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The financial year 2021-22 is coming to an end and people have begun to analyze their tax-saving investments. Good tax planning involves people making tax-saving investment decisions from the beginning of the financial year.
Many of the individuals would not have made complete tax-saving investments and would be searching for the most suitable options. There are two tax regimes the old regime which a majority of the people are still following and the new regime which a few people have been following and got used to. Certain exemptions are available only in the old regime and people can claim deductions of 1.5 lakhs under section 80C. A few ideas for the last-minute tax-saving are mentioned below-
Investments under 80C-
The maximum limit for deductions available in section 80C is Rs. 1.5 lakh per annum. The instruments available for 80C deductions are-
National Savings Certificate (NSC)-
The National Savings Certificate is a fixed-income investment that can be opened in any post office in India. It encourages small and mid-income investors to invest and along with it saves on income tax. There is low risk as it is backed by the government of India and the lock-in period is 5 years.
Public Provident Fund (PPF)-
The Public Provident fund is a long-term investment instrument that can help a person save on taxes. It can be used to build a retirement corpus. The interest earned and the returns are not taxable. The amount deposited in a year under PPF would be considered for 80C deductions. The tenure of the PPF is 15 years and it offers guaranteed risk-free returns. A PPF account can be opened in a post office, nationalized banks, or even banks like HDFC, ICICI, and Axis bank.
Senior Citizen Savings Scheme (SCSS)-
The senior citizen saving scheme is available to individuals who are above the age of 60 years. The maximum amount that can be deposited in the scheme is Rs. 15 lakhs and the tenure of the scheme is 5 years. The scheme is available in the post office and certified banks in the country. It is for senior citizens and offers a regular stream of income with high safety and tax-saving benefits.
5 Year Bank Fixed deposits-
A 5-year term deposit is also called a tax-saving fixed deposit. If you invest in this tax-saving F.D. the lock-in period is 5 years and the interest earned on the deposit is subject to tax. No premature withdrawal is allowed. It allows one lump sum deposit and the minimum investment is Rs 10,000 and a maximum of Rs 1.5 lakh.
Unit linked insurance plan (ULIP)-
A unit-linked insurance plan offers twin benefits of investments to achieve life goals and financially protects the family in the unfortunate event of death. You can select to invest in equity, debt, or a combination of both according to your risk profile and goals. The tax benefit is on the premium paid under section 80C and you also get a tax-free maturity benefit subject to conditions of section 10(10D).
Equity-linked Saving Scheme (ELSS)-
An individual can invest in an equity-linked saving scheme to claim tax benefits under section 80C as well as grow the wealth by investing in equity mutual funds. ELSS has the potential to give the highest returns among all the other 80C investments and has a lock-in period of 3 years which is the minimum among all other 80C options. You should have an investment horizon of longer than 5 years in an equity mutual fund so as to overcome volatility.
Sukanya Samriddhi Yojna (SSY)-
Parents of a girl child can open an account in the post office or any authorized branch of a bank any time between the birth of a girl child and until she attains the age of 10 years. A minimum of Rs 250 and a maximum of Rs 1.5 lakh can be invested every financial year. The investment made in Sukanya Samriddhi Yojna is eligible for tax deductions under section 80C; the interest earned is eligible for tax exemption and the amount received on maturity is also exempt from tax.
The other tax saving options that a person can consider for tax saving are-
National Pension Scheme (NPS) additional deduction under Section 80 CCD (1B)-
The National Pension Scheme is a voluntary saving scheme that allows people to make contributions to the savings in a planned manner thereby securing their future in the form of pension. The scheme is open to individuals of public, private, and even the unorganized sectors. Tax deduction of up to Rs. 1.5 lakh can be claimed by individuals for their as well as employer’s contribution. A person can claim an additional self-contribution up to Rs. 50,000 under section 80CCD (1B). Therefore the scheme allows a tax deduction of up to Rs. 2 lakh.
Medical Insurance Policy (80D)-
The medical insurance covers the medical expenses that arise due to illness and can include hospitalization expenses, doctors’ fees, and the expenses for the medicines purchased. An individual can buy an individual health insurance plan or a family floater plan. Section 80D allows a deduction for up to Rs. 25,000 on health insurance premium for self, spouse, and children. The deduction is allowed for Rs. 50,000 for self, family, and parents when everyone is below 60 years of age. For self, family, and parents (above 60 years) deduction is allowed for Rs 75,000.
Expenditure on medical treatment of dependent (80 DD)-
Section 80DD provides tax benefits to the person who takes care of disabled dependents. The deduction can be claimed by the family of disabled dependent and not the dependent themselves. Individuals who have disabled dependents which can be parents, spouses, siblings, or children can claim a deduction. The deduction allowed is up to Rs 75,000 for taking care of disabled persons with 40% disability, and up to Rs. 1.25 lakh for a person with 80% disability. The disabilities covered include blindness, low vision, locomotor disability, hearing impairment, and mental retardation.
Expenditure on medical treatment of specific diseases (80DDB)-
Section 80DDB provides tax benefits on the amount spent on treating specific ailments for self or a dependent family member. The following are the eligible diseases or ailments-
a) Neurological disorders- Dementia, motor neuron disease, ataxia, chorea, hemiballismus, aphasia, Parkinson’s disease.
b) Malignant cancer.
c) Full-blown AIDS.
d) Chronic renal failure.
e) Hematological disorders- Hemophilia, Thalassaemia.
Deductions can be claimed on the submission of relevant prescriptions from a list of specialists. The deductions allowed on the amount spent on treating persons below 60 years is up to Rs 40,000 and for above 60 years can go up to Rs 1 lakh.
Interest payable on higher education loan (80E)-
India has one of the largest youth populations and with the growth of the Indian economy and rise in income levels, the spending on education has increased. Individuals can claim a deduction of interest paid on loans taken for higher education under section 80E. A loan has to be taken from a bank or a financial institution. The principal and interest amounts have to be mentioned separately as no deduction is allowed on the principal repayment amount. The benefit of the deduction is available for a maximum of 8 years.
Deduction for home loan interest (80 EE)-
Under section 80EE of the Income Tax Act, tax deduction can be claimed by the first-time homebuyer for the amount they paid as interest on the home loan availed from any financial institution. The maximum deduction that can be claimed is Rs. 50,000 in a financial year and is over the deduction of Rs 2 lakh of section 24 and Rs 1.5 lakh of section 80C.
Home loan interest payment for affordable housing (80EEA)-
In the year 2021, the government extended the additional tax deduction of Rs. 1.5 lakh on low-cost housing on the interest paid on affordable housing loans under section 80EEA. Persons can avail of the deduction till 31 March 2022. A deduction of Rs. 1.5 lakh is available under section 80EEA, over and above the deduction of Rs. 2 lakh for interest payment under section 24 of the income tax act. When they meet the conditions of section 80EEA taxpayers can claim a total deduction of Rs. 3.5 lakh.
Donations made to approved charitable institutions (80G)-
Section 80G provides tax incentives to the individuals who are engaged in philanthropic and activities of the charity. Individuals who wish to claim deductions under section 80G must ensure that the organization they are donating to must fall under the confines of this act. Donations must be made to registered funds or charitable institutions. The documents required to claim deduction are a stamped receipt, form 58, and the registration number of the trust to support the claim.
Individuals not receiving HRA and paying rent (80GG)-
Section 80GG allows salaried and self-employed individuals who don’t receive HRA from their employers to avail tax deductions on the rent paid for their accommodation. The tax exemption depends on the city you are staying whether Tier I, Tier II, or Tier III, and also the salary. An individual can claim the least of the following applicable amount; Rs. 60,000 annually, amount equal to total rent minus 10% of total income, or 25% of the salary.
Contributions made to a political party (80GGC)-
Section 80GGC provides a deduction for contributions made to a political party or an electoral trust. A 100% deduction is available for the amount contributed to a political party or electoral trust. The individual can choose any method like online banking, demand draft, cheque, or debit card while contribution through cash is not eligible for deduction.
Interest on savings accounts with banks and post offices (80TTA)-
Section 80TTA allows an individual to claim deductions on the saving account deposits held in a bank, post office, or cooperative society. The exemption sought is up to Rs 10,000 and the exemption can be for any number of accounts as the total exemption you are seeking is less than Rs. 10,000.
Interest on fixed deposit or saving account of senior citizens (80TTB)-
A senior citizen aged 60 years and above can claim a deduction from gross total income under section 80TTB. A deduction of lower than Rs. 50,000 or a specified income is allowed from gross total income. The specified income is interest on bank deposits, interest on post office deposits, and interest on deposits in cooperative society engaged in the business of banking.
Persons with disabilities (80U)-
Individuals can claim for tax deduction under section 80U having at least 40% disability as specified under the law. Disability is divided into the categories as mentioned; low vision, blindness, hearing impairment, leprosy cured, mental retardation, locomotor disability, and mental illness. Severe disability is 80% or more disability as defined under the law. Deduction of Rs 75000 is allowed for disability and Rs 1.25 lakh for severe disability.
The difference between section 80U and section 80DD is that section 80U provides for a tax deduction for a person with a disability while section 80DD provides deduction to family members of a person with a disability.
When you do tax planning at the last moment the chances of putting funds in an unsuitable tax saving instrument are high. The things to keep in mind are the immediate financial needs as most of these instruments have a minimum lock-in period of 5 years (except ELSS). Check the minimum time required to execute the decision and compare the post-tax returns of various instruments. The best way is to align tax planning to your long-term goals. This will save you much of the last moment stress.