The philosophy of healthy investment has two essential elements: returns and associated tax savings. Making investments into various products is essential not only for tax saving purposes but also for long-term financial growth. It helps one accumulate long-term wealth over a period. The income-tax department has enlisted various schemes that are eligible for tax-saving investments.
But investment plans must be aligned with the requirements of these tax saving instruments to maximise returns. It is also important to generally make such investments at the start of a financial year.
The budget this year extended the limit of savings under Section 80C of the Income-Tax Act to Rs 1.5 lakh from Rs 1 lakh. Most of us plan to optimise our income tax savings by investing in tools prescribed under Section 80C like public provident fund, national savings certificates, tax saving mutual fund schemes, principal repaid towards home loans and so on. There are no extra tax benefits if your investments and other outgoes that qualify to for tax benefits under Section 80C surpass the Rs 1.5 lakh limit.
But there are a number of ways other than the Rs 1.5 lakh limit through which you can save on income-tax outgo. Some of the tax-saving options available for individuals are as under:
Rajiv Gandhi Equity Savings Scheme U/S 80CCG:
Investment up to Rs 50,000 in a financial year in approved stocks and mutual funds is eligible for tax deduction up to 50 per cent of the investment. This scheme is open to all resident Indians who have demat accounts, have never invested in equity or derivatives, and have an annual income of up to Rs 12 lakh.
The investment has a lock-in period of three years and tax benefits can be availed for three years.
Premiums on health insurance U/S 80D
Tax deduction can be claimed on premiums paid towards health insurance for self, spouse, children and parents. The limit for such deduction is Rs 20,000 for senior citizens and Rs 15,000 for others. Individuals can claim up to Rs 5,000 on expenses incurred on health check-ups, subject to the overall limit. Further, additional deduction can be claimed up to Rs 15,000 for your parents and Rs 20,000, if they are senior citizens.
Expenses for treatment of handicapped dependent U/S 80DD:
In case any of your dependent relative (spouse, children, parents or siblings) is handicapped, expenses incurred towards his or her treatment and maintenance are deductible up to Rs 1 lakh if the disability is severe or Rs 50,000 otherwise.
Interest paid on education loan U/S 80E
Interest paid on education loans taken to finance higher education for self, spouse or children can be claimed as tax deduction. The deduction is available for eight years or till the interest is paid in full, whichever is earlier.
Interest repayment on home loan U/S 24(b) and U/S 80EE
The deduction in respect of interest paid on home loan has been increased from Rs 1.5 lakh to Rs 2 lakh. However, no tax deduction is available on under-construction properties. Tax benefits can be claimed for five years after the completion of the project.
An additional Rs 1 lakh deduction is allowed on interest payment if the loan amount is less than Rs 25 lakh and the value of the property is less than Rs 40 lakh U/S 80EE. However, this is only for those who do not own a residential property on the date of sanction of the loan.
Deduction on house rent U/S 10(13A):
The housing rent allowance (HRA) component in your salary is exempt from income-tax when you are living in a rented house.
The exemption is least of the following:
1) actual HRA received from your employer,
2) actual house rent paid by you minus 10 per cent of basic salary, or
3) 50 per cent of basic salary if you live in a metro city or 40 per cent of basic salary if you live in a non-metro city.
If the HRA is not part of your salary, you can still claim deduction on the rent paid U/S 80GG. The deduction is the least of the following: (a) rent paid less 10 per cent of taxable income, (b) 25 per cent of the taxable income or, (c) Rs 2,000 a month.
Apart from the above general avenues available for tax planning, benefits of certain specific tax deductions may also be claimed on a case-to-case basis.