You can minimise your tax burden by investing in the tax saving schemes offered by government and private organisations. By investing in these schemes you will become eligible to avail tax deductions and exemptions under various Sections of the ITA.
In India, the quantum of Income Taxes can be somewhat reduced by investing smartly in tax saving schemes. There are multiple opportunities to reduce an individual’s tax burden by using the available schemes appropriately. There are various sections of the Income Tax Act, 1961 which deal with tax deductions and exemptions such as Section 80C, 80D, 80CCF and others. Many government and private sector organizations provide a wide range of tax saving options for Indian residents.
Income Tax Saving Schemes
Income tax savings schemes are offered as per the relevant sections of the Income Tax Act, 1961. The chief among these is the Section 80C which offers potential tax savings options of up to Rs.1.5 lakhs yearly. There are other sections also that provide benefits to individuals. Major income tax saving instruments include:
- Public Provident Fund: Also called PPF, you can make a maximum contribution of Rs.1.5 lakhs per year in this tax saving scheme. PPF cannot be withdrawn before 15 years without penalty.
- Unit Linked Insurance Plans: Also called ULIPs, these tax saving schemes allow for a maximum exemption of Rs.1 lakh per year u/s 80C. Apart from investment exemption, the maturity earnings are also tax exempt.
- Tax Saving fixed deposit: Tax saving fixed deposits are available for a fixed tenure of 5 years and a maximum of Rs.1 lakh can be invested to avail tax benefits per year u/s 80C.
- Employee Provident Fund: Also called EPF, this is another investment scheme that offers tax benefits u/s 80C up to Rs.1 lakh per year.
- National Saving Certificate: Also called NSC, this instrument can be used to earn tax saving interest up to Rs.1 lakh per year u/s 80C.
- Infrastructure Bonds: This investment avenue allows for a maximum exemption of Rs.20,000 per annum u/s 80C. Interests are chargeable, with investors being allowed to claim tax exemptions on these for Rs.15,000 u/s 80L.
- Tax Saving Mutual Funds: These funds allow for exemptions up to Rs.1 lakh per annum u/s 80C. ELSS are popular instruments for tax savings through mutual funds.
Tax Saving Mutual Funds
Tax saving mutual funds are also known as Equity Linked Savings Scheme or ELSS. These funds offer the opportunity for capital appreciation through investments in equities while saving on taxes along the way. Also, long term capital gains from these schemes are tax free, while dividend options for such funds will enable capital gains even during the lock-in period. The typical lock-in period varies between 3-5 years and the benefits are provided u/s 80C, which entitles investors to tax benefits up to Rs.1 lakh each year. Major fund houses offering ELSS funds are:
- HDFC MF
- IDBI MF
- Birla Sun Life MF
- ICICI Prudential MF
- SBI MF
Post Office Tax Saving Schemes:
Post office tax saving schemes also fall under the ambit of Section 80C. You can claim up to Rs.1 lakh in tax benefits every year through the various post office investment options. Some of the major tax saving schemes offered by the post office are:
- Time deposit account
- Recurring deposit account for 5 years
- 15 years Public Provident Fund account
- Senior Citizen Savings Scheme
- National Savings Certificate (VIII issue)
Tax Saving Fixed Deposit:
Tax saving fixed deposits are available from scheduled banks. These fixed deposit schemes are available with a tenure of 5 years. Investors can claim a maximum of Rs.1.5 lakhs as tax benefits through tax saving fixed deposits as per Section 80C of the Income Tax Act. Top banks offering tax saver FDs in India are:
- ICICI Bank
- HDFC Bank
- Axis Bank
- IDBI Bank
Tax Saving Sections
Section 80C allows for exemptions up to Rs.1.5 lakhs per annum through investments in a list of schemes and instruments as described in the section rules. Apart from 80C, there are various other sections of the Income Tax Act that provide exemptions to taxpayers. Major sections include:
- Section 80D: Exemption on medical insurance premiums for self, spouse or children. Maximum exemption of Rs.25,000.
- Section 80DD: For treatment or maintenance of a physically disabled dependent. Maximum exemption of Rs.15,000 for individuals and Rs.20,000 for senior citizens.
- Section 80E: Exemption for education loan interest repayment. Full interest amount deductible for 8 years maximum.
- Section 80G: Exemption on charitable donations. Maximum exemption of 100% of investments.
- Section 80GG: Exemption on house rent paid, subject to a maximum of Rs.2,000 per month or rent paid not more than 10% of income or 25% of overall income.
- Section 80GGC: Full exemption on funds contributed to political parties.
- Section 80U: Rs.75,000 exemption if taxpayer is disabled and Rs.1.25 lakhs exemption if taxpayer is severely disabled.