Homepersonal finance News

Looking to save taxes? You may choose from these options

Looking to save taxes? You may choose from these options

Looking to save taxes? You may choose from these options
Profile image

By Anshul  Jan 10, 2020 9:47:07 PM IST (Updated)

There are several ways by which an investor can reduce the income tax liabilities and save more.

Tax saving plays an indispensable role in obtaining financial goals. Poor financial management may lead to a huge tax outgo, which can be otherwise avoided by having a strong tax saving plan. There are several ways by which an investor can reduce the income tax liabilities and save more. According to tax experts, investors can consider instruments that earn deductions under Section 80C and Section 80D.

Recommended Articles

View All

"Under section 80C, investors can invest a maximum of Rs 1,50,000 and save up to Rs 46,800 in taxes annually. An additional benefit of Rs 50,000 can be taken under Section 80 CCD (1B) and save up to Rs 15,450 in taxes annually,” said Arpit Jain, vice president, Arihant Capital.
Section 80D deductions, on the other hand, are restricted to costs incurred towards medical insurance, critical illness and other health-related riders offered with a life insurance policy and healthcare-related expenses.
Here are some of the tax-saving investment options:
The interest rate on tax saving options that fall under the small savings schemes such as Public Provident Fund (PPF) and National Saving Certificates (NSCs) are reviewed by the government every quarter. The interest rate on Employees’ Provident Fund (EPF) and infrastructure bonds are notified annually.
“The fixed rate of return brings in an element of predictability in the gains that one can expect when saving money in these instruments. Generally, these options are preferred by low risk-takers,” said Jain of Arihant Capital.
“Taxpayers looking towards wealth creation with equity exposure have the scope to explore options that have equity exposure. Investments in ELSS, ULIPs, and NPS are market-linked,” he added.
Public Provident Fund (PPF) and National Pension System (NPS)
PPF offers an EEE (Exempt-Exempt-Exempt) tax status. It has a lock-in period of 15 years. The maturity amount and the overall interest earned during the period of investment are tax-free.
Meanwhile, in NPS, a government employee contributes towards pension from monthly salary along with matching contribution from the employer.
While making choices under the flexible compensation structure, employees can opt to allocate up to 10 percent of their basic salary to the NPS as the employer’s contribution.
“If there is any shortfall in the total annual employee’s contribution to the pension fund as compared to the section 80C limit of Rs 1,50,000, the balance can be contributed to the PPF account. This provides tax-free interest,” Alok Agarwal, Partner, Deloitte India explained.
Additional contribution can be made by the employee up to Rs 50,000 to the NPS account on a tax-deductible basis.
“This will reduce the salary tax impact on an annual basis. Further, it will provide a significant increase to the tax-exempt lump sum withdrawal of 60 percent that can be made at the age of 60 years,” he added.
Unit-linked insurance plan (ULIP)
ULIP invests partly in life insurance and the rest into equity or debt like a mutual fund.
Equity Linked Savings Scheme (ELSS)
ELSS is a tax-saving mutual fund which comes with a statutory lock-in of three years. It can be invested using both Systematic Investment Plan (SIP) and lump sum investment options. ELSS offers tax deductions under the provisions of Section 80C.
Health insurance
One can also buy health insurance and save taxes. Investors can avail income tax exemption under Section 80D, based on the premiums paid on these policies. Health insurance also safeguards the investor and his family during medical emergencies by covering the cost of the treatment.
Home loan
On home loan, investors can claim deductions on the principal amount repaid to the lender under Section 80C. Moreover, even the interest paid to the lender is eligible for deductions under Section 24. According to Jain of Arihant Capital, the combined deduction with a home loan can be up to Rs 2 lakh in a financial year in most cases. The deduction is also available when an investor takes a loan for home construction or renovation.
Tuition Fees
Another tax-saving option under Section 80C is payments made towards tuition fees. This can only be claimed by individual taxpayers and not HUFs (Hindu Undivided Families). This instrument covers tax savings towards tuition fees paid on two children’s education.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!