving period for both salaried and non-salaried taxpayers begins on 1 April. A wise tax-saving investment should aim to generate income free of taxes in addition to providing tax exemption. It would be a smarter strategy to start investing in the first quarter of the financial year rather than waiting until the end of the fiscal year and using ad hoc tax-saving instruments, giving taxpayers more time to plan their investments and receive the highest possible returns. When choosing the best tax-saving investment strategy, factors including the fund's safety, liquidity, and amount of returns should be taken into account.  

The majority of tax-saving investment schemes are covered by Section 80C of the Income Tax Act, which entitles the taxpayer to an exemption of up to Rs.1,50,000. ELSS (Equity Linked Savings Scheme), Public Provident Fund, Life Insurance, National Savings Scheme, Fixed Deposits, and Bonds are among alternatives available to investors.  

Benefits of UAN to Employees 

Given below are the benefits of Universal Account Number to employees: 

1. Through the UAN, you can transfer the EPF balance from one account to another.  
2. You can easily download a PF statement whenever you need one by checking in with your member ID, UAN, or by sending an SMS.  

1. Each new PF account associated with a new job will be governed by a single consolidated account.  
2. Online withdrawal of EPF may be simpler using UAN.  
3. If the UAN has already been Aadhaar and KYC validated, new employers are not required to validate your profile. 
4. You can more easily make sure that your employer deposits their payment into the PF account on a regular basis.