Save Income Tax : Income Tax Saving Instrument
1. Equity Linked Saving schemes :
ELSS is an instrument sold by mutual funds for the specific purpose of enabling taxpayers to save their taxes. The proceeds from ELSS are mostly invested in the stock market so that the investors get the benefit of appreciation in stock prices, thereby making the stock market work for investors. The tax deduction for ELSS is available under section 80C of the Income Tax Act 1961 and the maximum amount invested in ELSS which will qualify for tax deduction is Rs, 1, 00,000 in any one given year, subject to the amount invested in other instruments qualifying for such deductions. Some of them include Birla Tax Plan 98, Franklin India Tax shields (97, 98, 99), SBI Magnum Tax gain, etc.
2. Life and Medical Insurance Plans:
Life Insurance Policies have long been the most popular tax saving instruments among tax payers. Insurance policies offer twin advantage for tax deductions on premium paid and insurance cover for the insurer and his family in the event of a financially debilitating event such as accident, death, etc.The premium paid on life insurance policies qualify for tax deductions under section 80C, subject to a maximum of Rs.1 lakh per annum.Most companies offering Life Insurance also offer medical insurance policies as well as pension plans which offer tax deduction under section 80D, subject to a maximum of Rs.10,000(rs.15000 for senior citizens above 65 years of age) in a year.
3.Housing Loan:
The tax deduction on both the principal and the interest paid (during the financial year)on the loan is available .The maximum deductible on account of interest paid on housing loan during the financial year is RS.1.50 LAKH UNDER SECTION 24(B), While the maximum amount deductible on account of principal repayment of housing loan is Rs1 Lakh under section 80C.Hence a tax payer who has taken the housing loan is eligible for deduction of a maximum amount of rs.2.50 lakh on account of principal repayment and interest paid on housing loan.
4. Public Provident Fund:
The contributions made to the Employees provident fund (EPF) and Public Provident Fund (PPF) are also eligible for tax deductions under section 80C.While the contribut6ion paid to EPF by the employees are subject to the overall ceiling ofRs.1 Lakh under section 80C.The contributions made to PPF are subject to a maximum of Rs 70,000 under section 80C.
5. National Savings Certificate:
It can be bought at any post offices in the country. While there is no upper limit for investment, the tax deduction on NSC is available subject to overall limit of Rs.1 lakh under section 80C.The tenure of investment is 6 years and the rate of interest is 8 percent(compounded half-yearly). Unlike investment in PPF, no premature withdrawal of the amount is permissible in the case of NSCs.
6. Term Deposits and Bonds
Many of the commercial banks have fixed deposit schemes which qualify for tax deductions. These deposits have a lock-in-period of five years and a coupon rate of 8-9 percent. Investments in these deposits are subject to the overall ceiling limit of rs.1 lakh per annum under section 80C.Eg.Infrastructure bonds floated by government and public sector companies.
There are other specified expenses such as registration charges and stamp duty paid on house property, tuition fees for children’s education, among others, which qualify for deductions under section 80C. Under other sections, expenses like conveyance allowance, food coupons etc also qualify for deductions. There are also special deductions/concessions for senior and disabled tax payers.
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