A major percentage of your income often gets tied up in paying taxes. There are various brackets of income and according to the brackets, the percentage of taxes is fixed. There are legal ways to save money through tax deductions and careful investments. That way, you not only save money but also engage in investments that help you in the long term.
There is a list of exemptions the government has curated to assist people and increase the investment in fields that are beneficial for people as well as the country. Each exemption has been assigned an income tax exemption limit to keeping the exempted amount under control. The total amount that can be exempted remains the same, however, the contribution of each exemption may vary.
The primary benefit of section 80C is that it helps you save money. The other benefits depend on which investment you opt for. These schemes and accounts provide a higher rate of interest than a savings account or a recurring deposit. Although the term is longer and the interest is taxable, they are the least risky investments.
Before you plan your investments, you should be aware of the income tax exemption limit set as per the income tax act under different sections.
Sub-sections under 80C
These sub-sections provide an overview of the type of investments available. You can start with the one best suited to your needs.
|Section and Subsection||Investments and Expenditures Eligible for Tax Exemptions|
|80C||Employee Provident Fund, Public Provident Fund, premiums towards life insurance, Equity Linked Savings Schemes, payment towards home loan, etc|
|80CCC||Pension plans, Mutual Funds|
|80CCD(1)||National Pension Scheme, Atal Pension Yojana, etc|
|80CCD(1B)||National Pension System allows for investments up to 50,000 rupees to be eligible for tax exemptions|
|80CCD(2)||Employer’s contribution of 10% of basic salary and dearness allowance|
Benefits under Section 80C
Under Section 80C, a detailed list of exemptions has been mentioned. The expenditures eligible under this section are deducted from your payable amount. The maximum deduction on your taxable income is 1.5 lakhs per year.
● Employee Provident Fund (EPF) – It is mandatory as per the Income Tax Act for the employer and the employee to contribute to EPF. 12% of the basic salary of the employee is contributed by the employee as well as the employer, per month, to the EPF account.
● Public Provident Fund (PPF) – This is an optional account that can be opened with any bank and you can deposit up to 1.5 lakhs per year to avail tax deductions. A deposit has to be made at least once a year after you open the account and you can withdraw the sum only after 15 years. The tenure can be increased if you so wish.
● Life insurance – Premiums paid towards Life insurance are eligible for tax deductions as long as the policy is for self and dependents. You can claim deductions on the policy paid by you during the financial year.
● Infrastructure bonds – The Income Tax Act allows tax exemption up to 1.5 lakhs on infrastructure bonds as long as the investment is equal to or higher than 20,000 rupees.
● Equity-Linked Savings Scheme (ELSS) – This investment scheme makes you eligible for tax exemptions, however, the mandatory lock-in period is of 3 years.
● Payments towards home loans – Any payments made towards home loans (EMIs of principal amount) are eligible for tax deductions. However, some conditions need to be met to avail of this tax exemption. You can make use of a home loan calculator to assist you with the calculations of EMIs and interest rates based on the loan amount. The conditions for eligibility are – the construction of the property should be complete. Transferring the property to someone else’s name within 5 years of possession will make it ineligible for tax exemptions. After 5 years, any amount claimed as a deduction is considered taxable.
Sukanya Samriddhi Yojana – This scheme was started to promote the education of girls. Parents or legal guardians of a girl child can open an account and invest in this plan. The interest earned on the amount is not taxable.
These exemptions apply only to individual taxpayers and Hindu Undivided Families. Businesses and corporate bodies cannot avail of these exemptions.
When you are filing taxes or income tax returns, you are expected to provide relevant documents as proof for these investments. These are benefits provided by the government for your financial growth. Apart from saving money, all the investments help you safeguard your future. Be aware of the choices at your disposal and exercise your rights to get the maximum benefits!