Tax Saving


Have you always wondered how to save tax? Do you want to know the simplest way to save tax? Some of the expenditure that you have already done in the financial year may qualify for a deduction. Read on to know how.
From your Gross Total Income deductions are made under Chapter VIA - one of those is Deduction Under Section 80C. This means before tax slabs are applied to calculate total tax on your income, you are allowed to make deductions from your total income under section 80C.

MAKING RS 1.5-LAKH LIMIT COUNT UNDER SECTION 80C, 80CCC, 80CCD

You can claim a deduction of up to Rs 1.5 lakh under Sections 80C, 80CCC and 80CCD. If you are in the 30% tax bracket, you can save up to Rs 45000 by investing in the following approved tax-saving instruments.

  1. Employee Provident Fund (EPF): ( 80 C )

    You must contribute at least 12% of your salary-basic pay, dearness allowance (including cash value of any food concession) and retention allowance-towards EPF. This is deductible under Section 80C.
    Premature withdrawal is allowed only under conditions specified by the government. If the amount is withdrawn before five years of subscription to the scheme, the tax benefits that have been availed on it are cancelled.
  2. Public Provident Fund (PPF): ( 80 C )

    Any resident Indian can invest in PPF and claim income tax deduction. An individual can also contribute on behalf of a Hindu Undivided Family. One can also invest in the name of spouse and children. However, tax deduction is available only on contributions up to Rs 1 lakh. At present, PPF is offering 8.7% annual interest. The interest earned is tax-free.
  3. Senior Citizen Savings Scheme (SCSS): ( 80 c )

    People above 60 years (or those above 55 years who have taken voluntary retirement) can invest in SCSS. The maturity period is five years, though it can be extended by another three years.
    One can deposit only once any amount in multiples of Rs 1,000 but not more than Rs 15 lakh. At present, SCSS is offering 9.2% annual interest, which is paid quarterly. The interest earned is taxable.
  4. National Savings Certificate (NSC): ( 80 C )

    You can invest in five- and 10-year NSCs. Five-year NSCs are offering 8.5% a year while 10-year NSCs are paying 8.8%. The interest earned is taxed. There is no restriction on the amount that can be invested, though tax deduction can be claimed only up to Rs 1.5 lakh.
  5. Bank, post-office deposits: ( 80 C )

    Investment in five-year bank and post-office fixed deposits is eligible for tax deduction. The interest earned is taxable.
  6. National Pension System (NPS): ( 80 C )

    Employee contribution towards NPS Tier-I account (where no withdrawal is allowed) up to 10% of basic plus dearness allowance is tax deductible.
  7. Life insurance schemes: ( 80 C )

    Investment in a life insurance scheme (unit-linked, traditional endowment or term plan) with sum assured at least 10 times the annual premium is eligible for tax deduction within the Rs 1.5 lakh limit. Returns from these schemes are not taxed. The minimum policy term is five years. Premiums paid for annuity plans of life insurers are also tax deductible.
  8. Tax-saving mutual funds: ( 80 C )

    These are equity mutual fund schemes with a lock-in of three years. Investment in these funds is tax deductible up to Rs 1.5 lakh. One can continue to remain invested even after the lock-in period. Capital gains and dividends are not taxed.
  9. Home loan principal repayment: ( 80 C )

    The principal component of a home loan repayment is tax deductible up to Rs 1.5 lakh. However, if the property is sold before five years of the purchase, the amount claimed as deduction is taxed in the year the house is sold.
  10. Children's tuition fee: ( 80 C )

    Tuition fee for educational institutes in India for full-time education of two persons is also eligible for deduction.

BEYOND RS 1.5 LAKH LIMIT 80 ( C )

  • Rajiv Gandhi Equity Savings Scheme: ( 80 CCG ) ( 25 )

    Under this, first-time equity investors can invest up to Rs 50,000 in approved stocks and mutual funds and claim tax deduction on 50% of the amount, or Rs 25,000, under Section 80 CCG of the Income Tax Act. But to claim this exemption, their income should not be more than Rs 12 lakh a year. They should also have a demat account. They can avail of the tax benefit under the scheme for three years.

  • Employer's NPS contribution: ( 80 CCE ) ( 1 lakh )

    If you have subscribed to corporate NPS, under which both you and your employer contribute 10% of basic salary and dearness allowance towards your NPS account, the employer's contribution is deductible under Section 80CCE. This is over and above the Rs 1 lakh limit (employee contribution to NPS falls within this limit)

  • Health insurance premium ( 80 D ) ( 30 )

    One can claim deduction for health insurance premium paid for self, spouse, children and parents under Section 80D. The limit is Rs 20,000 for senior citizens and Rs 15,000 for others. If you are paying health insurance premium for your parents, you can additionally claim up to Rs 20,000 in case of senior citizens and up to Rs 15,000 in other cases. Expenses incurred up to Rs 5,000 on preventive health checks are also deductible within this limit.

  • Expenses for treatment of handicapped dependent: ( 80 DD ) ( 50 )

    If any of your dependent relative (spouse, children, parents or siblings) is handicapped, expenses incurred towards his or her treatment and maintenance are deductible up to Rs 1lakh if the disability is severe or Rs 50,000 otherwise.

  • Deduction in case of disabled persons: ( 80 U ) ( 50 )

    An individual suffering from physical disability can claim up to Rs 1 lakh deduction in case of severe disability or Rs 50,000 otherwise.

  • Medical expenditure on self or dependent relative: ( 80 DDB ) ( 40 )

    Up to Rs 40,000 spent on treatment of specified diseases suffered by self or a dependent relative is tax deductible. Some specified diseases include malignant cancer, AIDS, chronic renal failure and Thalassaemia. You need to furnish a certificate by a registered doctor to claim these deductions.

  • interest paid on education loan: ( 80 E ) ( 40 )

    Interest paid on education loan to finance higher education of self, spouse, children or a person of which the individual is a legal guardian is deductible under Section 80E. Loans taken to fund any regular or vocational course are also eligible under this Section. The deduction is available for eight years or till the interest is paid in full, whichever is lower.

  • Interest repayment on home loan: ( section 24 B ) ( 2 lakh )

    The interest paid on a loan taken to buy a house for living is deductible up to Rs 2 lakh a year. If the loan is for a property where the person does not live, the total interest paid is tax deductible.

    However, no tax deduction is available on under-construction properties. Tax benefits can be claimed for five years after the completion of the project.

  • Deduction on house rent: ( 80 GG ) ( 24 )

    Your salary has a component called Housing Rent Allowance (HRA). This is exempt from tax if you live in a rented house.

    The exemption is least of the following:

    1. actual HRA received from your employer,
    2. actual house rent paid by you minus 10% of basic salary, or
    3. 50% of basic salary if you live in a metro city or 40% of basic salary if you live in a non-metro city.

    If the HRA is not part of your salary, you can still claim deduction on the rent paid. The deduction is the least of the following: (a) rent paid less 10% of taxable income, (b) 25% of the taxable income or, (c) Rs 2,000 a month.

  • Donations, royalty and patents: ( 80 G )

    Royalty earned on patents and books (other than text books) is exempt from tax up to Rs 3 lakh in each case. Donations to political parties and for scientific research, rural development and government relief works are also deductible. The deduction can be 100% or 50% depending upon the beneficiary.

    Though in many cases there is no limit on the donation amount, in some cases, if the donation exceeds 10% of the gross salary, no deduction is allowed on the excess amount.

Keyman Insurance Policy- Income Tax Benefit.

Keyman insurance can be defined as an insurance policy where the proposer as well as the premium payer is the employer, the life to be insured is that of the employee and the benefit, in case of a claim, goes to the employer. The `keyman’ here would be any person employed by a company having a special skill set or substantial responsibilities and who contributes significantly to the profits of that organization.

Who can be a Keyman?

Anybody with specialized skills, whose loss can cause a financial strain to the company are eligible for Keyman Insurance. For example, they could be:

  1. Directors of a Company
  2. Key Sales People
  3. Key Project Managers
  4. People with Specific Skills

Advantages of keyman insurance to the company :

  1. In case of death of a keyman the company gets money to cope up with the loss
  2. Any company buying keyman insurance for its employee can claim a deduction for the premium paid for the policy as a business expense under Section 37(1) of the Income Tax Act.
  3. No advance intimation/approval is necessary from the Income Tax authorities to claim deduction of insurance premium payment.
  4. This policy can be used as either an extra superannuation benefit or an ex-gratia payment to the key employee during the service period. If the company receives the proceeds on maturity, then they are taxable.
  5. The company can also raise loans on the policy from LIC at 12 per cent per annum.
  6. The fact that the employee/director’s life is insured for a large sum that will be paid by LIC to his family if he dies, it is bound to ensure loyalty and avoids employee turnover.
  7. For the executives earning high salaries, this policy can be given as a hike in salary and save on the tax outgo.
  8. At the same time, it also helps the company in its tax planning.
  9. The directors can also safeguard their immediate family from getting affected by the vagaries of the industry and the various business cycles that a company has to face.
  10. Insulate the risk of financial loss against loss of a Keyman.
  11. Interest on loans taken against a keyman insurance policy may also be allowed as business expenses.
  12. Premiums paid by the company on the life of a keyman would not be treated as perquisites in the hands of such a keyman when the company’s request is accepted by the assessing authority.
  13. Keyman Insurance policy is a positive measure to improve the retention of the keyman in the company.