Oak Times Bureau November 3, 2018

For most of the salaried employees, time is fast approaching for the submission of documental evidence on the investments and expenses qualified to get tax exemption. The most popular option to save tax is put money in schemes allowed as per Sec 80 C of income tax. There are many tax saving/investment options qualified under Sec 80 C. Under Sec 80 C, all can claim a deduction up to 1.5L from their gross taxable income. Many times people remember about tax saving requirement at the last moment and put money in schemes without knowing its details and ends up in blunder which causes loss of money and pain.

One should understand different parameters and carefully choose the product before putting money into it. In order to get the maximum benefit from the tax saving option, it is advised that he should align his life goal with the investment product. At the same time, you need to know the tax treatment on the maturity at the end of the investment period. Along with savings, certain expenses such as children education school fee and principal portion of the housing loan amount are also allowed to be included in the tax savings options under Sec 80 C.

First of all, one should understand that all tax saving investment options will have a definite lock in period. Keep in mind that during this lock-in period, the investor won’t have an access to this money. (See the table below to understand on the tax savings schemes and its lock-in periods). In fixed assured return schemes, the rate of return will vary based on the interest announced by the government in each quarter. The current rates are indicated in the table below.Even though market linked products has less lock in period, in order to get maximum return, the investor should stay invested for a longer period similar to assured return product to get maximum benefit.

A. Sec 80 C Savings Investment Options with lock in period

Sl. No Investment Product Lock-in Period Min/Max Amount for Tax Benefit Taxation on Maturity Return
1    Life Insurance Premium-Regular Policies Policy Term 5,000/1,50,000 Tax Free 6%
2    Unit Linked Insurance Premium 5 Years 5,000/1,50,000 Tax Free Market Linked
3    Public Provident Fund 15 years 500/1,50,000 Tax Free 8%
4    NSC 5 Years 100/1,50,000 Taxable 8%
5    Bank FD 5 Years 1000/1,50,000 Taxable 6.50%
6    ELSS (Tax Saving MF) 3 Years 500/1,50,000 10% on Capital Gain > 1 L Market Linked
7    NPS Up to 60 years 1000/1,50,000 Annuity Plan Market Linked
8    Sukanya Samridhi Yojana 21 Years 250/1,50,000 Tax Free 8.50%

B. Sec 80 C Tax Saving Expenses/payment

The expenses incurred towards the children school tuition fee, the principal portion of the housing loan and the stamp duty charges paid to acquire a new house are also qualified under Sec 80 C. The total amount that can get tax exemption combining investments and expenditures under Sec 80 C is limited to 1.5L.

Sl. No. Type of Expense/Payment Limit per year
1     Children School Tuition Fee 1,50,000 for 2 Children
2     Home Loan-Principal Amount 1,50,000
3     Stamp Duty Charges 1,50,000

C. Sec 80CCD (1B) NPS Contribution
National Pension Scheme (NPS) is relatively new instrument for tax saving. The biggest advantage is that the contribution to NPS allows additional tax saving up to 50000 rupees over the 80C tax saving amount of 1.5 L. So one can continue his investment in the options listed under 80C and for additional savings, he can contribute in NPS.

D. Sec 80 D Medical Insurance Premium
In addition to the Section 80 C & 80 CCD (1b), medical insurance premium paid for self & family and parents are also exempted from income tax. The amount permitted for tax exemption as per the rules are indicated in the table below. Here premium paid for self & family and premium paid for parents are treated separately. This means one can combine the total premium amount paid and get benefit on the tax. The insurance premium paid for health insurance, cancer insurance and critical illness are eligible under this benefit.

Sl. No Person/Family Age Limits  Max. Amount 
1    Self & family Below  60 25000
2    Self & family Above 60 50000
3    Parents Below 60 25000
4    Parents Above 60 50000

E. Sec 80 G Donations
Donations to certain specified funds/charitable institutions are separately eligible to claim tax exemption. The exemption varies from 50% to 100% of the paid amount. The contributions to the chief minister’s relief fund is qualified under this Section and the amount is 100% tax exempted.

F. 80 E Educational Loan Repayment
The interest paid under the educational loan repayment is fully exempted from tax. However, the principal portion of the loan amount have no tax advantage.

G. Sec 24 B Home Loan Interest
The interest portion of the home loan amount (self-occupied and let out property) is exempted from the taxable income. The maximum amount eligible for this benefit is 2 Lakhs. If it is a jointly owned property, all the parties can take the benefit of 2 Lakhs individually.

It is always advantageous and beneficial to take the tax benefit by proper planning and choose investment product to achieve life goals.

(George Jacob is an Independent Insurance & Investment Advisor. You can send your queries to george.oaktimes@gmail.com)

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