When it comes to income tax, people view it as a financial burden and lack of knowledge about tax-planning adds to the stress. A majority of the taxpayers in the country struggle hard to find a perfect tax-saving scheme to reap the benefits. Understand your risk appetite first and then look for a scheme that suits your needs. There are a host of legitimate ways of saving tax under the Income Tax Act, 1961. Whether you are a salaried individual or an entrepreneur or whether you make a rental income, or earn an income from your investments, you have to pay taxes to the government. To help you in this regard, Section 80C, 80D, 80E and 80G of the Income Tax Act list the ways you can save on taxes. These include:
- Tax saving Mutual Funds (ELSS), Fixed Deposit, Public Provident Fund, National Pension System, National Saving Certificate, Health Insurance Premiums, Senior Citizen Savings Scheme, Sukanya Samriddhi Yojana, Home Loan Repayment and Tuition Fee Payment under section 80C of the Income Tax Act: Tax Deductions up to Rs.1.5 lakh
- Medical Insurance Premiums under Section 80D of the Income Tax Act: Tax Deductions up to Rs.1lakh
- Interest paid on Home Loans taken by first-time borrowers Under Section 80EE of the Income Tax Act:Tax Deductions up to Rs.50,000. Also, interest paid on education loan for higher education:No limit is set
- Donations made to Charitable Organizations under Section 80G of the Income Tax Act: For donations above ₹2,000 to qualify as a tax deduction, the contribution has to be made using other modes of payment. The various contributions are eligible for a deduction of up to either 100% or 50%, with or without restriction, under Section 80G.
- A House Rent Allowance (HRA) as a component of your salary under Section 80GG of the Income Tax Act: Tax Deductions up to Rs.60,000
- The interest earned on a savings bank account under Section 80TTA of the Income Tax Act:Tax Deductions up to Rs.10,000
- Different-abled individuals or a family member with a disability to claim tax benefits under Section 80DD of the Income Tax Act: Tax Deductions up to Rs.1,25,000
- Deductions on medical expenses incurred to treat specific ailments Under Section 80DDB of the Income Tax Act: Tax Deductions up to Rs.1lakh
- Individuals who have been certified to be at least 40% disabled by relevant medical authorities according to government rules under Section 80U of the Income Tax Act: Tax Deductions up to Rs.1,25,000
- Individuals to claim tax deductions on contributions made to political parties registered under Section 29A of the Representation of the People Act, 1951 and electoral trusts under Section 80GGC of the Income Tax Act:100% of your contribution is eligible to qualify as a deduction
Read Also – How to File Income Tax Return
Save Up to Rs.1.5 lakh Under Section 80C of the Income Tax Act
Section 80C of the Income Tax allows you to save up to Rs.1.5 lakh, maximum amongst all tax saving schemes. So, let’s know more about the same in this post.
Best Tax Savings Investments Under Section 80C at a Glance
|Investment Schemes||Returns||Lock-in Period|
|Tax Saver Fixed Deposit||6%-7%||5 Years|
|Equity Linked Savings Scheme Funds||Vary from Fund to Fund||3 Years|
|Public Provident Fund||7%-8%||15 Years|
|National Saving Certificate||7%-8%||5 Years|
|National Pension System||12%-14%||Till Retirement|
|Senior Citizen Savings Scheme||8.7%||5 Years|
|Employee Provident Fund||8.50%||It can be closed while quitting job permanently. It can be transferred while changing companies till retirement.|
|Home Loan Repayment||NA||There is no lock-in period in a home loan. Usually, a home loan can be availed for 30 years|
|Payment of Tuition Fees||NA||NA|
|Sukanya Samriddhi Yojana||8.5%||NA|
How to Save Income Tax in India: All You Need to Know
Tax Saver Fixed Deposits: 5-year tax-saver FDs allow you to claim a deduction of up to Rs.1.5 lakh. These deposits have a fixed rate of interest, currently between 7%-8%. The Interest portion on FDs is taxable.
Equity Linked Savings Scheme Funds: ELSS is a type of mutual fund, which invests a minimum of 80% in equity funds. These mutual funds come with a 3-year lock-in period with returns subject to Long term Capital Gains Tax at 10% with an exemption limit of Rs.1 lakh.
Public Provident Fund: PPF is a government-linked savings scheme with a lock-in period of 15 years. It can easily be availed at many banks and post offices in India, giving tax benefits of up to Rs.1.5 lakh on the Interest.
National Saving Certificate: NSC is launched by the government, primarily used for small as well as income tax savings. It comes with two fixed maturity periods, i.e 5 years and 10 years along with a fixed rate of interest. It can easily be opened in a post office with an Interest portion of giving the tax benefit of up to Rs.1.5 lakh.
National Pension System: It is a defined contribution pension system in which the contributions are invested in a mix of assets and the retirement corpus is dependent on the returns from those assets. Under NPS, an investor can open two accounts-Tier l and Tier ll. On turning 60, an investor can exit from the NPS but 40% of the pension wealth has to be utilised for the purchase of an annuity. This deduction is available under Section 80CCD up to Rs 1.5 lakh for contributions to NPS.
Senior Citizen Savings Scheme: It is a popular small savings scheme meant for senior citizens. It has a maturity period of 5 years and helps in earning a regular income in retirement year. Any number of accounts can be opened in any post office subject to a maximum investment limit of Rs.15 lakh by adding balance in all accounts. The account can be extended for 3 years after maturity. Contribution to the SCSS is tax deductible up to Rs 1.5 lakh.
Employee Provident Fund: Under the Employee Provident Fund Act, 12% of the pay of employees in the organised sector is deducted towards the Employees Provident Fund. This deduction counts towards the Rs 1.5 lakh limit under Section 80C of the Income Tax Act.
Home Loan Repayment: If you have taken a home loan, the part of EMI that goes towards repaying the principal amount is eligible for tax deductions. The amount you pay as interest does not qualify for tax deductions in this section.
Payment of Tuition Fees: You can claim tax deductions up to ₹1.5 lakh on tuition fees paid for your child’s education. This benefit is only available to individual parents or guardians and a maximum of two children per individual. The deduction does not depend on the class of the child. However, it must be a full-time education course in an Indian school, college or university. Parents of adopted children, unmarried individuals and divorced parents can also claim these benefits.
Sukanya Samriddhi Yojana: Parents of a girl child below the age of 10 can get this deduction. This account has a tenure of 21 years or until the girl marries after turning 18. The investments made on the Principal for this scheme are eligible for tax deduction up to Rs.1.5 lakh.
Now that you know about the tax savings schemes, it is also important for you to know your risk appetite and then plan your finances for maximum tax benefits.
Here are a few recommendations based on your risk appetite:
High Risk Appetite: If you are an aggressive investor and are looking for high returns along with tax benefits under Section 80C, you can consider investing a total of Rs.1.5 lakh per year in ELSS. It is a tax saving mutual fund that has the potential to offer double-digit returns. In other words, you can avail tax benefits in the short-term and earn good returns in the long-term.
Medium Risk Appetite: If you have a moderate risk appetite, you can invest a portion of your money in ELSS and the rest in Public Provident Fund (PPF) and/or tax-saving fixed deposits. This strategy gives you the required tax benefits under Section 80C and also helps you balance your risk and returns.
Low Risk Appetite: If you are totally risk-averse, you can invest in tax saving fixed deposits or PPF. Here, you can avail the tax deductions of Rs.1.5 lakh under Section 80C and the risk exposure on these avenues is minimal. However, these avenues offer fixed returns, the rate of return can be quite low (just between 6-8%). This can be a problem if you take inflation into consideration.
How to Apply for Tax Saving Schemes
You can anytime open the account either in a bank branch or post office. Almost every bank and post office in the country offers these tax saving schemes. Just check your eligibility and bring all the required documents to apply easily for these tax savings schemes.
Eligibility Criteria and Documents Required of Tax Saving Schemes
|Tax Saving Schemes||Eligibility Criteria||Documents Required|
|Tax Saver Fixed Deposits||-Residents|
-Hindu undivided families
|Identity Proof: |
-Passport PAN card
-Voter ID card
-Government ID card
– Senior citizen ID card
-Bank Statement with ChequeCertificate/ ID card issued by Post office
|Equity Linked Savings Scheme Funds||– Residents|
– Hindu undivided families
|Public Provident Fund||Any Indian Citizen||-Identity Proof |
-Passport Size Photographs
-Pay-in-Slip (available at bank branch/post office) Nomination Form
|National Saving Certificate||– The individual must be an Indian citizen.|
– There is no age limit for individuals in order to purchase a certificate.
– Non-resident Indians cannot invest in NSC.
– Investments can be made with another adult or individuals can buy an NSC on behalf of a minor.
|Identity Proof: |
-Permanent Account Number (PAN) Card,
-Senior Citizen ID or Government ID for verification.
-Bank statement along with a cheque as well as a Certificate or an ID card that has been issued by the Post OfficeThe investor must submit a photograph.
-NSC Application Form
|National Pension System||Any citizen of India between the age of 18 to 65 can open NPS account by visiting any POP-SP||Identity Proof: Passport, Aadhaar Card, Ration Card , Voter ID , Driving Licence, Utility Bills|
Address Proof: Passport, Aadhaar Card, Ration Card , Voter ID , Driving Licence, Utility Bills
|Senior Citizen Savings Scheme||– An individual who has attained the age of 60 years or above at the time of opening an SCSS account.Individuals who have attained the age of 55 years old, but are below the age of 60 years old and have retired on superannuation are eligible to open an SCSS account. |
– Individuals who have attained the age of 55 years old and have retired before the implementation of the SCSS rules are eligible under the scheme.
– Under the SCSS, retired Defence Services personnel are eligible irrespective of their age. However, certain other specific conditions must be met by these individuals
|Two passport-size photographsForm A must be completely filled and submitted|
Identity Proof: Passport or Permanent Account Number (PAN) Card must be submitted
Address Proof: Aadhaar Card or telephone bill
Age Proof: PAN Card, Voter ID, Birth Certificate, Senior Citizen Card, or Passport
|Employee Provident Fund||– Indian citizens are eligible to open a PPF account. |
– An individual can open only one account under his/her name.
-However, another account can be opened by the individual on behalf of a minor.
Passport Size Photographs
Pay-in-Slip (available at bank branch/post office)
|Home Loan Repayment||– Any Salaried or self-employed Individual aged between 21-65 years|
– Minimum income should be Rs.1,80,000 per annum
– An applicant should have 2-3 years of current job or business stability experience
|Filled home loan application form|
Identity Proof: Aadhaar Card/ Passport /PAN Card/ Voter ID Card /Driving License
Address Proof: Passport/Aadhaar Card /Utility Bill
Residence Ownership Proof: Property Documents/Maintenance Bill/Electricity Bill
Income Proof: Latest 3 months Salary Slips and Form 16 OR Latest 3 years Income Tax Returns including Computation of Income, Profit and Loss Account, Balance Sheet, Audit Report, etc.
Business Existence Proof: 3 years old Saral Copy /Shop Establishment Act /Any Tax Registration Copy /Company Registration license
Job Continuity Proof: Current Employment Certificate /Current Job Appointment letter (if more than 2 years)/Experience Certificate (including your previous job certificate or appointment and relieving letter)
Bank Statements: Latest 1 year statement where your salary is getting credited
Property Documents: Copy of agreement executed / Sale Deed, Share Certificate, Latest Maintenance Bill, List of documents & sanction letter given by Existing Banker (If applicable)
FixedDeposit/Shares/Fixed Assets, etc.Advance Processing ChequePassport size photograph/s
|Payment of Tuition Fees||Any Indian citizen||School Fee receipt for the entire year Filled in Form 12BB to their employer (salaried)|
|Sukanya Samriddhi Yojana||– Only girl children are eligible to hold the Sukanya Samriddhi account. |
– The maximum age of a girl child should not be more than 10 years.
– Proof of age of the girl child needs to be attached.
Parents and legal guardians are eligible to open the Sukanya Samriddhi account on behalf of their children.
– One legal guardian/parent is eligible to open a maximum two accounts.
|– Sukanya Samriddhi Yojana Account Opening Form |
– Birth certificate of the girl child (account beneficiary)
– Identity proof of the depositor (parent or legal guardian), i.e., PAN card, ration card, driving licence, passport.
– Address proof of the depositor (parent or legal guardian), i.e., passport, ration card, electricity bill, telephone bill, driving licence.