How to save Income Tax?

Here are the deductions available under Chapter VI A

Section 80C:

Any individual or Hindu Undivided Family (HUF) can claim deductions up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961

The following investments and payments are eligible for deduction under Section 80C of the Income Tax Act, 1961:

Life Insurance : Premiums paid toward all life insurance policies are eligible for tax benefits under Section 80C. This deduction can be claimed for premiums paid towards insuring self, spouse, dependent children and any member of Hindu Undivided Family. An important point to be noted is that if the policy is issued on or prior to March 31, 2012, annual premium up to a maximum of 20% of the sum assured becomes tax deductible. For insurance policies issued on or after April 1, 2012, annual premium up to a maximum of 10% of the sum assured is tax deductible.

Sukanya Samriddhi Yojana : Investments made in Sukanya Samriddhi Yojana, which is a saving scheme for the girl child, are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. A parent or legal guardian of a girl child, who has not reached the age of 10 years, can open this account. Sukanya Samriddhi Yojana account can be opened for two girl children (one account per girl child) and can be extended to a third if twins are involved.

Public Provident Fund : Public Provident Fund (PPF) contributions are eligible for tax deductions under Section 80C. PPF accounts have a maximum deposit limit of Rs. 1,50,000 per year, therefore, all deposits made to your PPF account can be claimed as deductions under Section 80C. The money that you put into a PPF account will be locked-in for a period of 15 years. Partial withdrawals are permitted after 7 years.

Equity Linked Saving Scheme : Investments in equity linked savings scheme qualify for tax deduction under section 80C of the Income Tax Act. Now, an essential point to be noted about equity linked savings scheme is that they have a mandatory lock-in period of three years from the date of investment. If you are considering investing in this scheme, make sure to invest for longer periods like five to seven years as they are equity schemes. Equity schemes are an ideal option for wealth creation over a long period.

Five Year Bank Deposit : Most banking institutions offer tax saving fixed deposits where deductions can be claimed under Section 80C of the Income Tax Act. The condition associated with tax saver fixed deposits is that they come with a lock-in period of 5 years. Premature withdrawal is not allowed under this investment. Interest earned on tax saver fixed deposits, however, are taxable and will be deducted at source.

Stamp Duty and Registration Charges : While buying a property, one of the largest expenses you will have to bear is the stamp duty and registration charges. To give taxpayers some relief, the government has included these expenses under Section 80C of the Income Tax Act, 1961. The deduction can only be claimed once the property construction is complete and you have legal possession of the house.

Senior Citizens Savings Scheme : Investments in Senior Citizens Saving Scheme, which as the name would suggest is suitable for senior citizens, qualify for deduction under Section 80C of the Income Tax Act. This scheme has a tenure of 5 years. To participate in the Senior Citizens Saving Scheme, an individual has to be at least 60 years of age. Those who have taken VRS (voluntary retirement scheme) can opt for it after the age of 55.

National Savings Certificate : To encourage taxpayers to park their money in National Savings Certificate scheme, the government has allowed tax deductions to be claimed under Section 80C on the investments made in it. Interest earned on National Savings Certificates are liable to tax. However, if this interest is reinvested, it will be eligible for deduction under Section 80C. The interest rate on this scheme is similar to that of tax savings fixed deposits, PPF and other fixed income earning instruments.\

Home Loan Principal Repayment : The amount that goes into repaying the principal on a home loan is eligible for deduction under Section 80C. To claim this tax benefit, construction of the property should be complete. If you transfer the property before the end of 5 years from the year you had taken its possession, no tax benefits will be awarded. Additionally, the amount claimed as deduction in the earlier years shall become taxable in the year that the property is transferred.

Apart from investments specified above, certain expenditures can also help you to save tax.

Expenses that can save income tax under section 80C

Tuition fees of children:

Tuition fees paid whether at the time of admission or thereafter to any university, college, school or other educational institution is eligible for this deduction.

However, only fees paid for studies pursued full time can be claimed as a deduction to save tax under this section. This also includes fees paid for any play school activities, pre-nursery and nursery classes.

In addition to that, any payment made as development fees or donation or payment of similar nature will not be taken as tuition fees.

The institution has to be situated in India but it can be either a government or private one. This benefit is restricted to two children only for each parent i.e. mother or father. The tax benefit will be available to the parent who has made the payment.

If a working couple has three children and father has made payment of school fees for one of them, then he can avail the benefit only for the payment made by him. The tax benefit for tuition fees paid for the other two children can be claimed by the mother if she has made the payment.

However one must remember that this benefit is restricted to the children only. Any fees payment made for education of yourself or spouse is not available.”

Home Loan Principal Repayment:

The EMI on your housing loan paid by you every month has two components: Principal and interest. The total amount of principal paid by you in a financial year (1 April to 31 March) can be claimed as a deduction from gross total income under section 80C before calculating the net taxable income. Payment of interest on loan can also be claimed as a deduction from gross total income under section 24 and section 80EE subject to certain conditions.

This deduction can be claimed not just by individuals but also by Hindu Undivided Families (HUFs).

It is to be noted that it does not matter whether an individual has taken loan or not to acquire the property.

Section 80CCD(1b): One can claim additional deduction of Rs 50,000 by investing it in NPS. This will make the total tax-saving of Rs 2 lakh in a financial year if saving under sections 80C and 80CCD(1b) is combined.

Section 80CCD(2): Over and above this Rs 2 lakh ceiling you can also claim deduction on the employer’s contribution made to NPS account. You can claim maximum deduction of 10 per cent of your basic salary plus dearness allowance. There is no monetary restriction on this deduction.

Section 80D: Health insurance premium paid by you for your family and for your parents can help you save tax. Premium up to Rs 25,000 paid for yourself, your spouse and dependant children is deductible from your gross total income thereby reducing taxable income and saving tax. Mediclaim policy bought for your parents can help you claim additional deduction of up to Rs 25,000. If your parents are senior citizens i.e. above 60 years, then you can claim deduction up to Rs 50,000 paid as medical insurance premium.

Section 80DD: You can claim deduction of expenditure incurred on a dependent who is differently-abled and wholly dependent on you for support and maintenance. Deduction of Rs 75,000 can be claimed if disability is more than 40 percent but less than 80%. If the disability is more than 80 percent the deduction limit will be raised to Rs 1,25,000. Remember you cannot claim this deduction if dependent has claimed deduction under Section 80U.

Section 80DDB: Expenditure incurred on yourself or dependents for medical treatment of certain diseases is allowed as deduction from gross total income. The diseases are specified in Rule 11DD of the Income Tax Act. Some of the diseases are Parkinson’s Disease,Chronic Renal failure and so on. You can avail the tax benefit on actual basis for maximum up to Rs 40,000 per year.
If you or dependent is a senior citizen, then the benefit is lower of actual expense or Rs 1 lakh. To avail this benefit a medical certificate from a competent medical practitioner is required.

Section 80E: Interest paid on education loan is eligible for a deduction under Section 80E of the Income Tax Act. Interest paid on your education loan is deductible from your gross taxable income while calculating taxable income. Only interest paid on the education loan taken for self, spouse or children is eligible for deduction. The deduction can be claimed from the year the repayment starts and not from the year you took the loan. The deduction can be availed for maximum of 8 years or till the interest is paid, whichever is earlier.

Section 80EE: This tax benefit of Rs 50,000 is available to homebuyers over and above the limit of Rs 2 lakh for interest paid on housing loan. It can be claimed by the first time home buyer only if:
a) Loan is taken between April 1, 2016 and 31 March 2017
b) The amount of loan should not exceed Rs 35 lakh
c) The value of property does not exceed Rs 50 lakh
d) On the date of sanction of loan, individual should not own any other residential house.
e) Loan should be taken from bank or housing finance company

Section 80G: Contributions made to notified relief funds and charitable institutions qualify for deduction under section 80G. This section offers deductions up to 50% or 100% of the donation subject to the limits stated in the Income Tax Act. To avail the deduction, you should have receipt containing name, address, PAN, registration number of the trust along name of the donor, amount donated.
Donations can be made in cash or via banking channels. But cash donations exceeding Rs 2,000 do not qualify for tax deduction.

Section 80GG: Individuals living on rent and not able to claim benefit of house rent allowance (HRA) can claim deduction under Section 80GG. To be eligible for this deduction you should satisfy certain conditions as follows:
a) You should be living on rent, not receiving HRA or rent-free accommodation
b) You should not own a house in the city you are living in your name, spouse’s or minor child name
c) If you own the house in other city, then it should not be assessed as ‘self-occupied’ property.
After fulfilling the conditions mentioned below, deduction available to you will be the lower of the following:
= Rs 5,000 per month
= 25% of your total income*
= Rent paid in excess of 10% of your total income
Total income refers to income adjusted by reducing long-term capital gains, short-term capital gains as mentioned in section 111A, deductions under section 80C to 80U except for 80GG.

80TTA Up to Rs 10,000 per year for individuals below 60 years Interest on savings account with bank and post office

80TTB Up to Rs 50,000 per year for senior citizens Interest on all type of deposits held with bank, post office

Section 80U: An individual gets deduction under section 80U if he is suffering from any of the specified diseases such as blindness, hearing impairment and so on. The amount of deduction is same as mentioned above in Section 80DD.

Section 80TTA: Deduction up to Rs 10,000 is available to individuals (below 60 years) and HUF on the interest earned from savings account held with bank and post office.

Section 80TTB: For senior citizen taxpayers, deduction up to Rs 50,000 is available on the interest earned from bank and post office deposits. This includes interest earned from savings account, fixed deposits, recurring deposits and post office scheme deposits.

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