It’s that time of the year again.
The time when we need to make our tax saving investments.
This article is not going to tell you that you shouldn’t wait till the last minute (which you shouldn’t), that you should actually be making your tax saving investments diligently over the year (which you should) and that any tax oriented investments done now will not be properly planned (which they won’t be).
PersonalFN will, in short, not nag you.
We will only tell you what’s available, and what’s good for you, from a tax saving point of view.
When we think about making tax saving investments, the first thing that comes to mind is Section 80C.
But readers, slow down.
There are some things you need to keep in mind about Section 80C. And once we’ve gone through these things, we’ll see what else you can do, that does not involve making fresh investments, to save tax.
Let’s finish off with 80C first and then we’ll move on to other deductions you can use.
First, Know Your 80C.
The most common investments people think of, when they think of 80C are PPF and ELSS.
The split in most people’s minds is Rs. 70,000 into PPF and Rs. 30,000 into an ELSS fund.
But hang on.
- You’ve been contributing to your own Employee Provident Fund (EPF) all year.
Find out what this figure is from your friendly neighbourhood HR department, and make a note of it.
- Also, do you have a home loan? If yes, the principal repayment this year counts under 80C as well.
Call your bank / housing finance company and ask them for a copy of your amortization table to see how much principal you have repaid this year.
- Have you been sold a ULIP recently? If yes, then first read more about ULIPs and prepare yourself better, but also – your premium, or atleast part of your premium, is deductible under 80C too.
- Invested into any 5 year FDs in the last Financial Year? These funds count as well.
- Pension funds,
- National Savings Certificate,
- Senior Citizen Savings Scheme investments
- Investments into the National Pension Scheme
- Any life insurance premium you might be paying…
All of these investments are deductible under 80C.
Total up everything that applies to you, and now you’ll know what you have left to invest under 80C to meet your Rs. 1 lakh deductible limit.
Now that you know this, lets see where you can put this money.
- PPF: a well-loved retirement planning option. Earning interest of 8% per year, with tax deduction on the investment, and no tax on maturity, these are all great qualities. This is definitely a good investment option. Remember to limit your investment to Rs. 70,000 per year, any investment above this amount does not get any tax deduction..
- ELSS: You can invest up to Rs. 1 lakh into a good equity linked savings scheme, it has a lock in period of 3 years and is currently tax free on maturity as it is equity. When the Direct Tax Code comes out, this might or might not change, we will have to wait and see.
So remember, 80C involves a lot more than just PPF and ELSS. Remember to submit proof of investment when quoting 80C investments on your tax return. If you want details on all the options mentioned above, refer our article on Section 80C for more information. Remember to come back to this article and read the rest of it though.
Now we can see what else the IT Act has to offer.
New Section this year – 80CCF
This year only, you can invest into Long Term Infrastructure Bonds, and avail an extra Rs. 20,000 of tax deduction under Section 80CCF. If you’re in the 30% tax bracket, you will save roughly Rs. 6,000 on tax by investing into these bonds. They are launched by IFCI, LIC, IDFC, and any non banking finance corporation such as IDBI and REC. The funds are long term i.e. a minimum tenure of 10 years, and are offering approximately 8% per annum yield, but remember that interest earned is taxable. For more information on the bonds, see our article titled Should you invest in IDFC’s Long Term Infra Bonds. You have until March 31st, 2011 to invest into these bonds, for it to be eligible for deduction this year.
Got Health Insurance?
This is Section 80D.
A straightforward mediclaim policy can save you tax on the premium paid.
If you are paying premium for yourself, spouse and kids, you can avail up to Rs. 15,000 deduction per annum (Rs. 20,000 if you’re a senior citizen) and you can also avail deduction for premiums you are paying for your parents (Rs. 20,000 if they are senior citizens, Rs. 15,000 if they are not).
There’s a reason that the IT Act includes this deduction – because it’s important for people to have health insurance. So if you don’t have a simple mediclaim policy, do opt for one immediately and also make use of the tax benefits.
Taken an education loan?
This is Section 80E.
If you have taken an education loan for yourself, your spouse, your kids, or even of a child of whom you are a legal guardian, then every year you can avail a full deduction of the interest you are paying on the loan (capped at 8 years).
Living on rent?
Show your rent receipts to claim deduction using your HRA (House Rent Allowance) benefit available to you in your salary structure. You can avail the least of the following:
- Actual HRA received
- Rent paid in excess of 10% of your salary (Basic + DA)
- 50% of salary (Basic + DA) if you live in a metro, 40% of salary (Basic + DA) if you live in any other city
Claimed your medical bills reimbursement?
Like everybody else, you probably spend some money on medicines each year. Keep the bills (just like everybody else does), and claim a reimbursement up to Rs. 15,000 per financial year. This has to be on actual bills paid, and you have to produce the original bills. Speak to your HR department, they will ask you to fill up a simple form, produce the bills, and will adjust it with the allowance you are entitled to.
Took a holiday anytime in this past year?
Kept your travel expense records? You can claim your Leave Travel Allowance as an exemption as well, for travel within India, for yourself and your dependents who have travelled with you. Speak to your HR department, fill a small basic form, produce your tickets, and you can claim your LTA peacefully.
Also, apart from the above, do read our article on Popular Tax Saving Deductions to see even more options that are available to help you save tax.
Your Action Steps
Once you’ve done all these things, and saved tax because of them, remember, make your tax saving investments on time, and save yourself the trouble of running around at the last minute, and the unpleasant feeling of being nagged by your well-meaning financial planning company.
You can invest in your PPF and your ELSS through the year rather than at the very end. The next time you take a holiday, keep your travel expense records such as flight or train tickets for yourself and your dependents. Keep a shoe box aside to hang on to your medical bills through the year. And of course, plan your tax saving investments in line with your larger financial plan.