Investments & Tax Saving

Every year we get reminders from our employer that we need to submit our investment proof. However, employers start asking about it from the month of January. This is March end and you must be thinking that it’s too late to plan now, but the fact of the matter is – it’s always better to be safe than sorry and regretting in future. It’s never too late but on the same hand, it’s also true that it is high time when you should plan your investments for tax saving. 

In the hurry to complete the tax-saving exercise on time, many of us often end up making several mistakes. These mistakes include investing in profiles/products without knowing the pros and cons. Another mistake that most of us do is not utilizing the Income-tax deductions and exemptions allowed under various sections of the Indian Income-tax act.

Let us not worry, here is a quick guide that can help you to plan your investments from both perspectives which are tax-saving and returns from the investments made. 

Section 80C

Section 80C of the Income Tax Act allows you to reduce your tax liabilities by providing a tax exemption on your total taxable income. 

Under this, a taxpayer can claim a deduction benefits on their investments, contribution towards financial products and schemes. The maximum deduction allowed under Section 80C is ₹1,50,000 in a financial year.

Investments which you can make under this scheme are- 

  • Tax-saving FDs
  • National Savings Certificates
  • Public Provident Fund
  • Term Life insurance
  • Senior Citizen Savings Scheme
  • National Pension System
  • Home loan repayment
  • The tuition fee of your Kids

Section 80CCD

Section 80CCD allows taxpayers to claim a tax deduction of the investments made under the National Pension System (NPS). There are again two subsections under which you can claim the deduction- 

Section 80CCD (1):

  • Any Indian citizen between the age of 18 and 60 years can invest in NPS and avail a tax benefit under this section. 
  • The maximum deduction one can avail under this section is 10% of their salary (basic salary + DA). And self-employed individuals can avail the benefit which is- 20% of their gross total income. However, the maximum benefits one can avail of under this section is ₹1.5 lakh.

Section 80CCD (1b):

  • Under this subsection, one can avail an additional deduction of ₹50,000 on the investments made in NPS. No need to get confused as this is over and above the ₹1.5 lakh benefit availed under Section 80CCD(1). 

So, the plus point with Section 80CCD is you can avail of a total tax deduction of ₹2 lakh for investments made under NPS.

Section 80D

Under Section 80D of the Income Tax Act, you can claim deductions for the premiums paid against your medical insurance. This can be availed for the insurances bought for yourself, spouse, children, and parents. This deduction is over and above exemptions made under Section 80C. So, if you have health insurance you can save up to ₹15,000 to ₹ 20,000 (depending upon your premiums).

Section 80EE

Section 80EE of the Income Tax Act, allows you to save some tax on the interest paid for your home loan. This is applicable only for the first-time homebuyer. It has some special category, and you fall in one -you can claim a tax deduction up to ₹50,000 under section 80EE. This deduction limit is again over and above the limit provided under section 80C. 

Section 24 A

Under this section, an individual who is repaying a home loan can claim a deduction for the interest portion, from his total income up to a maximum of ₹ 2 lakh.

Tax Exemption on HRA

Claiming the HRA tax exemption can again save some money. To avail tax exemptions on the HRA, you need to submit rent receipts to your employer. It also needs the landlord’s Permanent Account Number (PAN) if the rent paid is more than Rs 1 lakh annually.

Here are some quick tips which can help you to plan your investments:

  • Choose your investment wisely – consider both tax savings and returns.
  • Calculate how much you need to invest to save on taxes.
  • Don’t rush, give time and enquire more about the investments and tax rebates.
  • Don’t forget to claim HRA benefits
  • Submit your tax-saving proofs to your employer to avoid excess TDS deduction.