How to save Income Tax

Taxpayer can save his Income Tax by way of proper investment of money, but most of them are not know the how the tax save right way. This article will help you to know the options available for an individual where they can invest & also save their taxes.

There are so many deductions available through which taxpayer can save tax. Utilize the investment properly for his tax saving plan. Some of the most regular deductions are Deduction under Section 80C, Deduction under Section 80D, Deduction under Section 80E, deduction Under Section 80TTA and deduction Under Section 80TTB. In this article we will discuss section wise deduction: 

Deduction under Section 80C

• Deduction U/s 80C of Rs 1,50,000/- per year can be claimed as deduction from your total taxable income. It means, you can reduce up to Rs 1,50,000/- from your total taxable income.
• This deduction benefit is available to an Individual or an HUF.
• A maximum of Rs. 1,50,000/- can be claimed for the Assessment year.
• If you have paid excess taxes or liable to pay tax then invest your money in in LIC, 5 years FixedDeposit, Principal repayment of housing loan, NSC, Sukanya Samridhi Account, Public Provident Fund, Mutual fund SIP, National Pension Scheme, paid school fees of children (upto 2 Child) or any other investments eligible for 80C deduction claim in Income Tax return then you can claim refund or reduce liability to pay tax. Details about all investment wise are as under:

          LIFE INSURANCE

• Insurance premium on policy that cover your life or lives of your spouse & children are eligible for 80C deduction.
• For traditional plans, pure term plan is most beneficial - if the premium amount is 10% of sum assured then they are eligible for tax deduction.
• In small amount of term plan premium you get more benefit. 

          5 YEARS FIXED DEPOSITS

• You can make a fixed deposit (amount upto Rs. 1,50,000) in bank or post office for lock in period of five year and can save your tax. No Tax saving benefit for deposit other than 5 years Tax saving FD.
• At the end of the tenure you will get the maturity amount ( FD Amount + Interest earned)
• You can interest earn on that is avg. 5-6%.

         PRINCIPAL REPAYMENT  OF  HOUSING LOAN AND INTEREST 

• You can purchase a home for resident purpose and take benefit of rent saving and tax saving on principal repayment of loan under section 80C (upto Rs. 1.5 Lakhs) and interest upto Rs. 2 lakhs can also save your tax under section 24.
• Under the current situation there is lower interest rate on home loan and also you get the Interest subsidy upto 2.67 lakhs for 20 year loan tenure.
• This option is the most beneficial to taxpayer in the current situation.

          NATIONAL SAVING CERTIFICATE (N.S.C) 

• N.S.C issued by Government of India offered by Indian post it’s a 5 year- safe saving Certificate.
• The yearly interest accrued in this scheme is considered to be reinvested hence eligible for tax deduction under section 80C.
• Investment in this scheme is locked in period for 5 years.
• Its an un-complicated scheme giving competitive return compared with bank deposit & fixed income options.
• No TDS in this scheme by Post office.
• Current interest rate is 6.80%.

          SUKANYA SAMRIDDHI YOJANA (S.S.Y)

• S.S.Y is for upto 2 girl child who is less than 10 years to fund their education & wedding expenses.
• Minimum yearly deposit required is of Rs. 1000 and maximum upto Rs. 1,50,000/-
• The account matures when the girl turns 21 year, 50% of withdrawal is allowed when girl turns 18 year.
• This scheme is totally tax free, Interest earned and withdrawals are Tax free and maturity amount is completely tax free.
• Current interest rate is 7.60%.

          PUBLIC PROVIDENT FUND (P.P.F) 

• P.P.F is safe Investment offered by government through banks/post office.
• P.P.F is suitable for both Salaried & Self- Employed individuals.
• P.P.F has lock in period of 15 years, early withdrawals of 50% are allowed at the end 5 years.
• This scheme is totally tax free, Interest earned and withdrawals are Tax free and maturity amount is completely tax free. 
• Interest rate are announced by Govt. at beginning of each quarter.
• Current interest rate is 7.10%.

         EQUITY LINKED SAVING SCHEME (ELSS) 

• ELSS are notified Tax Saving Schemes from Mutual Funds.
• In that lock in period of 3 years (Short lock in period compared to other investment option) & is eligible for 80C benefits..
• You can invest as low as Rs. 500 of SIP or lump sum amount.
• If investment in SIP, then each installment required to complete 3 year of lock in period.
• ELSS has ability to generate wealth over long term.

        NATIONAL PENSION SYSTEM (N.P.S) 

• N.P.S is market linked scheme offered by P.F.R.D.A for accumulating Retirement money.
• With N.P.S you can claim additional deduction of 50,000 under section 80CCD(1B) under income-tax over & above deduction of 1,50,000 under section 80C.
• Minimum investment of Rs 1000 in year, helps to earn market linked return at low fees.
• At maturity you have to invest at least 40% of accumulated amount to purchase pension fund, you need not pay any tax on this amount. You can withdrawal Balance 60% of accumulated amount and its completely tax free.

Deduction under Section 80D 

Taxpayer can claim the tax deduction under section 80D if you have paid any premium on mediclaim policy (Health Insurance) under section 80D taken for: 

• Yourself, Your spouse, Dependent children, yours parents (parents need not be dependent on you) 

           Maximum of Deduction: 

• In case of the individual, Rs. 25,000 for himself and his family
• If individual taxpayer or his/her spouse is 60 years old or more then deduction of Rs 50,000 available.
• An additional deduction benefit for insurance of parents (father or mother or both, whether dependent or not) is to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.
• For super senior citizens  whose 80 years old or more medical expenditure up to Rs 50,000 shall be deduction. 
• In case of HUF, the maximum deduction is Rs. 25,000.

Deduction under Section 80TTA 

Section 80TTA provides a deduction of Rs 10,000 on interest income on Saving Account. This deduction benefit is available to Individual assesse or HUF assesse (other than those taxpayer who has covered in Section 80TTB). 

This deduction is allowed on interest earned:

• From a savings account with a bank, co-operative society & post office.
• Maximum Deduction – The maximum deduction is limited to Rs 10,000. If your interest income is less than Rs 10,000/- then entire interest income will be your deduction. If your interest income is more than Rs 10,000, your deduction shall be limited to Rs 10,000. (You have to consider your total interest income from all banks where you have accounts).
• How to claim the deduction – Firstly add your total interest income in head ‘income from other sources’ in your Return and then deduct the deduction under section 80TTA. 

Deduction under Section 80TTB 

This section will provide deduction in respect of interest on fixed deposits. This section is available to Resident individual who is of the age of 60 years or more at any time during the relevant previous year 

This deduction is allowed on interest earned:

• From a savings account with a bank,
• From a savings account with a co-operative society carrying on the business of banking,
• From a savings account with a post office.
• Maximum Deduction – The maximum deduction is limited to Rs. 50,000. If your interest income is less than Rs 50,000 then entire interest income will be your deduction. If your interest income is more than Rs 50,000, your deduction shall be limited to Rs 50,000. (You have to consider your total interest income from all banks where you have accounts).
• How to claim the deduction – First add your total interest income under the head ‘income from other sources’ in your Return and then consider the deduction under section 80TTB.