Tax Saving Investments

Category: TAXATION
Date: March 5, 2020

Taxrite | Blog

                                                          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

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