As we are in the mid of March which is last month of the financial year, many of us are concerned as to where and how much to invest to save tax. As one can claim a set limit deduction from his / her income under the Income Tax Act, one must be very careful about the amount of investment.
As with the last minute rush, one should also check with the smart options available to avoid investing in the schemes which do not suit or cater one’s needs or buying an investment which is not needed at all.
The availability of the high number of investment schemes and saving options makes it even more difficult for a person to choose an appropriate option as per the need. Below are the few tips to help you reduce your last minute rush and stress.
Endless Options under Section 80C
Section 80C allows a tax deduction up to Rs 1.5Lakh with a wide range and variety of options to choose from for last-minute investment and saving options.
1. Life Insurance:
Any premium paid towards life insurance cover for self, spouse, dependent children and parents and any member of HUF is eligible for tax deduction. This is a helpful not just for saving tax but also securing and supporting your family from your untimely demise.
2. Public Provident Fund:
Any contribution or deposits made to a Public Provident Fund (PPF) account up to Rs 1.5 lakh in a year shall be applicable for deductions under Section 80C. The money deposited in the PPF account has a lock-in period of 15 years. However, one is allowed to withdraw up to 50% of the balance in the PPF account after completion of five years from the end of the year in which the initial subscription was made. One partial withdrawal is allowed in each fiscal. Interest earned in PFF account is completely tax-free.
3. Equity Linked Saving Scheme (Mutual Fund):
The investment made in Equity Linked Saving Scheme (ELSS) qualifies for deduction under Section 80C where the lock-in period is three years. This scheme is more beneficial where a person aims for wealth creation over the long run.
4. Five Year Bank Deposit:
Many banks offer tax saver fixed deposits which can be claimed as a deduction from income with a condition of a lock-in period of five years. An important point to be taken into consideration before investing in tax saver fixed deposits is that no premature withdrawal is allowed under this scheme. Interest earned on these deposits is taxable at the source.
5. Sukanya Samriddhi Yojana:
If you are a parent of a girl child who is below the age of 10 then you can open this account and start depositing to this account which is allowed as a deduction under this section. This scheme can opt for two girl children with one girl per account. If there is a case of twins, this can be extended to the third girl child too.
6. Stamp Duty & Registration Charges:
When one buys a property, the major expense incurred by the buyer is the stamp duty and registration charges. Therefore if you have purchased a new property whose construction is complete and you have legal possession of the same, the expense made by you towards stamp duty and registration can be claimed as a deduction under Section 80C up to Rs 1.5lakh.
7. National Saving Certificate:
Any investment made towards National Saving Certificate (NSC) is allowed as a deduction under this section. It offers a lock-in period of 5 and 8 years to choose from. The interest earned on NSC is taxable. However, if this interest is re-invested, it can be claimed as a deduction.
8. Home Loan Principal Repayment:
Any amount paid towards paying off the principal amount of the home loan is eligible for deduction under Section 80C. Here an important point to note that any principal repayment for under construction property is not eligible for 80 C Deductions.
9. Senior Citizens Saving Scheme:
As the name suggests, this saving scheme can be opted by an individual who is of at least 60 years of age. In a case where a person has opted for Voluntary Retirement Scheme (VRS) such person can opt this scheme at the age of at least 55 years. The deposit towards this scheme is included in the list of eligible deductions under section 80C.
Health Cover is the need of the hour (Section 80D)
Section 80D provides deduction over and above the deduction claimed under section 80C. A person opts for a medical insurance cover self, spouse, dependent children, and parents. Any premium paid towards medical insurance of the above-mentioned persons can be claimed as a deduction under Section 80D.
The maximum amount that can be claimed under Section 80D is Rs 25,000 where the person for whom the policy has been taken has not attained the age of 60years. For parents who are of and above 60 years of age, maximum deduction that can be claimed is Rs 50,000. Mediclaim insurance policies have become the need of the hour to cater you and your family for any contingent expenses towards hospitalization.
Break the limit of Section 80C and 80D
There are also other options to provide deductions other than Section 80C and 80D which many people are unaware of. In today’s world, many of us have savings account in our name. Interest earned up to Rs 10,000 is allowed as a deduction under Section 80TTA. Also on a selfless note, any donations made to NGOs, political parties and other stated government schemes are also eligible for deductions under Section 80G, 80GGA, and 80GGC.
Lastly, one can still opt for appropriate schemes, to save tax for the year. It is always better to consult with the expert who can help you choose the right tax saving investment in parallel to your financial goals. Always start planning for tax saving right from the beginning of the year to avoid last minute panic and rush.
Jitesh Telisara & Associates LLP, CA In Kalyani Nagar is a professionally managed firm catering to domestic and international clients with a broad range of services in domestic and international taxation, regulatory and advisory services and crosses border transaction-related services.
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