When March hits, it is time to re-look into your investments to make sure you have made the best possible tax-saving investment for the ongoing financial year (FY) and if you find yourself not having done so, time to analyse various avenues still available with you to help you reduce your tax outgo for the year. When making this choice, however, you need to look at the returns, liquidity and risk involved before zeroing in on an investment tool.
In this article, we will discuss some tax-saving investment options available which can help you plan your annual savings, or which you can use to make a lump sum investment at the close of the financial year, i.e. before 31 March 2018, and help you save your taxes. Read on!
• Investment in Equity Linked Saving Schemes (ELSS)
ELSS is one of the smartest investment instrument to maximise your tax saving efforts. Of course it comes with a little amount of risk too as ELSS involves investment of your deposit in shares by professional fund managers who are experts in predicting market trends and make sure your money is invested in the right way. Investments in ELSS can be done via SIPs. They come with a lock in period of just 3 years which is quite low when compared to saving options like PPF, NSC, tax saving FDs etc, with comparatively high returns between 12-15% Therefore, a lump sum ELSS investment at this time may prove to be a good move to fill in your 80C.
• Investment in a Public Provident Fund (PPF) account
An age old favourite investment option available to the resident salaried as well as non-salaried individual is an investment in PPF. It is a long term investment backed by the government of India, investment in which is eligible for a tax deduction under Section 80C capped at a maximum of Rs 1.5 lakh. A PPF has a lock-in period of 15 years, which can further be extended by 5 years. Also to note that it allows partial withdrawals after 7 years of account opening. An investment in PPF yields an interest of 7.6% per annum (currently). Additionally, it gets the EEE “Exempt-Exempt-Exempt” status which means, investment in PPF qualifies for a deduction, the interest from such PPF is exempt and above all, the amount received on its maturity is also exempt from tax.
• Contribution to an Employee Provident Fund (EPF) Account
Contribution towards an EPF goes a long way in helping a salaried individual not only save taxes in as much as such contribution being eligible for a deduction under 80C upto Rs 1.5 lakh, but also helps build a tax free corpus for him. An EPF also enjoys the EEE status.
• Investing in Tax Saving Fixed Deposits
Tax saving fixed deposits are like regular fixed deposits, but come with a lock in period of 5 years and tax break under Section 80C on investments upto Rs 1.5 lakh. Different banks offer different interest on the tax saving FDs which range from 6.5- 8.7%. The returns are assured. But do note that interest is taxable. This product is best suited for senior citizens who are looking for very low risk avenues to save tax with easy accessibility of funds on maturity.
• Contribution to a Sukanya Samriddhi Yojna (SSY) Account
As part of Beti Bachao Beti Padhao Campaign, Prime Minister Narendra Modi launched a scheme called ‘Sukanya Samriddhi Yojana (SSY)’, which aims at tackling the major problem associated with girl child i.e., education. It is an account that can be opened by parents or guardian of a girl child below the age of 10 years with a bank or post office, to which they can continue depositing year on year to build a corpus for the girl child. Investment in SSY is again eligible for a deduction under 80C upto a maximum of Rs 1.5 lakh and it currently yields an interest of 8.1% p.a. An SSY has also been accorded the EEE status.
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• Investment in a house property by availing a housing loan
Availing a housing loan for purchase or construction of a house property has its own tax benefits. The principal component of housing loan repayment can be claimed as a deduction under 80C upto Rs 1.5 lakh while the interest component is also eligible for a deduction against the income from house property. Such interest deduction can be claimed upto Rs 2 lakh for a self-occupied property whereas the max tax set off of entire interest in one financial year is restricted to Rs 2 lakh for a rented property. The remaining loss can be carried forward and set off in the future years from house property income.
• Taking an insurance cover
You can also expect some saving on your taxes if you have taken a life insurance cover for self, spouse or children. Here, the premium that you pay to maintain the life insurance or to maintain any annuity, will qualify for a tax deduction under 80C however subject to a maximum of Rs. 1.5 lakh.
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• Taking a health insurance cover
Though featuring towards the end in the list of tax saving investments in this article, taking a health insurance cover for oneself and family should be the first and foremost step in any financial plan. This of course comes with a tax benefit too. The premium paid towards health insurance policies qualifies for deduction under Section 80D of the Income Tax Act. This can be claimed by individuals for the health insurance premium paid for self, spouse, children and parents. On the premium paid for self, spouse, children and parents, the maximum deduction availed could be Rs 25,000 if the individual is below 60 years. Premium paid by an individual towards the health policy taken for his parent who is a senior citizen of age 60 or more, the maximum that can be claimed is Rs 30,000. Accordingly a maximum tax benefit under section 80D upto a total of Rs 55,000 if his age is below 60 while parents age is above 60 can be claimed. Further, such an individual can claim a tax benefit upto Rs 60,000 if he is 60 and above and is also paying premium for his parents.
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How are tax saving instruments highlighted in the return of income
The tax saving instruments that have been discussed above can be claimed under various sections of income tax. Investment made in ELSS, PPF, EPF, Tax saving FDs, SSY, principal component of housing loan repayment and premium paid towards a life insurance policy can be claimed as a deduction from the total income under Section 80C. Similarly, the premium paid towards the medical insurance can be claimed under Section 80D.
Besides the above, if you have an interest repayment towards a housing loan, the same is reported under House Property in the return of income.
In case you are using any of the return filing softwares, your job becomes way easier in as much as the time taken to understand what needs to be filled where, comes down drastically.moneycontrol