Tax Saving

Let the tax season not be taxing for you

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Tick, tick, the clock is ticking away as the countdown for the end of the tax saving investment season has begun. In the rush to meet the March-end deadline, don’t falter on making the right choice. Here is a bird’s eye view of major tax saving investment options available.

Section 80C Investments

As many of us are aware, you get annual income tax deductions of Rs 1.5 lakh under Section 80C of the Income Tax Act. Here are some popular options.

Life insurance plans
These include all kinds of life insurance plans be it pure risk covers like term insurance plans or insurance-cum-investment plans like endowment plans and unit linked insurance plans (ULIPs). In addition to tax deduction for the premium, the returns from life insurance plans are tax free. Same is the case with maturity amount which is eligible for tax deductions under Section 10(10)D.

Public Provident Fund (PPF)
This is a 15-year investment with tax deduction for contribution, interest and maturity amount. You can make partial withdrawals from the seventh year and can extend the tenure in blocks of 5 years. You can open a PPF account in post offices and major banks. Also, you can open the account in the name of minor children too.

Sukanya Samridhi Yojana (SSY)
This investment is meant for the minor girl child and like PPF is available in post offices and leading banks. Its term is of 21 years with partial withdrawals of up to 50% permitted from age 18 of the girl child when she attains maturity. This is an attractive investment for the future of the girl child and typically has high interest rates.

National Savings Certificate (NSC)
These certificates are available in post offices. The denominations range from Rs 100 to Rs 10,000 and are available for tenures of 5 and 10 years. The interest rate for the 5 year tenure is a little lower than that of the 10 year version.

Tax saving fixed deposits (FDs)
Banks and post offices provide tax saving FDs with a term of 5 years. Here, the important thing to keep in mind is that the interest is fully taxable and the money is completely lock up for the five year term.

Equity Linked Savings Scheme (ELSS)
Mutual funds offer these tax saving schemes which invest the money of investors in equities. Like other eligible Section 80C investments, they provide annual tax deduction of Rs 1.5 lakh. However, the invested money remains locked in for three years from the date of investment.

Pensions Plans

Investments that help you save for retirement, or pension plans, are offered by life insurance companies as well as mutual funds.

Life insurance pension plan
A pension plan from a life insurance company, is eligible for annual tax deduction of Rs 1.5 lakh under Section 80CCC. On retirement, you get tax free lump sum of upto 33% of retirement savings. The rest is converted into regular income by buying regular income providing investments called annuities.

Mutual fund pension plans
Many pension plans are offered by mutual funds, like ELSS, qualify for tax deductions of upto Rs 1.5 lakh under Section 80C.    

National Pension Scheme (NPS)
If you want to use tax saving with retirement saving, you can consider National Pension Scheme. Thanks to the tax deductions available under Section 80C and Section 80 CCD, you get tax deductions of upto Rs 2 lakh annually. Or, you get an extra tax deduction of Rs 50,000.  On maturity, you get 60% of the savings as tax-free lump sum with the rest converted into regular income through annuities

Section 80D options

You can save some more tax when you secure your family from health emergencies with health insurance plans. This is over and above the Section 80C benefits.

Health insurance plans
You can get annual tax deduction for yourself and immediate family members of upto Rs 25,000 for your health insurance premiums for individual, floater and other eligible health plans. This limit goes up to Rs 30,000 if you are a senior citizen. If you are paying the premium for senior citizen parents, the total and effective tax deduction becomes Rs 55,000.

Life insurance riders
You can widen the protection for your family against critical illnesses along with life insurance plans by attaching a rider with a life insurance plan. Such riders are typically eligible for tax benefits under Section 80D with the same tax deduction limits applicable for health insurance plans.

This discussion gives you a bird’s eye view of the tax saving options when you go out shopping for tax savers. Like shoes, you need to ensure they are a perfect fit with your financial requirements. Despite the countdown for the end of tax-saving investment season, pick the right investments from tax saving investment buffet.

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