Tax Saving Investments
Category:
TAXATION
Date:
March 5, 2020
Tax Saving Investments
Tax savings investments carry dual benefits as they reduce the tax liability and income is earned on investments made. Substantial tax saving is one of the major benefits that accrue from these saving instruments. With the introduction of new lower slab rates in Union Budget 2020, most of these tax saving instruments will serve the purpose of long term wealth creation apart from providing tax benefit to those who want to continue with old slabs and avail all the deductions and exemptions.
Repayment of housing loan and children education expenses are mostly used as tax saving tool but apart from these there are numerous other tax saving instruments available
Lets have a look at few investments and expenses for tax saving for individuals which can be claimed within the overall limit of Rs.1,50,000 under Section 80 C of Income tax act
|
Name |
Investment Limits |
Taxability |
Lock in period |
Smart Tip/ Info |
|
1.Public Provident Fund (PPF) |
Min- Rs500 per annum Max- Rs1,50,000 per annum |
Interest and Maturity Proceeds are tax free |
15 years subject to partial withdrawals |
Cannot be attached in decree or court of law to recover any debt or liability. Income tax department can attach to recover tax dues
|
|
2.Tax saving Mutual Funds (ELSS) |
No Limit |
Long term capital gains exceeding Rs.1 lakh are taxable @10% from Financial Year 2018-19/ Assessment year 2019-20 onwards.
|
3 years |
To rule out the fluctuations in stock market invest through Systematic Investment Plans (SIP) in ELSS instead of lump -sum investment |
|
3. Sukanya Samridhi Yojana account |
Min- Rs.1000 p.a Max- Rs.1,50,000 p.a Deposits need to be made for 15 years |
Interest and Maturity Proceeds are tax free |
21 years or date of marriage, whichever is earlier subject to partial withdrawals |
This account can be opened in the name of girl child till age of 10. Interest rate fluctuates every year. Offers good interest rate which is half a percent more than 10 year government bonds |
|
4. Senior Citizen Saving Scheme |
Min- Rs.1000 Maximum- Rs.15 lakhs Only retirement proceeds can be invested in this account
|
Interest is taxable |
5 years |
This account can be opened at 60 years of age but age is relaxed to 55 years in case of voluntary retirement. Assured quarterly interest payout. Not recommended for those who don’t need regular interest payouts as benefit of compounding is lost . Yearly interest above 10,000 is subject to TDS, so even if one doesn’t has taxable income they need to file return to claim back refund of TDS |
|
5. Tax saver Fixed Deposit |
Min- Rs.500 p.a Max- Rs.1,50,000 p.a |
Interest is taxable |
5 years |
Tax benefit is available to first holder is such Fixed Deposit is opened in Joint name. Idle for risk averse people nearing retirement who don’t have PPF account |
|
6. Life Insurance Policy |
No limit but deduction is capped at higher of: a)Rs.1,50,000 b)10% of sum assured on the policy (wef 01.04.2012) |
Exempt if premium amount does not exceed 10% of the actual capital sum assured (wef 01.04.2012). This is subject to various conditions mentioned in policy documents |
Minimum holding period should be 2 years to retain tax benefits. |
Deduction can be claimed for insurance premium paid on policy taken in the name of spouse and children too but cannot be claimed for parents’ policy. Ideally keep your investment and insurance needs separately |
|
7. National Pension Scheme |
Max deduction - Upto10% of salary/ gross income plus 50,000 additional amount |
Withdrawal of corpus on maturity are tax free up to 60% . Remaining 40% to be used to buy annuity which is taxable as per slab rate |
Premature withdrawals before 60 years not allowed except in specified circumstances |
The additional tax deduction of Rs 50,000 u/s 80CCD (1b) is over and above this Rs 1.5 Lakh limit. |
Apart from the above mentioned schemes, there are deductions for medical insurance, preventive health check ups, donations etc which are above Rs.1.5 lakh limit mentioned above