Tax planning is a very important aspect of Financial Planning and we have to approach it keeping in mind the bigger picture. There are various sections under the Income Tax Act which we can use to our advantage in order to save on our outgo of tax. A lot of us are not aware of the options and invest without really checking if our existing investments or outflow have already taken care of the maximum limit we can avail of under this section. This results in over investing in this category when we could have invested in a more suitable product to meet our financial goals. Let’s take a look at what you could choose from to suit your overall Financial Planning for the FY2015-16 (AY 2016-17).
Public Provident Fund(PPF)
PPF is a long term debt scheme offered by the Govt. of India, the tenor of which is 15 years. The interest rate is linked to Govt. Securities of the same tenor and varies year on year. It is 8.7% for the current year. The maximum amount that can be invested in a year in Rs1.5lakh. The entire amount is eligible for deduction under 80C. Moreover the interest income and withdrawal on maturity is tax free.
EPF and VPF
Employee Provident Fund and if opted for Voluntary Provident Fund take care of the biggest chunk of this section for most of the salaried class. The maximum limit for which you can avail of the tax benefit is Rs1.5lakh. The Interest Rate changes year on year. The interest income and withdrawal is tax free after 5 years.
Life Insurance premium
The premium paid on life insurance policies (LIC or any other) of a person, spouse and children can be deducted under this section up to a maximum limit of Rs1.5lakh. No deduction is allowed for policies in the name of parents, in-laws, siblings or any other relatives. The premium should not be more than 10% of the sum assured.
Unit Linked Income Plan(ULIP)
The premiums paid on ULIPs can be deducted up to a maximum of Rs1.5lakh provided the premium is not more than 10% of the sum assured.
Equity Linked Savings Scheme(ELSS)
Investments in ELSS mutual fund units qualify for deduction under section 80c. This comes with a lock in period of 3 years. These investments being in equity markets provide capital appreciation in the long term and are likely to outperform the other investments.
Sukanya Samridhi Account(SSA)
SSA has been included u/s 80C this year. This investment can be made in the name of the girl child only and qualifies for a maximum deduction of Rs1.5lakh per year.
Stamp Duty and registration charges for a home
The amount paid for Stamp duty and registration charges and expenses for transfer of ownership is eligible for deduction in the year that the home is purchased. The maximum limit is Rs1.5lakh.
Home Loan Principal Repayment
The repayment of the Principal amount of not more than Rs1.5lakh per year of a home loan is eligible.
Children Tuition fees
Tuition fees paid to any school, college or university for full time education of two children qualify under this section. Not many people are aware of this option.
National Savings Certificate(NSC)
Deposits in NSC up to a maximum of Rs1.5lakh is eligible. The interest accrued year on year on this is also eligible for deduction u/s 80c. This way the interest on this scheme which is otherwise taxable can be made tax free except for the last year before maturity.
Tax Savings FDs and 5 year Post office time deposits(POTD)
Time Deposits of not less than five years with scheduled banks and post offices. The interest income is taxable in both cases.
Senior Citizens Savings Scheme(SCSS)
Investments in SCSS up to Rs1.5lakh qualify for deduction. This scheme is available only to individuals of age 60 years and above.
Pension Schemes by Insurance Companies
The premiums paid to the above are eligible up to Rs1.5lakh.
Others include Notified deposit schemes by NHB and bonds issued by NABARD
New Pension Scheme(NPS)
The maximum amount that can deducted u/s 80C is Rs1.5lakh for all the above options put together. In addition to this Rs50,000 can be claimed for investments in NPS u/s 80CCD.
Therefore the total Tax deduction allowed under Section 80C, 80CCC and 80CCD in Rs 2lakhs.
It is advisable to plan out your Tax Savings investments and choose the ones which fit in your overall scheme of things rather than scurrying in March to make random investments.
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