Maximise deductions, save tax

Maximise deductions, save tax

It’s almost the end of financial year 2015-16. Are you worried you haven’t spent much time planning your taxes? You drear to look at how much money will get axed from your salary in the name of income tax.

Almost 70 per cent of the people who filed their returns with us, did not make full use of section 80C benefit and Section 80D and still had some tax to pay. That number is astonishing. So what are these deductions and how can one make full use of them. Let’s take a look.

How does this work? As per the income tax act, you are allowed to deduct Rs 1,50,000 from your total taxable income under section 80C. Tax is payable on income net of this deduction. So if your total taxable income from all sources (salary, interest, rental income etc.) is say

Rs 7,00,000, you can claim a deduction of Rs 1,50,000 under section 80C and pay tax on the remaining Rs 5,50,000 as per tax slabs.

If you enrol yourself and your family for medical insurance, you can reduce a further
Rs 55,000 (maximum amount) from your taxable income under section 80D.

What is section 80C? Under section 80C, a wide variety of expenses and investments are allowed to be claimed. You can invest under section 80C or you can claim certain expenses that you have already incurred.

 Eligible investments

Investments in PPFA: A maximum of Rs 1,50,000 can be deposited in your PPF account. Interest earned on PPF account is tax free. The PPF account matures after 15 years. Receipts on maturity are also tax free. If you haven’t opened a PPF account, do so now. Some banks allow online access of your account and you can make transfers online.

Purchase of NSCs: National Savings Certificate are certificates that can be purchased through post offices. These are of 5 years or 10 years term. NSCs are eligible for deduction under section 80C in the year of purchase. Interest earned is taxable, however, it qualifies for deduction during the term of the NSCs (except the last year) under section 80C.

Investment in sukanya samridhi account: If you have a girl child, you must opt for this scheme. A maximum of Rs 1,50,000 can be deposited in this account and it earns an interest of 9.2 per cent. Interest is tax free and is revised each year. Withdrawals are also tax free.

ULIPS: Premium payments for a ULIP plan are also eligible for deduction under section 80C. If you wish to enter a ULIP, be prepared for a longer term commitment. If the ULIP is discontinued before two years, tax benefits u/s 80C will not be allowed.

ELSS: Equity Linked Savings Scheme have caught tax payers fancy these days. If you have some risk appetite, this seems like a good bet. This investment also has the shortest lock-in period of three years. Although you’ll have to invest in lump sum now, you can start a SIP in the same fund from April 2016, and even out your purchase price and prepare for tax saving for the next year.

5-year fixed deposit: The only shortcoming of this product is that interest income is fully taxable. However, for senior citizens who enjoy higher exemption limit or those who are in the lowest tax slab, this is a secure way to park funds.

Eligible expenses

Employee’s share of PF contribution: Amount deducted from your salary as your contribution in Employee’s Provident Fund Scheme or Recognized Provident Fund can be claimed under section 80C.

Life insurance premium payment: Insurance premium paid by you to secure your own or spouse’s or child’s life (child may be dependent/independent, minor/major, married/unmarried) can be claimed under section 80C. Deduction is also allowed on payments made by Government employees to Central Government Employees Insurance Scheme.

Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational institution situated within India for full time education of any two children (including payments for play school, pre nursery and nursery) is eligible under section 80C.

 Principal repayments on loan for purchase of house property: Payments of instalments or part payments or repayment of loan taken for buying or constructing residential house property is also allowed. Deduction can be claimed for stamp duty, registration fees as well. Do remember if the property is sold before the end of five years from possession, the deduction claimed for principal repayment for all the years shall be added back to income of the year in which such property is sold.

What is Section 80D?

Out of the taxpayers who filed with us, an abysmal 20-30 per cent of taxpayers took benefit of section 80D. Under section 80D deduction can be claimed for medical insurance for self, spouse, children up to Rs 25,000. Deduction can also be claimed for parent up to a maximum of Rs 30,000. If parents are more than 80 years old and uninsured, their medical expenses can be claimed up to Rs 30,000. However, maximum deduction for parents should not exceed Rs 30,000.

Remember to make the most of these deductions in your tax return this year. Do not worry, if you did not submit proofs for these to your employer, these can be directly claimed in your tax return.

 (Preeti Khurana is a Chartered Accountant and the Chief Editor at www.cleartax.in )

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