Understanding the provisions that help us reduce our tax burden and save more is very important to make the most of your financial planning. To understand this effectively we need to bifurcate sections 80C, 80CCC, 80D and 80CCD because these clearly deal with investments that can drastically reduce your tax outgo.
Investments made in section 80C
- Investing in PPF: One of the reasons that PPF tops the list for all investors is the reliability associated with PPF investments. Under the provisions of the scheme, an investor can invest anything between Rs 500?Rs 1.5 lakh in a financial year. The scheme has a lock-in period of 5 years after which you can make partial withdrawal not exceeding 50 per cent of your total contribution. The interest rate offered on the scheme is 8.7 per cent as of now.
- Equity Linked Saving Scheme (ELSS): ELSS is an equity scheme that makes the investor eligible for claiming tax deduction U/S 80C. it has a lock-in period of 3 years and is popular among investors because no tax is levied on withdrawing your invested money once the lock-in period has lapsed.
- 5-year Bank Fixed Deposit (FDs): Another scheme that will help you reduce your tax outgo and claim deductions is a 5 year bank fixed deposit. These FDs offer a rate of interest between 8?9 per cent on investment between Rs 100?Rs 1.5 lakh. It is imperative to know that the interest earned on your fixed deposit is taxable.
- Life Insurance Premium: Any amount paid towards purchasing a life insurance premium for you, for your children or spouse can be included to claim for benefits U/S 80C. It is not necessary to buy a policy from Life Insurance Corporation (LIC) to avail tax benefits; a private insurer has the same benefits as a government one.
Deduction in respect to Section 80CCC: Contribution to pension fund:
This section states that an investment in pension fund is eligible for tax deduction from your income. However, the government has clubbed the limit of deductions under this section with that of S80C and capped it at Rs. 1.5lakh. This also implies that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC.
Investment U/S 80D:
Apart from Section 80C and 80CCC, the government has made it possible to reduce your tax out go by investing in health insurance scheme. To encourage people to buy health insurance the limit of deduction has been increased to Rs. 25,000 and incase of senior citizens the same has been hiked to Rs 30,000.
Invest in National Pension Scheme (NPS) to get additional tax benefit of Rs 50,000
In the budget 2015-16, the government in its attempt to make NPS attractive for investors, made provisions U/S 80CCD giving an additional income tax deduction of Rs. 50,000 for contributing to the NPS. It is a useful investment instrument because the additional deduction of Rs 50,000 increases your total investment cap to Rs 2lakh for claiming tax deductions.
Savings that can be made due to the additional tax benefit of Rs 50,000
Income tax provisions allowing us to reduce out tax outgo:
Income Tax slabs as per the Income Tax Act, 1961:
(The author of the article is the Managing Director of Paisabazaar.com)
