While the pandemic continues in the World, the Indian Government has provided some relief to the taxpayers by extending the deadline for making tax-exempting investments from 31st March 2020 to 30th June 2020. So, let not this time slip out of your hands and make the most out of it by making appropriate investments. The government has extended deadlines keeping in view that there’s liquidity crisis and people will focus more on pulling their lives rather than putting their money in any form of investment.
So, these tax-saving options should only be considered if you have enough liquid and emergency funds in hand. Otherwise, you have sufficient time for now, which means you can wait for 2 more months to make your tax-saving investment.
There are many ways through which you can save tax under the Income-Tax Act 1961. Here are the five highest tax-saving investment avenues that could be a savior for you:
1. Section 80C: Under this section, an individual can save the maximum tax, as any investment or expense specified under the said instrument could reduce your gross total income by a maximum of Rs.1,50,000. This means that your taxable income gets reduced and in turn, you end up paying tax on a reduced income.
What is eligible for 80C deduction?
It includes investment in Life Insurance premiums (LIC), Pubic Provident Fund (PPF), Equity-Linked saving scheme, Senior Citizens Saving Scheme (SCSS), Sukanya Samriddhi Account, National Savings Certificate (NSC), Employees’ Provident Fund (EPF), etc.
While expenses allowed as deduction includes Tuition fees paid or Repayment of home loan.
While investments under section 80C help one in saving tax, it also helps to meet long-term objectives.
Quantum of tax saving:
Those taxed at 5.20 percent, 20.80 percent, and 31.20 percent could save a maximum of Rs. 7,800, Rs. 31,200 and Rs. 46,800 respectively.
However, here’s a catch, the maximum deduction allowed under section 80C, 80CCC and 80CCD(1) are subject to a maximum of Rs. 1,50,000. Therefore, you can either claim Rs.1,50,000 as a deduction under all these sections individually or altogether.
2. Section 80D: Under this section, the deduction is allowed in respect of premium paid towards health insurance policies. The benefit extends to the payment of premium for self, spouse, children, and parents.
The quantum of deduction has been divided into two categories:
a. For individuals above 60 years: Maximum deduction that could be claimed is Rs. 50,000.
b. For individuals below 60 years: Maximum deduction that could be claimed is Rs. 25000.
Deduction in respect of payment of premium of parents is in addition to the premium paid for self, spouse, and children, depending upon the age of parents as above.
For example, if an individual is below 60 years and pays insurance for himself and his spouse — He shall be eligible for a maximum deduction of Rs. 25,000.
If in addition to above, he also pays insurance premiums of his parents who are above 60 years of age, he shall be liable for an additional deduction of Rs. 50,000.
Therefore, the total deduction allowable to him u/s 80D is Rs. 75,000, provided he has valid proofs of such expense. While paying insurance premium helps one to optimize tax, it also helps to protect own and loved life and reduce the future medical expense outgo.
Quantum of savings: Considering the maximum deduction of Rs. 25000 those paying tax at the rate of 5.12%, 20.80%, 31.20% will save Rs. 1300, 5200 and 7800 respectively.
3. Section 80CCD (1B): This is an attractive saving option for taxpayers, as one could claim an additional deduction of Rs. 50,000 by investing in the National Pension Scheme (NPS). However, you cannot claim the deduction u/s 80CCD (1) and 80CCD (1B) in the same year.
Quantum of savings: Those paying tax at the rate of 5.12%, 20.80%, and 31.20% can save a maximum of Rs. 2600, Rs. 10,400 and Rs. 15,600 respectively.
Where on one hand, investment in NPS helps taxpayers to minimize their tax liability, it also helps them to avail of the benefit of investment in government securities to meet long-term objectives and provides for lifetime annuity (contains principal and returns), which is entirely taxable at the time of receipt. This simply means that this is only deferment of tax and one has to be careful while making an investment through NPS.
4. Section 24(B): Under this section, one can claim tax benefit on interest payment in respect of home loan taken for self-occupied property. The maximum deduction that one can avail u/s 24(B) is Rs. 2,00,000 p.a. It is better to buy a ready-to-move-in property rather than buying an under-construction house since there’s no deduction allowed for payment of principal of loan taken for under-construction property u/s 80C. Also, interest payments are eligible for deduction in five annual installments after the possession of the property.
Those paying tax under brackets 5.20%, 20.80% and 31.20% will save Rs. 10,400, Rs. 41,600 and Rs. 62,400 respectively.
While it is considered better to buy the house from one’s equity, it is also equally reliable to buy a house by taking a home loan as it helps in bridging the gap and also gives tax breaks to the taxpayers.
5. Section 80G: While, it is not commonly advisable to consider deduction under section 80G as one of the important tax saving options. During this phase, it could be a great tax saving tool as any contribution to the PM CARES fund will be eligible for deduction u/s 80G. Any such contribution shall be eligible for a 50% deduction as per section 80G(5).
This will not serve any other purpose rather than being an act of kindness, but this can help you plan your tax-saving and help the needy altogether and join India’s fight against COVID-19.
The income-tax slab rates applicable to senior citizens, super senior citizens and other individuals are as follows:
Tax Rate for Individual Below the Age Of 60 Years
(0 to 2,50,000* — Nil)
(2,50,001 to 5,00,000 — 5% of total income exceeding 2,50,000)
(5,00,001 to 10,00,000 — Tax Amount of 12,500 for the income up to 5,00,000+ 20% of total income exceeding 5,00,000)
(Above 10,00,000 — Tax Amount of 1,12,500 for the income up to 10,00,000+ 30% of total income exceeding 10,00,000)
Tax Rate for Individual Senior Citizens (between 60 years — 80 years)
(Up to 3,00,000 — Nil)
(3,00,001 to 5,00,000 — 5% of income exceeding 3,00,000)
(5,00,001 to 10,00,000 — Tax Amount of 10,000 for the income up to 5,00,000+ 20% of total income exceeding 5,00,000)
(Above 10,00,000 — Tax Amount of 1,10,000for the income up to 10,00,000+ 30% of total income exceeding 10,00,000)
Tax Rate for Individual Super Senior Citizens (above 80 years)
(Up to 5,00,000 — Nil)
(5,00,001 to 10,00,000 — 20% of income exceeding 5,00,000)
(Above 10,00,000 — Tax Amount of 1,00,000 for the income up to 10,00,000 + 30% of total income exceeding 10,00,000)
While we have outlined the maximum tax-saving sections, there are several other deductions such as HRA exemption for salaried individuals under section 10, or deduction for treatment of disability or severe disability under section 80DD and 80DDB and some other deductions could also be claimed. To know about other deduction available to salaried and individuals, you can visit our website www.investorq.com
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