Income tax savings schemes are offered as per the relevant sections of the Income Tax Act, 1961. The chief among these is the Section 80C which offers potential tax savings options of up to Rs.1.5 lakhs yearly. There are other sections also that provide benefits to individuals. Major income tax saving instruments include:
Invest Upto Rs. 1,50,000
Save Tax Upto Rs. 46,350
u/s 80CCD(1B) & u/s 80CCD(2)
Invest Upto Rs. 50,000
a. Employee Contribution: Invest upto Rs 50,000/- u/s 80CCD(1B)
b. Employer Contribution: Invest upto 10% of Basic Salary + DA u/s 80CCD(2)
a. For Self & Family: Maximum deduction of Rs 25,000/year for self & family.
b. For Senior Citizen: Maximum deduction of Rs 50,000/year for senior citizen
Tax Saving Mutual Funds:
Tax saving mutual funds are also known as Equity Linked Savings Scheme or ELSS. These funds offer the opportunity for capital appreciation through investments in equities while saving on taxes along the way. Also, long term capital gains from these schemes are tax free, while dividend options for such funds will enable capital gains even during the lock-in period. The typical lock-in period varies between 3-5 years and the benefits are provided u/s 80C, which entitles investors to tax benefits up to Rs.1 lakh each year. Major fund houses offering ELSS funds are:
- HDFC MF
- IDBI MF
- Birla Sun Life MF
- ICICI Prudential MF
- SBI MF
Tax Benefits calculated on an investment of Rs. 2,60,000 at the Highest Tax Slab of 30% & includes 4% cess u/s 80C, 80D, 80CCD
Tax Saving Sections:
Section 80C allows for exemptions up to Rs.1.5 lakhs per annum through investments in a list of schemes and instruments as described in the section rules. Apart from 80C, there are various other sections of the Income Tax Act that provide exemptions to taxpayers. Major sections include:
- Section 80D: Exemption on medical insurance premiums for self, spouse or children. Maximum exemption of Rs.25,000.
- Section 80DD: For treatment or maintenance of a physically disabled
dependent. Maximum exemption of Rs.15,000 for individuals and Rs.20,000 for senior citizens.
- Section 80E: Exemption for education loan interest repayment. Full interest amount deductible for 8 years maximum.
- Section 80G: Exemption on charitable donations. Maximum exemption of 100% of investments.
- Section 80GG: Exemption on house rent paid, subject to a maximum of Rs.2,000 per month or rent paid not more than 10% of income or 25% of overall income.
- Section 80GGC: Full exemption on funds contributed to political parties.
- Section 80U: Rs.75,000 exemption if taxpayer is disabled and Rs.1.25 lakhs exemption if taxpayer is severely disabled.
Tax benefit is subject to changes in tax laws