21 Jan 2019 04:27am IST
Just a few weeks are left for the end of financial year 2018-19 ie March 31, 2019, to plan for reduction in income tax liability. The most preferred way for an Income tax payer to reduce the tax liability is to take benefit of Section 80C of the Income Tax Act. Under this section, there are fifteen different options available. One can make a choice to invest in one or more of these schemes based on availability of funds and priorities within overall limit of Rs 1,50,000.
Option #1: – Life Insurance Premia paid
The life insurance premium paid to secure your own or your spouse’s life or life of your major or minor child is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.
Option #2 – Public Provident Fund (PPF)
PPF is a long-term investment option of 15 years by the Government of India with an attractive interest rate of 8%. This interest is fully exempt from tax. One can invest minimum Rs 500 to maximum Rs 1,50,000 in one financial year. Deposits can be done in maximum 12 transactions only.
One can also enjoy loans, withdrawals, and extension of the account. Loans can be taken against the Public Provident Fund between 3rd to the 6th financial year. A partial withdrawal facility can be taken from the 7th financial year onwards. The account can be extended for a period of 5 years after maturity but in a block mode. PPF account standing in the name of spouse or any child of such individual is eligible for deduction.
Option #3 – Equity Linked Savings Scheme (ELSS)
ELSSs are equity mutual fund schemes that invest in stocks. They have a mandatory lock-in period of three years. They are riskier than other options like Public Provident Fund, National Saving Certificate, etc. However, they also have the potential to offer superior returns. Investments in ELSSs qualify for tax deduction under Section 80C of the Income Tax Act.
Option #4 – 5 yr Tax Saving Fixed Deposits with Banks
You can invest in notified fixed deposits with Schedule banks for a five-year term to claim this benefit.
The rate of interest offered by banks are the same as that for other fixed deposits and may vary from bank to bank. This deduction is available to individuals, members of the Hindu undivided family (HUF), senior citizens and NRIs. As it is a lock-in fund, premature withdrawal is not allowed. This deposit account can be opened in single or joint holding mode. However, in case of a joint account, the tax benefit can be availed by the first holder of the deposit only.
Option #5 – Employees Provident Fund (EPF)
EPF is a retirement scheme which is available to all salaried employees of recognized providend funds. 12% of basic salary + DA, is deducted by an employer and deposited in the EPF or other recognized provident funds. Any employee with a basic salary of Rs. 15,000 per month can open the EPF account.
The interest rate payable is 8.55%. The basic requirement of this scheme is that both the employer and employee will have to contribute a minimum of 12% basic pay+D.A. The entire PF balance with interest is tax-free if it is withdrawn after 5 years of continuous service.
Option #6 – National Savings Certificate (NSC)
These certificates are available in Post Offices. This investment is mainly a savings scheme for resident individuals only. Hence, Hindu Undivided Family (HUF), Trusts and NRIs cannot invest in this scheme. Indian individuals can buy it from the nearest post office in individuals name (for a minor) or with another adult(as a joint account). This investment comes with 2 fixed maturity periods – 5 years and 10 years. The minimum investment amount is Rs 100 with no maximum limit. The interest rate is fixed which 7.6% to 8.5% annually.
Option #7 – Senior Citizen Saving Schemes (SCSS)
This Scheme is operated by Post Office. SCSS is a savings scheme for a senior citizen who falls under the age group of 60 years and above. Those senior citizens who are at the age of 55 years or more but less than 60 years (who have retired on superannuation or under VRS) can also avail this scheme, within one month of receipt of retirement benefits and the amount should not exceed the amount of retirement benefits.
A joint account can be opened with a spouse with the first depositor as the investor.
There can be only one deposit in the account in multiple of Rs 1000 maximum not exceeding Rs 15 lakh. The current interest rate is 8.7% per annum. Maturity period is for 5 years. After maturity, the account can be extended for three years more by giving an application in the prescribed format. No TDS on interest upto Rs 50,000 for senior citizens.
Option #8 – Home Loan Payment
One can claim deductions on principal repayment for the home loan. Conditions for claiming the deduction are as follows-
The home loan must be for purchase or construction of a new house property.
The property must not be sold in five years from the time one takes possession
Option #9 – Registration expenses of House and Stamp duty
Registration expenses of house and Stamp Duty charges and other expenses related directly to the transfer of house are also allowed as a deduction under Section 80C. One should claim these expenses in the same year one makes the payment towards them.
Option #10 – Infrastructure Bonds
These bonds are basically to develop infrastructure facilities in the country. They are issued bygovernments or government authorized Infrastructure companies or Non- Banking Financial Companies. Infrastructure bonds are not available all the time.
An Indian resident(not minor) and HUF can invest in this bond with a maturity period of 10-15 years with an option of buy-back after a lock-in of 5 years. Interest is around 7-8% per anum.
These bonds are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Investments up to Rs 20,000 are eligible for Income tax deduction under Section 80CCF of the Income Tax Act (this is over 1.5 lakh of deduction available under section 80C).
Option #11 – Tuition Fees for maximum 2 children
Under section 80C, the Government of India allows tax exemption on the tuition fees paid by the individual for their children. The deduction is available only on the tuition fees out of the total fees paid. Other components of fees such as development fees, transport fees are not eligible for deduction u/s 80C. The deduction can be claimed for only 2 children.Adopted children’s school fees are also eligible for deduction.
Option #12 – Post Office Time Deposits
Post office time deposit is a post office scheme. An individual and minor (for 10 years and above) can open an account here. Minor after attaining majority hasto apply for conversion of the account in his/her name. A joint account can be opened by two adults. Interest is payable annually but calculated quarterly. One can make a minimum investment of Rs 200 with no maximum limit. The investment under 5 Years Time Deposit qualifies for the benefit of Section 80C of the Income Tax Act, 1961.
Option #13 – Unit Linked Insurance Plan(ULIPs)
ULIPs stands for Unit-Linked Insurance Plans. It is a combination of insurance and investment. Here policyholder pays a premium monthly or annually. In this plan, a small amount of the premium goes to secure life insurance and rest of the money is invested just like a mutual fund does. ULIP offers investors to invest in equity and debt. Life insurance ULIP must be kept in force for 2 years to claim deduction u/s 80C.
Option #14 – National Pension System(NPS)
The NPS is a pension scheme by the Indian Government which allows the unorganized sector and working professionals to have a pension after retirement. This can be opened by any Indian citizen aged between 18 and 60. No limit on maximum contribution.The interest rate varies between 12% – 14%. Partial withdrawals are allowed only after 15 years but under special conditions. Investments of up to Rs 50,000 can be used to avail tax deductions under Section 80CCD. This limit of 80CCD is deductible over and above the maximum limit of section 80C (Rs 1.5 lakh).
Option #15 – Sukanya Samriddhi Yojana
You can opt for this scheme only if you have girl child upto the age 10 years. The aim of this scheme is to give a better future to the girl child in terms of education and marriage expenses. Parents or guardians can open the account anytime in the name of a girl child between the birth of a girl child till she attains the age of 10 years.
Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years. The interest rate on Sukanya Samriddhi Yojana is 8.1%. Investment amount is limited to maximum Rs 1,50,000 in a financial year. Investment, withdrawals and maturity amounts are tax-free. The maturity of this account is after 21 years.
In addition, there are additional tax saving options under separate sections.
a) Mediclaim insurance premium u/s 80D upto Rs 25,000 and Rs 50,000 for senior citizens.
b) Health check up for your entire family by making payment upto Rs 5,000.
c) For very senior citizen, without health insurance, day to day medical expenditure Rs 50,000.
e) Housing loan interest Rs 2,00,000 [u/s 24(b)]
f) Donations to specified charitable organizations u/s 80G.
After claiming above deductions from your estimated total income, if the tax payable after deducting TDS exceeds Rs 10,000, you are required to pay tax in advance before 15-03-2019. Senior citizens are exempted from payment of advance tax provided they don’t have business income.
Goan married couples governed under Portuguese Civil Code u/s 5A of Income Tax Act, can claim these deductions separately for each spouse.