To be a smart tax saver, you need to know your income and tax liability. The Indian government provides several options you may use to make better investment decisions while reducing your tax liability.
Are you stuck on Section 80C of the Income Tax Act, 1961 as is the case with most people? There is no doubt that this section offers some excellent tax-saving options, but there are several other avenues you may consider to save taxes, which are discussed below:
- National Pension System (NPS)
This pension scheme was launched in May 2009. To contribute to NPS, you need to open an account with the Central Recordkeeping Agency (CRA). You will receive a unique Permanent Retirement Account Number (PRAN). In addition to the Section 80C deduction, contributions up to INR 50,000 per year are eligible for exemption under section 80CCD (1B). Your money is invested in different asset classes, which includes equity, debt, and government securities. The returns on your investments will depend on the performance of these assets.
- Rajiv Gandhi Equity Savings Scheme (RGESS)
Under the RGESS, you may invest up to INR 50,000 in certain approved stocks to claim benefits under section 80CG. However, this benefit is available only when you invest for the first time. One reason this investment option is not popular is because of the high risk associated with stock investing.
- Education loan interest
If you have availed of an education loan, the interest paid for the year is tax-exempt under section 80E. However, unlike the principal repayment on a home loan, no tax benefit is available for the repayment of an education loan’s principal amount. This is one of the best tax-saving investments, but unfortunately, not many people are aware of this benefit.
- House rent allowance (HRA)
If you live in a rented home, you may claim tax benefits under section 80GG of the Income Tax Act. The deduction depends on your location. It is recommended you speak with your company’s human resource department to know the exact HRA benefit that is available.
- Home loans
In the last year’s Union Budget, Finance Minister Mr. ArunJaitley enhanced the interest benefit on a home loan. The deduction amount was increased from INR 1.5 lakh to INR 2 lakh per annum. In addition, INR 50,000 paid as home loan interest may be claimed under section 80EE starting from the financial year 2016-17. However, there are certain conditions that you must fulfill to be eligible for this deduction. These include:
- The loan must be availed of between April 1, 2016, and March 31, 2017.
- You must own the said property in your name.
- The borrowed amount must not exceed INR 35 lakh.
- The value of the home must not be more than INR 50 lakh.
- Health insurance
Medical costs are constantly rising. Therefore, safeguarding yourself against any health issue is important. A premium of up to INR 25,000 (INR 30000 for senior citizens) is eligible for tax deduction under section 80D. The benefits under this section also include preventive health checkup expenses.
- Charitable donations
If you donate some amount to certain non-government organizations (NGOs) in check, the same is eligible for tax benefits under section 80G. However, the deduction may either be 50% or 100% of the total amount based on certain criteria. This benefit must be claimed when you file your income tax returns (ITR).
If you have missed any of the aforementioned benefits, you may still opt for tax-saving options like the ones discussed below:
- Public provident fund (PPF)
PPF is a popular option because it provides a fixed rate of return based on the interest determined by the government authorities. The lock-in period for such accounts is 15 years. The principal, interest, and maturity benefits are all tax-free, which makes it one of the best tax-saving investments.
You may also invest in bank FDs, which have a lock-in period of five years. The interest rate is similar to regular deposits. However, the interest income is taxable, which reduces your actual return on investments.
- Equity-linked savings schemes(ELSS)
An ELSS comes with a three-year lock-in period. These funds invest in equities, which have the potential to deliver high returns. Additionally, the dividend and maturity proceeds on equity-linked savings schemes are tax-exempt, thereby making these a popular tax-saving mutual fund product.
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