“It’s already February and I haven’t done anything to save my tax, What should I do?”
This is a very common question asked by many these days. Actually answer is not that difficult, may be you are already doing part of what is required.
Income tax rules allow deductions under various sections which help us to save tax. Most important of them is 80C which allows up to Rs 1 lakh deduction. It can be done using various methods including provident Fund, Public Provident Fund, Housing loan interest, ELSS and life insurance premiums etc.
Component | What can be claimed? | Not allowed |
PF / VPF through salary |
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Housing loan principal including Registration / Stamp duty |
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Benefit can’t be taken for under construction home. Loan has to be from some bank or financial institution and not from family / friends. |
Life insurance premium |
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Premium paid for parents is not covered. For Single premium plans, max 20% of sum assured is allowed for deductions. |
Public Provident Fund (PPF) |
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Only deposits in current Financial year considered. PPF in name of parents is not allowed for 80C deduction. |
Mutual Fund / ELSS |
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Allowed only for self. Investments in name of Spouse, children and parents are not allowed for 80C tax benefits |
National Savings Certificate (NSC) and NSC interest |
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Certificates in name of spouse, children or parents are not allowed. Previous year certificates are not allowed. Though NSC interest component will be considered. |
Fixed Deposits |
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Not allowed if in name of spouse, children or Parents. |
5 year time deposit in Post office |
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Not allowed if in name of spouse, children or Parents. |
Unit linked Insurance Plan (ULIP) |
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Allowed for self, spouse and children. ULIPs in name of parents are not allowed for 80C benefits. |
Children Tuition fees |
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Donations, Uniform fee, late fee, Transport charges, hostel charges, Mess charges, library fees, scooter/cycle/car stand charges are not allowed. Fee for private tuition / Coaching classes is not allowed. |
Senior citizen saving scheme |
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Long Term Infrastructure Bonds
Apart of 80C, another very easy and effective method is by investing in long term infrastructure bonds. Under section 80CCF, It allows another 20000 investment which will not be considered for your tax calculations.
For tax benefits it has to be self named and investment term should not be less than 10 years. Investment in name of spouse, children and parents is not allowed for this benefit.
These bonds provide interest rates in tune of 9% annually. But saving on tax of 20000 is major benefit here, which will increase effective return.
Interest earned on these bonds is not tax exempt. But it is recommended for people in 20-30% tax bracket to investment in these bonds if they don’t see any liquidity concern for them for the term of the bonds.
Again companies provide option of annual / cumulative options for interest payment. If you don’t need annual payment for your expenses then it is always better to go for cumulative option. In current times with high interest rates it also reduces reinvestment risk for investors.
Tags: 80 CCF, 80C, 80CCF, ELSS, Equity Linked Saving Scheme, Fixed Deposit, Home Loan, Home Loan Principal, Home Loan tax benefit, How to save tax?, Infrastructure bonds, Investment, Investment Return, Life Insurance, Life Insurance Premium, National saving Scheme, NSC, NSC interest, PF, PPF, Provident Fund, Public Provident Fund, Reinvestment Risk, save tax, SCSS, Senior citizen saving scheme, Tax saving, Tuition Fee, ULIP, Unit Linked Investment Plan, Voluntary Provident Fund, VPF
Very effective post!! I feel glad by finding your blog and will follow such suggestions to save tax. Thanks
Thanks.. Happy to help.
Thats great article. Thanks for it.
Infrastructure bonds are now not applicable as form of tax saving instrument. Government has taken back tax deduction given under section 80CCF. For more details please refer http://fintub.com/capital-mark.....y-2012-13/
Please find continuation of this article at http://fintub.com/tax-india/wh.....save-more/ for more details about tax saving.
Very useful points are there. One can understand easily the ways to save the tax. From this year (FY 2012-13) onwards the Infrastructure bond scheme is gone. It is very bad to Middle / Salary class people.
Thanks for the article.