The tax imposed on income generated by any individual or company is called income tax. Every year tax is taken. But do you know there are ways to save up your tax bill? Have you ever thought that investments can provide a deduction on tax? Are you looking for some investment options which can save your tax? Are you looking for better tax planning in 2019?
You are at the right place if the answers to the above questions were affirmative in your case. There are some tax-related rules and laws that may benefit you. You could plan your tax bill wisely and enjoy the benefits under the sections like 80C, 80D, 80CCD, etc. We have come up with the ways to save your tax bill this year by investing wisely.
Before investments, you should be aware of every benefit that can be taken. We have got you some investment ideas that can take up the burden of the tax. Here, is the list of investments a common man can make and get relief on taxes. The individual can apply for the tax deduction under income tax act section 80C. There is a tax deduction up to ₹1,50,000 per financial year. Deductions are not applicable to companies and corporate bodies. These deductions should be claimed by 31 July each year in your income tax return (ITR). Deduction under this section reduces the gross annual income by ₹1,50,000.
Deductions are applicable under 3 sections:
- Section 80C: Deduction by mutual funds in ELSS, insurance premium tax saver or PPF
- Section 80CCC: Reduces the tax on the payment of pension or annuity
- Section 80CCD: Deduction by Indian National Pension System
The chart below covers the returns that you can earn from these tax-saving instruments over a period of 20 years. You can find a detailed analysis of these tax-saving instruments when you read below.
Below you’ll not only find out about the ways you can save tax in 2019 but you’ll also get a better understanding of the sections and the slabs in the sections under which you can save through these instruments and other ways:
- Insurance Policies
The premium payment of insurances gives tax benefits under Section 80C and Section 80CCC. Life insurance can be the most effective way to avail tax payment benefits. This provides long term saving and tax planning. ELSS and Insurance policies are considered as the best tax planning tools while ELSS is discussed in detail below, the Insurance Policies enable you to claim deductions up to an amount of ₹1.5 lacs under section 80C. Deduction claimed earlier will become taxable, once the insurance is terminated by the policyholder for payment of premium. The premium of insurance can be paid for insurance that ensures the life of the policyholder, spouse, and dependent children. Premiums paid for brother-in-law and sister-in-law cannot be taken into consideration for tax benefits. Premium paid for insurance to private companies can also save taxes of policyholder. Under Section 10(10)D, there is also a provision for the policyholders to claim exemptions from tax on the maturity benefits of the policy.
- Provident Funds
This includes employee provident fund (EPF) and public provident fund (PPF). The employees can put funds by voluntary contribution. This EPF is paid at the time of retirement in the lump sum total. 8-9% interest is set on EPF by government. Tax benefits by EPF are under Section 80C. Public provident fund is an investment lock for 15 years with 7-8% interest. Any amount can be invested but the deduction will only be of ₹1,50,000 under Section 80C.
These are supported by the government. This is a long term deposit plan. A PPF account cannot be opened by HUF. EPF can be opened by an employee with a basic salary greater than ₹15,000. PF can be withdrawn after 2 months of leaving a job. Employer and employee contribute 12% of basic pay and DA in the EPF.
Also Read: 10 Secrets That’ll Boost your Money Saving
- Sukanya Samriddhi Yojana
The scheme of government aims to help parents of the girl child with her education and marriage expenses. Under Section 80C, deposits in this scheme give tax benefits. An account on Sukanya Yojana can be opened with an initial deposit of thousand and then multiple of hundred can be added. The deposit can go from ₹1,000 to ₹1.5 Lakh per year. Till 14 years from the date of opening the account, deposits can be made. An account where the minimum balance is not maintained per year a fine of ₹50 per year is taken. The account is opened by the guardian of the girl child and managed until she reaches 10 years of age. After 10 years girl may operate her account personally.
- National Pension Scheme
This is a retirement planning scheme. Money in NPS is contributed to equity funds, corporate funds, and government funds. This scheme provides deduction under Section 80C and additional deduction of ₹50,000 under Section 80CCD. This scheme is under the Pension Fund Regulatory and Development Authority and Central Government. The scheme is for investment in a pension account at regular intervals during their employment time. An amount of 40% of the corpus needs to be utilized for the buying of an annuity income from any insurance company which is listed in PFRDA at the age of 60. Other 40% of the corpus can be withdrawn tax-free and the remaining 20% can be withdrawn with a tax or can further be used to buy an annuity. Earlier the NPS was only for Central Government employees, but now PFRDA has made it available for all Indian citizens on entry basis. Employees from private-public and even organized sector can deposit & claim tax benefits under section 80C and section 80CCD.
- Home Loans
Payment of the principal amount of home loan deducts the tax under section 80EE. On the purchase of property, the paid stamp duty and registration charges an individual can avail tax benefits under section 80C.
There is a limit of ₹2,00,000 on paying the EMI of a house loan, it has two components, the interest payment, and the repayment of the principal amount. An amount of ₹1,50,000 of the principal amount is covered under section 80C. Also, section 24 covers the interest you pay on the home loan and you can claim a deduction of ₹2,00,000 provided the construction work has been completed within 5 years. Let’s assume it is your first house then apart from these deductions of interest and the principal amount that you would be claimed under section 24 and 80 C respectively, you can claim an additional amount of up-to ₹50,000 if your property is valued at less than ₹50,00,000 and the loan amount doesn’t exceed ₹35,00,000 and the loan was taken between the beginning of April in 2016 to the end of March in 2017. If you wish to calculate the tax savings on a home loan you need to separate the principal amount and the interest amount from the EMI.
- Tuition Fee for Children
Section 80E of income tax act deducts tax on payment of tuition fee of children. Under UPTU ₹1.5 Lakh can be taken as tax benefit under this section. Fees paid at the time of admission during the financial year of a university, college, school or educational institute in India can give tax benefits. The institutes can either be private or government. The benefits can be applied for the fees paid for 2 children. If both parents are working both can file a claim for a tax deduction depending upon their part of share in the child’s tuition fees.
In India, to promote literacy rate and children’s education these tax benefits are given. This deduction is only available for full-time education courses and also contains nursery schools, crèches and play school. This can also be claimed by unmarried or divorced parents. An adopted child is also eligible for this benefit. Development fees, donations fee or charity, private coaching center can’t be availed under this, part-time courses cannot be included in this as well and foreign studies are not eligible for deductions either. The only condition is that the child should be in India to avail the benefits of tax under section 80E. The annual fees receipt has to be submitted in the financial year of the employment.
- Money in a Savings Account
Under the section 80TTA interest on a savings account is tax-free up to ₹10,000 per year. For a senior citizen, the limit is ₹50,000 for both FD and savings account under section 80 TTB. This deduction can be claimed by individuals and HUF. To get a complete exemption, the annual interest income should be less than ₹10,000. Even if the person owns several accounts the collective income from interest should be less than ₹10,000 for getting a complete exemption. This gives relief from tracking small amounts of interest which are included in taxable income. Section 80TTA gives the advantage in penalties on some petty tax issues. People with lower to medium income are paying some marginal amount of tax and get the benefit of ₹10,000. Under Section 80TTB, senior citizens get adequate relaxation in the form of tax deduction. Thinking of the old age, the government introduced benefits for senior citizen. One such is 80TTB, where citizens over 60 can claim for deduction and relaxation of ₹50,000 is given to them.
- Equity-Linked Savings Scheme
The Equity-Linked Saving Scheme has two main advantages. One is investing money under section 80C of Income Tax Act and getting a tax benefit up to ₹1.5 lacs, the second is it is the only scheme which provides the lowest lock-in period which is just 3 years. The cherry on top in the ELSS schemes is a return of around 12-15% which makes it even more worthy.
Another benefit of ELSS is that the amount can also be withdrawn by just one click and no paperwork. Though it is one of the most overlooked options it can be really very promising. The tax benefit of ₹1.5 lac can be availed only through investing in ELSS and not any other scheme of mutual funds. The first chart at the beginning of this article shows a comparative analysis between the various investment avenues and describes very clearly about the kind of returns you can expect from ELSS schemes apart from availing the tax benefits.
- Unit-Linked Insurance Plan
This is a mix of insurance and investment. This plan is the definition of production and saving. This is suitable for all investors. The premium paid is invested in equity debt, or money market instrument. The premium paid in this policy can be claimed for tax deduction under section 80C of the Income Tax Act. ULIP premiums deduct tax up to ₹1.5 lacs. Premium amount should be less than 10% of the sum assured in ULIP. This scheme allows the policyholder to choose Asset class. The investor can switch from one class to another very easily. Benefits paid under ULIP are tax-free in case of death of the policyholder. The only thing you should ensure is to have a minimum lock-in period of 5 years, partial withdrawal can be done after this. The withdrawal limit is 20% of the fund value which are completely tax-free. ULIP can be an ideal investment option considering the plans for marriages, buying a home, and education.
- House Rent Allowance (HRA)
If a part of your salary is going on house rent, you can claim a deduction. Under section 80GG of Income Tax Act rent paid, you can get a tax deduction on the rent paid. There can be a maximum deduction of ₹60,000 per annum depending upon the class of your city, your salary and the state you are living in.. Basically, HRA was decided to be on the basis of salary but later other factors also came into existence. The place where one lives is the major factor. If in case, the person is in a metro city, the HRA amount is 50% of his salary. Cities other than metros gives 40% of salary. Actual rent should be less than 10% of the basic salary. Allotted HRA cannot exceed 50% of the salary. In case you live with your parents, you can get into an agreement with them and pay monthly. The receipts should be given by parents to claim HRA. HRA can be availed even with home loans. For instance, if a person lives in a rented flat and pays 10,000 a month as rent and gets an HRA of 15,000 along with a basic salary of 40,000 and pays a monthly installment of 20,000 for his home loan then he can claim the benefits as follows
- On the HRA received which was 15,000
- On the 40% of Basic Pay which comes out to be 16,000
- On the rent paid – 10% of basic Pay which comes out to be 6,000.
The exemption on the HRA comes out to be 6,000 in this case an amount of 9,000 would be considered to be part of his taxable income. If annual rent is more than ₹1,00,000, landlord’s verification is needed. If the landlord is an NRI, then 30% of the rent amount is deducted as tax.
- Medical Insurance
The premiums paid for Medical Insurance of self and dependents can be claimed and deductions can be availed under section 80D. A maximum amount of ₹25,000 can be claimed for the premiums paid with an inclusive amount of ₹5,000 for preventive medical checkups for self, spouse, and children. An additional amount of ₹25,000 can be claimed for the premiums paid for the medical insurance of parents below the age of 60 which can go up to an amount of ₹50,000 if the age of parents exceeds 60. The same happens, in case you or your spouse is also above the age of 60 and the maximum limit of claim can be ₹50,000. So, in total, an amount of ₹1,00,000 can be claimed under section 80D for medical insurance premiums.
The amount of money that you spend on donations and charity can help you get an exemption on tax as well. Recognized charitable Institutes are allowed as a deduction under the section 80G. A deduction can be of 50% or 100% of the total amount on the charity.
Charities which allows 50% donation as tax-free deduction are.
- Prime Minister drought relief fund
- Indira Gandhi Memorial Trust.
- Jawaharlal Nehru Memorial Trust
- Charities which allow 100% to Nation as deduction are.
- Prime Minister’s national relief fund national
- Defense Fund.