Monday, September 19, 2016

With the new hike in salary and the yearly bonus, plan tax saving before the Indian festivities blow your pockets

#classroom

Tax saving instruments and avenue especially for salaried individuals

We are almost halfway through this financial year 2016-17, however, many of us has got the revised paycheques with increment and bonus only in July/ August. The accounts team have given reminders for tax declaration forms. Let us quickly look at the lists of investment options where we can save some tax as well as utilise the fund in building wealth and help good cause.

Tax saving investments can be divided in 4 parts – 1. #Investments  2. #Insurance 3. Expenses 4. #Donations and social causes. In this post I intend to only identify the areas of investments. The next post will elaborate on the best ways to manage tax savings.

Tax savings instruments are introduced by government to promote savings practices, participating in the overall economy growth, encourage donation and charities for good causes and also rewarding investing in environmental-social sectors. It is not to be used as tax evasion tool in any form.
In the Income Tax act of India act, section 80C to 80U covers the tax exemption areas.

Tax saving eligible investments options

Categories
Details
Lock-in period
Minimum and maximum investment per year
Other benefits
Tax benefits
EPF
The amount is deducted from the salary by the employer. Employer also for makes equal contribution to the fund. This is a compulsory contribution.
As per new laws, one need to mandatorily keep the fund until 58 years of age
Minimum if 12% of Basic and DA. Benefit upto Rs. 1,50,000 investment per year
Employee can avail loan benefits and partial withdrawal allowed on resigning job. This account is transferable on job change
Maturity amount is complete tax free above 5 years
VPF
Voluntary Provident Fund, can be opted by an employee, carries same interest rate as
EPF

The lower limit not specified, however, upper limit is at 1,50,000
Loan facility/ partial withdrawal facility available
Tax free on maturity

PPF
Long term saving scheme by banks, return over 8% annually
15 years
Minimum Rs. 500 a year and maximum Rs. 1,50,000
Enjoys triple tax benefit. Partial withdrawal allowed 6th year onwards
Enjoys triple tax exemption benefit.
NSC
Eligible for deduction in the year they are purchased.
5 years, 10 years

The interest earned is non-taxable except last year
The interest earned in the last year is taxable.
Sukanya samridhi Yojana
Special saving scheme promoting development of girl child, enjoys higher interst rate than PPF
Until daughter turns 18 years
Minimum investment of Rs. 1000 year, upto 1,50,000
Enjoys triple tax exemption benefit. No tax on interest earned
Enjoys triple tax exemption benefit.
Tax Saving Fixed deposits
Eligible for deduction n the year purchased, banks and post office have this facility
5 years
Maximum Rs. 1,50,000

Interest earned is taxable on maturity
Senior citizen savings scheme
Deposit schemes in banks for senior citizens


Also enjoys higher interest rate

Insurance/ annuity plans (80CCC)
Premium paid for deffered annuity plans, life insurance schemes
NA
The upper limit is at 1,50,000
Enjoys triple tax exemption benefit

ELSS
Mutual Fund scheme, with 3 year lock-in period
3 year lock –in period
Minimum 5,000 Maximum investment 1,50,000 per year
Enjoys triple tax exemption benefit
 Rs. 1,50,000
Contribution towards pension account 80CCD(1)
Maximum deduction allowed is 10% of salary, and 10% of gross income for self-employed,

limit – Rs. 1,50,000

 Upto Rs. 1,50,000
Self contribution - Pension Fund/ Atal pension Yojana- 80CCD(1B)


Towards NPS/ Atal Pension Yojana

Deduction is allowed on contribution up to Rs 50,000. (This is additional to the available 1,50,000 limit)

 Rs. 50,000
Employer’s contribution -Section 80CCD(2)
Deduction is allowed for employer's contribution to employee’s pension account up to 10% of the salary of the employee.

There is no monetary ceiling on this deduction.

 Upto 10% of employee's salary
Equity Savings scheme 80CCG
A 50% deduction on tax on the investment. Person with salary less than 12 lakh

Rs. 50,000 is the upper limit

 50% deduction on the investment year

Other earnings eligible for tax saving
Categories
Details
Benefit
Interest earned from savings account
Tax savings claimed can be made on interest earned on savings account
Exemption upto Rs. 10,000 per year
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Expenses eligible for tax exemptions (Insurance and expenses) 

Categories
Details
Benefit
Life Insurance premium
Premium paid is eligible for tax benefit (for self, spouse, child)
valid on insurance policies if the premium is less than 10% of sum assured
Premium paid for medical insurance
Benefit upto 15,000 for self, spouse and children. Can be upto 20,000 if self/spouse is above 60 years
Additional deduction for 15,000 for parents and 20,000 if parents are above 60 years
Medical expenditure on handicap relative (80DD)
Expense on treatment, maintenance, rehabilitation and care
For 40-80% disability, fixed deduction of 50,000

Severe disability over 80%  - 1,00,000
Medical expense of self/ dependant (80DDB)
For the diseases specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor.
The maximum amount of deduction allowed from gross total income on condition that no medical reimbursement is received from any insurance company or employer for this amount
Person suffering from physical disability (80U)
Individual who suffers from a physical disability (including blindness) or mental retardation
Deduction of Rs. 50,000/-
Tuition fee
For children of the tax payer, school, college, university or any other institute within India
Capped at Rs. 1,50,000
Home loan
Principal repayment of home loan
Capped at Rs. 1,50,000
Home loan interest payment (80EE)
First time home buyers can avail this facility for self-occupied property 
The value of the house should be less than 50 lakhs and loan amount is less than 35 lakh. This is over and above the 2,00,000 limit
Stamp duty and registration for home buyers
Allowed under 80 C
Capped at Rs. 1,50,000
Deduction on house rent (80 GG)
This is available in case no HRA is attached in the salary structure and  not allotted accommodation by the employer
Maximum of Rs. 60,000 per annum can be claimed
Education loan for higher studies (80E)
Interest on the loan is eligible for tax benefit, can be upto 8 years or the interest payment completed whichever is earlier
Capped at Rs. 1,50,000
Social causes and donations
Categories
Details
Benefit
Donation towards social causes (80G)
Deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. click here for details
Donation over 10,000 cannot be by cash
Deductions on Contribution by Individuals to Political Parties (80GGC)
Political party registered under section 29A of the Representation of the People Act.
Cash contribution not allowed
 (80RRB)
Deductions on Income by way of Royalty of a Patent
up to Rs. 3 lakhs
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information used/referred from bankbazaar, cleartax, taxguru etc.

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