What is Income Tax Return?
Every citizen of India has to pay tax on their income to the Government of India as per the Income tax rules and regulations.Read Article
Tax-saving plans are products where in the investor can claim benefits for the amount invested as per the tax laws. Under the Sections 80C and 80D of the Indian Income Tax Act, an individual can claim a deduction on the premium payment made or the investment done. These investments can consist of funds such as Equity Linked Saving Scheme, Life Insurance Plans, Public Provident Funds, Fixed Deposits, and Bonds. To reduce the income tax burden of taxpayers in the country, Indian tax laws allow specific ways to save tax, and making tax saving investments and claiming deductions for the same are among the most popular ways.
You must file your annual income tax return to claim the tax deductions. Most tax-saving investments will reduce your gross total income. Individuals, HUF and NRI taxpayers can use tax-saving investment plans eligible under section 80C to save direct income tax.
TERM Insurance PLAN
Life Cover till 99 years of age
Option to Block the premium rate and increase cover by upto 100% at the blocked rate
Option to avail monthly income post attaining 60 years of age
Option to receive total premiums paid in case of no claim
Tax Benefits as per applicable laws
Unit Linked Insurance Plan
8 funds and 4 portfolio strategies to invest
Loyalty additions and wealth booster
Return of Mortality Charge is available on Maturity under all three cover Options
Flexibility of switching between the fund options to take benefits of market movements or change in risk preference
Option to receive guaranteed income till the age of 99
Guaranteed loyalty additions of more than 10 times the annual premium
Option of single or regular premium payments
Enhanced income pay out for higher premiums
Premium protection option to safeguard the goal in case of your early demise
Health First Plan
Cover against minor conditions of Cancer or Heart Ailments
Adequate cover to take care of high treatment costs
Increasing cover to keep up with the rising medical & living costs
Income security to your family in the case of a major claim
Option to receive all premiums back in case of no claims within the policy period
On the income that is earned, we are required to pay taxes if this income exceeds a prescribed threshold limit. Tax planning can help reduce the burden of taxes that falls on an individual and maximize their savings. There are many financial instruments that help in saving taxes. A good investment provides tax saving, safety of investments, returns and liquidity. An ideal financial instrument will help you save taxes at the same time as it reaps benefits in the form of decent returns and the flexibility to withdraw funds. By investing in tax saving plans, individuals also inculcate a habit of saving over time.
There are various other provisions in the Income Tax Act 1961 as well, which provide for more deductions.
Section 80C, 80CCC and 80CCD(1) allow an aggregate deduction upto Rs 1.5 lakh in a year. These sections cover a wide variety of investment options, ranging from a simple life insurance plan to a hybrid ULIP among others.
Similarly, under Section 80E, you are allowed a deduction to the extent of the interest paid on an education loan.
Section 80G provides for tax deduction on the amounts paid by you as donations to charities, social organisations, relief funds etc.
You can plan to save taxes using tax saving financial instruments with the following steps:
Section 80C of the Income Tax Act 1961 allows you a tax deduction of up to Rs 1.5 lakh on various investments.
Most of the investments such as NPS, PPF, Sukanya Samriddhi Yojana, Equity Linked Savings Scheme, (ELSS), and Unit Linked Insurance Plans (ULIP) are covered under section 80C.
|ELSS Mutual Funds||Depends on Equity Market||3 years|
|National Pension Scheme (NPS)||9% to 12%||Till Retirement|
|Unit Linked Insurance Plan (ULIP)||Depends on Fund Choices||5 years|
|Public Provident Fund (PPF)||7.1% (w.e.f. 1 April 2020)||15 years|
|Sukanya Samriddhi Yojana||7.60%||21 years|
|National Savings Certificate||6.80%||5 years|
|Senior Citizen Saving Scheme||7.40%||5 years|
|Bank FDs||5.5% to 7.75%||5 years|
|Insurance||Guaranteed benefits + Bonus||3 years|
|Pension Plans||6 – 8% p.a. (depending on the type of plan)||3 years|
An ELSS is a tax-saving, open-ended mutual fund scheme that invests at least 80% of its assets in equity. It is one of the best tax-saving investments for investors with a high-risk appetite. The main incentive in an ELSS fund is the possibility of a high return due to heavy investment in equity. Depending upon the tax slab of your income, ELSS can help you save up to Rs 46,800* in taxes.
National Pension Scheme (NPS) or New Pension System is a modern and market-linked retirement savings scheme. It is one of the best tax saving schemes for investors saving for retirement. Upon retirement, you can withdraw up to 60% of the corpus immediately and convert at least 40% of it to an annuity. NPS offers two tax-saving options:
*Tax saving of Rs 46,800 is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on a life insurance premium of Rs.1.5 lakh, who is having taxable income up to Rs. 50 lakhs.
The aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹ 1.5 lakhs.
In addition to this, you can avail of a deduction for an additional contribution of up to Rs. 50,000 in NPS under section 80CCD(1B) of the Income Tax Act, 1961. This deduction is available to both salaried and self-employed investors.
However, no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been already claimed and allowed under 80CCD(1).
ULIPs are a combination of insurance and investment. This means that the premium paid towards the policy goes partly towards life insurance and the rest is invested in diversified funds. You can invest in equity, debt, or money market funds, as per your risk appetite. These are one of the best tax-saving investments allowing you the flexibility of:
Such investments are covered under Section 80C. So, premiums up to Rs 1.5 lakh are deductible from your taxable income. The pay outs from ULIP, including the death benefits and partial withdrawals, are exempt from tax under Section 10(10D).
PPF is the best tax-saving investment with a sovereign guarantee on returns. You can borrow from the fund balance starting from the third financial year of the account. After five continuous financial years of investment, you also have the option of partial withdrawals.
The tax-saving under PPF extends to both the returns as well as the interest earned on the deposits. PPF falls under the Exempt-Exempt-Exempt category. Interest and maturity value are also tax-free. Thus, PPF accounts are one of the best tax-saving plans as the account also has no maximum age for maturity.
Sukanya Samriddhi Yojanais a small savings scheme, backed and promoted by the government. As parents of a girl child, you can open the Suknya Sammriddhi account in a post office or bank in the name of the child.
The scheme aims to encourage parents to save for the education of their girl child from an early age. It also offers tax benefits in the form of the EEE status (Exempt-Exempt-Exempt). The investments made into the scheme are eligible for deductions under Section 80C up to Rs 1.5 lakhs. The interest earned and maturity values are also tax-free for the parent or daughter.
National Savings Certificate is a fixed-income investment scheme backed by the government. NSC is one of the best tax-saving options if you want to invest a lump sum amount. It is a fixed income instrument as the rate of return is provided in the beginning and remains fixed until maturity. The instrument does not have a maximum investment limit. So, you can invest Rs 1.5 lakhs in NSCs for five continuous years and create an income stream for yourself. Interest earned up to Rs 6.5 lakhs on NSC deposits will continue to keep your tax liability at zero.
Senior Citizens Savings Scheme (SCSS) another government-backed savings instrument for Indian citizens above the age of 60 years. Aimed at providing a reliable source of regular income to senior citizens after retirement, the scheme offers quarterly interest payments.
The investments made towards SCSS can be claimed as a deduction under section 80C of the Income Tax Act. The Interest under SCSS is taxable and bank/post offices will deduct tax @10% under section 194A if annual interest exceeds Rs. 50,000. However, where the person has income below the minimum threshold limit and provides form 15H, interest can be received without a TDS deduction.
Banks and post-office provide a 5-year tax-saving fixed deposit. As per Section 194A of the Income Tax Act of 1961, the interest earned on these FDs is taxable if it crosses Rs. 5,000 (Rs. 10,000 for senior citizens) mark. Often, tax is deducted at the source for the same.
However, senior citizens can use these FDs to create tax-free pension income of up to Rs 6.5 lakhs a year.
Life insurance plans are perhaps the best tax-saving investment options with guaranteed benefits. At the same time, the life cover enhances the financial safety of the family while you are still earning money.
The premium you pay for a life insurance plan is eligible for a deduction under Section 80C, up to Rs 1.5 lakh. The amount received on maturity or the death of the policyholder is also exempt from tax in the hands of the beneficiaries.
Pension plans are annuity plans which help senior citizens and retiring investors invest their retirement corpus for a reliable income stream. Such plans act as a financial safeguard for individuals post-retirement. Since investment into pension plans also qualifies for tax deduction these are also the best tax-saving investments for retired investors or those close to retirement.
Pension plans from life insurers also provide pension security for your spouse with a life cover. Alternatively, you can also purchase a joint life pension plan with guaranteed pension income for life.
|Section||Deduction Limit||Amount in Rs|
|80D||When health insurance is for insured below 60 years||25,000|
|When health insurance is for insured 60 years or above||50,000|
|Total for self and family and senior parents||75,000|
|80DD||When the taxpayer or dependent suffers from at least severity of 40% disability||75,000|
|When the taxpayer or dependent suffers from at least severity of 80% disability||1,25,000|
|80DDD||Patients below 60 years of age||40,000|
|Patients of age 60 years and above||1,00,000|
It is crucial to have a health insurance in your financial portfolio because medical emergencies have the ability to impair your financial stability. But the benefits of a health insurance policy are not just limited to this purpose. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of self, spouse, children.
Preventive healthcare check-ups refer to the pre-emptive measures taken to keep diseases and ailments at bay.
Deduction up to Rs. 5,000 is allowed for preventive health check-ups for self, spouse, children or parents which is a part of the overall deduction one can claim under Section 80D.
An individual can claim a deduction of up to Rs. 25,000 for insurance of self, spouse, and dependent children. Additionally, a deduction is allowed on the insurance of your parents as well. If parents are below 60 years of age, the deduction is capped at Rs. 25,000, whereas in case of parents aged 60 or more, the cap is at Rs. 50,000.
Section 80DD covers expenditure on medical treatment, rehabilitation, and training of disabled dependents. The section provides for a deduction up to Rs. 75,000 for a disability that is classified in 40%-80% range. If such dependant is a person with severe disability, deduction amount can be claimed up to Rs. 125,000.
This is to be seen separately for each case.
In case of individuals and HUFs below age 60, the deduction is capped at Rs. 40,000. The amount being the expenses incurred towards the treatment of specified medical diseases or ailments for the individual or any of their dependents. For a HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for any of the HUF members.
In case of senior citizens and super senior citizens, deduction of up to Rs. 1 lakh can be claimed. In case of reimbursement by an insurer or employer reduces the deduction claim. Proper prescriptions and proofs should be furnished.
The goal of tax planning is to maximise tax savings. Since there are multiple investment options for the same tax-saving provision, it is important to build the investment portfolio in a way that makes use of all the available tax exemptions.
As a youngster in your 20s and early 30s, and unmarried you can make great use of aggressive tax-saving schemes to grow your wealth. Additionally, you need to focus on building a good financial safety net for your family and parents. There are several tax-saving investment plans for you in this category:
If you are married, have a child and only one of the partners are earning, your investment preferences must change to suit your financial goals and family needs. Using the following tax-saving investments will go a long way in preparing you for the future:
If you are married and both you and your spouse earn, you can jointly claim deductions with the right investments:
Nearing retirement, we must shift our focus towards ensuring financial stability and especially towards maximizing savings. Your savings during your employed years get you financial freedom during your retired years.
Invest in the following tax-saving options to continue your stress-free retired life:
Family-run businesses and enterprises are liable to pay income tax on their revenues generated, which can be a considerable sum. They must therefore take benefit of deductions and exemptions available to minimise their tax liability as a company:
The Income Tax Act has various sections and sub-sections that allow you to invest in tax-saving options and reduce tax liability. Popular sections to find your tax saving investments are Section 80C, 80D, 80CCD (1B), and 24 (b).
However, each of these sections has a maximum investment limit on the amount of tax you can save under each ultimately depends on your income bracket.
The following table lists the limits under these sections for investments and expenses that a taxpayer can voluntarily incur:
|Deductions||Max Amount (Rs.)|
|Section 80CCD(1B) NPS||50,000|
*The total deduction amount in aggregate under sections 80C, 80CCC and 80CCD (1) cannot exceed Rs 1.5 lakh
Shubham is a Digital Manager in a reputed firm and has a gross income of Rs 10 lakhs for FY 2021-22 (AY 2022-23). He has also reported TDS payments on this income to the tune of Rs 55,000 in the financial year. His tax payable on this income will be:
|Without Tax Saving Investments|
|Gross Total Income (after TDS & HRA deduction)||100000|
|Less: Standard Deduction||-50,000|
|Less: Tax Saving Investments U/S 80C||0|
|Less: Tax Saving Investments U/S 80CCD(1B)||0|
|Less: Tax Saving Investments U/S 80D (for family & parents)||0|
|Less: Tax Saving Investments U/S 80TTA||-10,000|
|Less: Tax Saving Investments U/S Sec 24B||0|
|Net Taxable Income||9,40,000|
|Add: For income up to Rs 2.5 lakhs||0|
|Add: For income above Rs 2.5 lakhs but below 5 lakhs||12,500|
|Add: For income above Rs 5 lakhs||88,000|
|Total Tax on Income (cess extra)||1,00,500|
|Less: Rebate under section 87A (for taxable income below 5 lakhs)||0|
|Less: TDS deductions||55,000|
|Less: TDS deductions||45,500|
|With Tax Saving Investments|
|Gross Total Income (after TDS & HRA deduction)||10,00,000|
|Less: Standard Deduction||-50,000|
|Less: Tax Saving Investments U/S 80C||-1,50,000|
|Less: Tax Saving Investments U/S 80CCD(1B)||-50,0000|
|Less: Tax Saving Investments U/S 80D (for family & parents)||-75,000|
|Less: Tax Saving Investments U/S 80TTA||-10,000|
|Less: Tax Saving Investments U/S Sec 24B||-2,00,000|
|Net Taxable Income||4,65,000|
|Add: For income up to Rs 2.5 lakhs||0|
|Add: For income above Rs 2.5 lakhs but below 5 lakhs||10,750|
|Add: For income above Rs 5 lakhs||88,000|
|Total Tax on Income (cess extra)||10,750|
|Less: Rebate under section 87A (for taxable income below 5 lakhs)||-10,750|
|Less: TDS deductions||55,000|
|Less: TDS deductions||-55,000|
First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.
How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.
The best tax-saving investment would be an investment which offers the flexibility of investments, withdrawals and asset allocation as per your risk appetite. ULIPs, Guaranteed Saving Plans, ELSS, PPF, etc, are some of the best tax-saving options in India you can invest in.
If the interest earned or maturity value of your investment is tax-free you may not need to pay a tax on your investment. However, many tax-saving investments under section 80C do not offer tax exemption on accrued interest or maturity. Thus, you can choose the tax saving investments where accrued interest, partial withdrawals and maturity are tax-free.
You can choose investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme (SCSS), National Pension Scheme (NPS), Bank Fixed Deposits.
You can claim almost any tax deduction under sections 80C and 80D without showing or submitting a receipt. However, you should keep the receipts safe until your income tax return has been accepted by the income tax department. In the case of other tax-saving deductions, you may need to show receipts and other documents with your ITR.
There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.
The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.
Investing in a health insurance plan for family and parents, and investing an additional Rs 50,000 into an NPS Tier-I account are a few ways you can save tax beyond Rs 1.5 lakhs. Other tax-saving options include buying or constructing a house with a home loan. You can claim an additional deduction of up to Rs 2 lakhs on the interest paid for the loan.
Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.
You can easily lower your tax on income by investing in tax-saving investment plans. A few great tax saving options are ULIP and life insurance plans, NPS tier-I account, PPF, Senior Citizen Saving Scheme, etc.
This way, you can reduce the amount of your taxable income. Besides, you can claim deductions on your taxable income on account of expenses such as repayment of home loan principal, child’s education fee, expenses during home purchase etc. You should start learning about tax-saving options in India. Tax-saving investments and expenses can reduce your total tax liability every year.
You can reduce your tax liability to zero if you utilise the common tax saving investments and sections such as section 80C, 80D, 80CCD and 24B deductions to the limits. Additionally, complete deduction requires you to claim both 24B and HRA simultaneously. This is only possible if you are paying both rent and home loan EMIs. If you are in this situation, your tax liability can go down to zero.
While looking for tax-saving options for this income you should consider present as well as future income tax. Thus, investing in EEE plans like NPS, ULIP, etc will make sense. You can also invest in ELSS plans where you can avoid long-term capital gains tax if the gain is less than Rs 1 lakh.
First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!
FD interest or fixed deposit interest income gets taxed as per the income slab rates of individual taxpayer. Banks or post offices deduct tax or TDS when the aggregate interest income on all fixed deposits exceeds Rs 40,000 per financial year. The limit is Rs 50,000 in case of senior citizens.
First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.
Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.