The Income Tax Department allows certain deductions which can be claimed to save tax at the time of filing the income tax return. These deductions are only available if the taxpayer has done proper planning during the year. To make the best use of these sections, it is important to have their complete knowledge.
Tax Saving Sections Under the Indian Income Tax Act
The sections 80C, 80CCC, and 80CCD, under the Income Tax Act, allow taxpayers to save their hard earned money.
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It’s important to know that 80C, 80CCC, and 80CCD allow an individual a combined yearly deduction of INR 1, 50,000. Here are some of the tax saving options which fall under these three sections:
• Public Provident Fund (PPF) – This is a long-term investment that is backed by the government. This investment scheme offers a good annual interest rate with full tax exemptions on returns. A maximum of Rs. 1,50,000 can be availed as a deduction under this scheme.
• 5-year FD – This is a fixed deposit scheme with a 5-year term investment plan. The interest can be earned monthly or quarterly depending on your preference. You may also opt for reinvestment, in which case the quarterly interest is added to the original invested amount. This serves as your new investment amount.
• Equity Linked Saving Scheme (ELSS) – This diversified and open-ended equity mutual fund plan has a lock-in period of 3 years. Upon redemption of your ELSS units, the income earned is not subjected to any form of taxationand is considered as a long-term capital gain.
• Term Insurance: It is strongly advised to buy a term insurance policy which offers complete financial protection to your family in your absence. In THE case of death of the policyholder, the insurer pays death benefits to the family to meet their divergent household requirements. Also, some insurers give death benefits if the policyholder is diagnosed with a critical ailment, like cancer, tumor, etc. Some policies also waive all future premiums in case of permanent disability of the policyholder and the policy continues to offer coverage.
• ULIPs: Unit-linked insurance plans or ULIPs offer the combined benefits of wealth protection, value appreciation, and tax benefits. A ULIP allows the policyholder to choose his or her preferred asset class. It means a young investor with minimum liabilities and high-risk tolerance can invest in equities to generate high returns. Or, one can also choose a combination of equities, debt and money market investments to enjoy high returns. Further, a ULIP investor can switch from one asset class to another or modify the fund allocation in equities, debts and money market instruments. This switching helps an investor to benefit from market upturns and market downturns. You can invest in ULIPs to fund future requirements like child’s education, marriage or retirement, etc. Along with the above benefits, ULIPs offer tax benefits also. Death benefits are completely tax-free. Also, upon maturity, the policyholder will get the assured benefit or the fund value, whichever is higher. This payout is also tax-free under Section 10(10D) of the Income Tax Act.
• Pension plans: Retirement or pension plansoffer the financial security to the policyholder after the retirement when his income stops. There are two phases in the pension process— accumulation and withdrawal. In the accumulation phase, the individual pays the premium in the earning years. Retirement kicks in the withdrawal phase. Pension plans are eligible to get tax deductions under Section 80CCC. All premiums paid are eligible for tax benefit. Also, 1/3rd of the amount received on the maturity is tax-free. In the case of death of the policyholder, death benefits paid by the insurance company are tax-free.
Sections 80D and 80DD offer tax benefits on health insurance policies. The deductions under each section vary for different types of investments.
• Section 80D – This section deals with any
• Section 80DD – 80DD is solely dedicated to the medical needs and treatment of any handicapped dependents in your family. The deduction under this section is Rs 75,000 for 40% disability and Rs 1,25,000 for 80% severe disability.
• Section 80DDB:Tax deduction can be availed on medical expenses incurred on the treatment of specified ailments, like cancer, AIDS and neurological ailments. The tax deduction in the case of an individual below 60-year is Rs 40,000. In the case of a person above 60-year but less than 80- year, the tax limit is Rs 60,000. For an individual at the age of 80 or above, the tax limit is Rs 80,000.
Saving Your Money through Loans
Apart from insurance policies and investment schemes to save your hard earned money, there are some loans which can also act as tax saving options for you.
• Home Loan – Have you ever opted for a home loan? If you have, you can claim deduction on the repayment of the principal amount of the loan under Section 80C. A home buyer can claim tax deductions both in respect of the interest and principal components of home loan repayments. At present, the interest on a ‘self-occupied’ house is subject to a maximum deduction of Rs 2 lakh. Along with this, the portion of the EMI which goes towards the repayment of the principal amount can also be claimed under Section 80 C. In this regard; the overall limit is Rs 1,50,000. In the Union Budget, 2016, the government has introduced an additional deduction of Rs 50,000 on interest for a loan up to Rs 35 lakh, provided the total value of the house should not be more than Rs 50 lakh.
Moreover, the interest you pay on your home loan can also be claimed as a deduction under Section 24(b). The maximum deduction allowed in this section is INR 2, 00,000.
• Education Loan – Under Section 80E, you can claim deductions on the interest payable on any education loan taken to fund your own or your dependents’ higher education.
Act of charity qualifies for tax deduction
What goes around comes around. Therefore, all your acts of kindness in the form of charity and donations come back to you in the form of tax benefits. To encourage charity, the government offers tax deductions under Section 80G. Further, there are subsections to facilitate 100% tax deductions: (a) Section 80GGA for a donation made to entities in scientific and rural development, (b) Section 80GGC for a contribution to a registered political party.
It is important to note that to save tax; you have to devise well thought-out plans in advance. Last moment planning may do more harm than good if you’re not careful. While you are making your tax declaration, it is important to make sure you declare investments under maximum sections to get the maximum tax benefit. Also, while doing so; you achieve a certain goal like securing your family and your health