Tax saving benefit on investing your Income
Tax saving benefit on investing your Income
It is fag at the end of the financial year that many of us scurry about to figure out the best way to save on income tax. And in a bid to save as much as tax as possible in the last minute, many end up making financial blunders that can cost them dear.
If you want to make the right decisions this tax-saving season, here’s a handy guide that touch upon aspects to help you manage your tax. Let’s have a look on how to invest income for reducing tax burden and maximize returns from investment.
Deduction u/s 80C of Income Tax act, 1961 against certain Investments.
1. Life Insurance Policy– If an individual takes a Life insurance policy on life of individual, individual’s spouse or any child (dependent/independent, minor/major, or married/unmarried of individual or in case of HUF, on life of any member of HUF then the individual/HUF as the case may be will get deduction under income tax of the amount of premium paid on the policy. Also, any sum received on such policy (except Keyman Insurance Policy) is not taxable in the hands of recipient. However above deduction is not available if premium paid in a single financial year is exceeding 10% of the actual capital sum assured.
Eligibility– Resident & Non-Resident Indian, Liquidity-Maturity or Death whichever is earlier, Investment Limit- No limit.
2. Public Provident Fund– If an individual deposit amount towards public provident fund in name of individual, individual’s spouse or any child of individual as the case may be will get deduction under income tax of the amount deposited in account. An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year. Also, Interest and maturity proceeds are exempt are from tax.
Eligibility– Can be opened by Resident Indian individuals , salaried and non-salaried individuals. A HUF cannot open a PPF account, Rate of Interest – 8% to 9%, Lock in Period– 15 years (Partial withdrawals can be made from 7thYear), Investment Limit-Minimum and maximum investment limit is INR 500 and INR 1.5 lakh respectively.
3. Sukanya Samridhi Yojana– Government has made sincere initiative for girl education and their marriage for which it has launched Sukanya Samridhi Yojna in which parents and legal Guardian of a girl child who has not attained the age of 10 years can open the account in any post office or authorized branch of commercial bank and get deduction under income tax of the sum deposited in Sukanya Samridhi Account. Maximum up to two girl children or three in case of twin girls can open this account. Also, the interest received and withdrawals from account are exempt from tax.
Eligibility- Only Indian Resident Girl child, Rate of Interest – 8 % to 9 %, , Tenure of Scheme– One can continue to deposit in the account till the completion of 14 years starting from the date of opening of the account & can be fully withdrawal after 21 years from date of opening of account (Partial withdrawal is allowed up to 50% of money for the purpose of marriage or higher education after attaining the age of 18 years by girl child), Investment Limit– Minimum Deposit – INR 250 & Maximum INR 1,50,000 in a financial year.
4. Subscription to NSC (VIII Issue) – A Government of India initiative, it is a savings bond that encourages subscribers (Individual/HUF) to invest while saving on income tax amounts to NSC Subscribed subject to Limit INR 1,50,000. Whole Interest accrued during the money invested in NSC is taxable at the maturity as per your Tax slab.
Eligibility– Resident Indian Individual, Returns on NSC– Rate of Interest – 7.6% to 8%, Duration of Scheme-5 years or 10 Years (as per your choice), Investment Limit– Minimum Deposit of INR 100.
5. Fixed Deposit with Bank/ Post Office– An Individual/HUF can invest in a term deposit for a fixed period of not less than 5 years with a scheduled bank/ Post Office and can claim the deduction of the amount invested subject to limit of INR 1,50,000. However, interest earned on FD, every year is taxable in hands of recipient as well as amount received on maturity is also exempt.
Eligibility– Resident Indian Individual , Rate of Interest– 5% to 8%, Lock in Period– 5 Years (No partial withdrawal), Investment Limit – Minimum Deposit of INR 1000 & Maximum no limit.
6.NABARD Tax free Bonds– Any subscription by Individual/ HUF to notified Bonds issued by NABARD will give you deduction under Income Tax Act,1961. Also, as the name suggest interest and maturity proceeds are exempt in hand of recipient.
Returns on NABARD– Rate of Interest – 7.29% with 10-year maturity Bond or 7.64% with 15-year maturity Bond, Minimum Deposit – INR 5000.
7.Residential Housing Property– If you are thinking for acquiring a residential accommodation on Loan or otherwise (Self-financing, or under the scheme of Development authority, housing Board) then payment made towards installments of loan, stamp duty, registration fees or other expenses for transfer of accommodation are eligible for deduction under Income Tax Act, 1961 subject to limit of INR 1,50,000.
Eligibility– Resident Indian Individual or NRI , Lock in Period– Can’t sell the house before 5 years, Limit – Maximum INR 1,50,000 in a financial year.
8.Subscription to Mutual Funds– Subscription to any units of any notified [u/s 10(23D)] Mutual Fund set up by public sector bank or public financial institution or the UTI (Equity Linked Saving Scheme, 2005). However, when you sell the units of Mutual fund it attracts the provision of capital gains (exempt up to INR 1,00,000 in a financial year) and any dividend is exempt from tax.
Eligibility– Resident Indian Individual or NRI , Rate of Interest– 8% to 13% (subject to market risks) , Lock in Period– 3 years , Investment Limit – No such limit.
9.Investment in senior citizen saving scheme– This scheme is good opportunity for senior citizen above 60 years to make money. The scheme is safe and reliable as it is an Indian govt. sponsored scheme. You need to just open an account with any public sector bank under senior citizen scheme code by filling Form A and submitting your other KYC’s documents and you will be able enjoy the quarterly returns of the scheme immediately. Any interest earned is taxable.
Eligibility– Resident Indian Individual, Rate of Interest– 8.7%, Lock in Period-Tenure of the scheme is 5 years (Further can be extended up to 3 years), Investment Limit – Minimum Deposit – INR 1000 and maximum INR 15,00,000.
10. National Pension Scheme– National Pension Scheme (NPS) is a voluntary, defined contribution retirement savings scheme. The NPS has been designed to enable systematic savings during the individual working life. All citizens age from 18 years to 65 years of age are eligible for subscribing the scheme. This scheme provides partial withdrawal from NPS up to 25% of Contribution made by subscriber provided individual has subscribed for at least 10 year. A person under this scheme is allowed maximum deduction up to 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or INR 1,50,000, whichever is less.
However, apart from this limit an additional benefit of INR 50,000 is available under section 80CCD(1B). Thus, total benefit available aggregate with section 80C is INR 2,00,000.
Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:
- Tax benefits on partial withdrawal:
Subscriber can partially withdraw from NPS tier I account before the age of 60 for specified purposes. According to Budget 2017, amount withdrawn up to 25 per cent of Subscriber contribution is exempt from tax. It is to note that partial withdrawal is allowed only after completion of 3 years from opening of account.
- Tax benefit on Annuity purchase:
Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
- Tax benefit on lump sum withdrawal:
After Subscriber attain the age of 60, up to 40 percent of the total corpus withdrawn in lump sum is exempt from tax.
For example: If total corpus at the age of 60 is 10 lakhs, then 40% of the total corpus ie 4 lakhs, you can withdraw without paying any tax. So, if you use 40% of NPS corpus for lump sum withdrawal and remaining 60% for annuity purchase at the time of retirement, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax.
- Upon Death of Subscriber – The entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber and it is fully exempt from tax.
Eligibility-Can be opened by every Indian citizen (Resident & NRI both) between the age of 18 and 65, Return– 12% to 14% , Lock in Period– 10 Years, Investment Limit– No Limit on maximum contribution.
Kindly note Deduction under section 80C of income tax act, 1961 is available to the extent of INR 1,50,000. Hence when all the investment stated above are put together then maximum deduction available from gross total income is INR 1,50,000.
Disclaimer– The figures of rate of return and tenure of investment are subjected to change from time to time as per Govt. latest notification/circulars. Do consult your tax advisors before any investment.
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