Tax Planning in line with Investments, Savings and Insurance

Tax Planning is an essential component of Personal Finance. Many individuals aren’t aware of the effects of a well thought off strategy for tax planning. No matter which tax bracket that an individual falls under, tax planning helps in saving excess taxes paid to the government. Don’t worry; these are all legal and ethical ways of saving your tax payments.

Only if one is aware of the provisions under the Income Tax Act, 1961 can he/she make save taxes to the optimum.  The Income Tax Act allows for certain deductions from one’s Gross Total Income which can be claimed to save tax at the time of filing for Income Tax Return. This write up is an effort towards providing you with information of regarding the various sections of the Income Tax Act that provide a cover from tax deductions. This write up is helpful for investors, professionals, businessmen as well as salaried individuals. Efficient tax planning must be part of everyone’s ‘To Do’ list. Having said that, tax planning should not be done in isolation, it should be in line with the saving and investment targets that one has set for himself/herself.

Section 80C, Section 80 CCC and section 80 CCD:

Let’s first focus on Section 80 C of the Income Tax Act, 1961. Most individuals already know of the provisions under the Income Tax Act under 80C as it provides the maximum limit up to which one can claim deductions through savings and investments. There are many options for the investor who can avail such benefits:

  • PPF Investments
  • EPF & VPF Investments
  • National Savings Certificates (NSC)
  • Equity Linked Saving Schemes
  • Life Insurance Cover
  • 5 year tax saving FDs
  • Sukanya Samridhi Scheme
  • National Pension System

It should be noted that the aggregate deductions in all these schemes under section 80C, 80CCC and 80 CCD have a limit of INR 150,000, but this is apart from the National Pension System (NPS) Account. Contributions made towards the National Pension System Account offer an additional benefit of INR 50,000 over and above the INR 1,50,000 as under section 80 CCD (1b) of the Income Tax Act 1961.

Section 80 D:

This section of the income tax act provides for deductions from the Total Gross Income up to a maximum of INR 25000 for individuals below the age of 60 and INR 30000 for senior citizens. This has been put in place keeping in mind the increased cost of medical expenses.

In the case of senior citizens that are above the age of 80 (since they are unable to get health insurance coverage) all medical expenses up to INR 30,000 will be deductible from the Gross Total Income. But a claimant should keep in mind that the same has not been provided for by a Health Insurance taken his/her behalf by a family member. The sum of health insurance premium and medical expenditure incurred for such individuals would be limited to INR 30000.

The deductions under section 80 D can be availed by an individual as well as an HUF. The deductions mentioned above are for the year 2016-2017 and are subject to change as per the annual budget.

Section 80 E

This section of the income tax act provides for a deduction of the interest that is paid towards a loan taken for higher studies for yourself, a spouse or your child (or another child for whom you are the legal guardian). This deduction is entitled to only individuals, not HUFs or any other tax payers. Also the point to remember is that the deduction is only possible on the interest and not the principle amount of loan taken. It is also important that the loan taken should be from a Financial Institution or an ACI (Approved Charitable Organization). The plus point is that there aren’t any limits to the deductions under this section.

It should be noted that the deductions are allowed up till 8 years or till the interest is paid in full, whichever is earlier.

Section 80 EE:

This is another section that provides for deductions for the loan taken. This is for the home loan that is taken but only for the first time home buyers. In addition to this, the tax deduction benefit is only on the interest paid. It should be noted that the deduction under section 80EE is over and above the limit (of 2 lakhs) provided under section 24. Again, this deduction is only available to Individuals. The deduction limit per annum is 50000. There are no guidelines distinguishing between residents and non-resident Indians.

Section 80 TTA:

The interest that one earns on their savings in their savings account (not other deposits) is also deductible up to a limit of INR 10,000. This section is available to HUFs as well as Individuals. The condition is that the savings should be in the savings account of a Bank, Co-operative society engaged in banking activities, as well as a Post Office Savings Account. If the interest earned on the Bank deposit if over INR 10,000 then the balance over the prescribed account should be taxed.

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Samnivesh is a web portal through which it seeks to connect to individuals and families that are looking to invest in the Indian Capital Markets. An initiative by Elite Wealth Advisors Limited is an effort to disburse knowledge regarding Financial Planning, Investments in different products and Insurance. Today, there are a plethora of products that are available for the retail investor to invest his hard earned money: Secured and Unsecured NCDs, Debt and Equity Mutual Funds, ULIPs, Taxable and Tax free Bonds just to name a few...Read More

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