We are now in the last quarter of the current fiscal year and this is the time when most people look for tax deductions and investments through which they can save their hard-earned money from tax.
Needless to say, this is not an effective approach to save tax as it only leads to last-moment chaos. This not only leads to fewer savings but also in an inability to save what you actually would have if you had planned earlier.
Here is a quick guide on how you can invest in instruments listed under section 80C of the Income Tax Act 1961. Check your eligibility for various options and invest right all through the fiscal year.
If the government is charging for tax, it is also providing the option to save tax. The most effective tax-saving instruments defined under section 80C are listed below.
Traditional Life Insurance
If you invest some of your amount in a life insurance policy, it provides you live coverage as well as lets you exempt that amount from tax if it is limited to Rs 1,50,000. The limit was Rs 100,000 till a previous year and it has been revised in the Budget 2014 to Rs 1,50,000.
Unit-linked Insurance Plans
The unit-linked insurance plan gives you protection as well as lets you invest some of the amounts in equity or debt instruments, which depends on your risk appetite. The good news is that the maturity amount received by you or the nominee is tax-free.
EPF stands for Employee Provident Fund and PPF stands for Public Provident Fund. Investing in EPF/PPF lets you save for retirement. Similar to life insurance premium, the amount saved in these schemes as well, lets you avail tax exemption and the limit should not exceed Rs 1.5 lakh.
NSC or National Saving Certificate is the investment in a government savings bond. You gather interest when you buy them for a specific duration that is, 8.5 percent per annum for 5 years investment and 8.8 percent per annum for 10 years investment. These savings instruments can be purchased from the post office. To get the exemption on accrued interest as well, you need to re-invest it. However, if the exempted amount exceeds Rs 1,50,000, it would be taxable.
Fixed deposits with banks and post offices also offer tax exemption but the lock-in period for these deposits should be 5 years. The banks have been demanding to decrease the lock-in period to 3 years so that people prefer bank deposits as well, as a viable option to invest.
Senior Citizens Savings Scheme
An individual with the age of 60 or above can only apply for this scheme. It is one of the most profitable schemes as it offers the interest rate of 9.2 percent per annum but again this interest is payable quarterly and is not compounded if it is not claimed. The interest accrued is taxable.
National Pension Scheme (NPS)
NPS is compulsory for government employees. Other individuals can apply for this scheme voluntarily if they belong to the age range of 18 to 55 years. The government contributes an equal amount to that contributed by the government employee, which is 10 percent of basic pay. No amount is contributed to other individuals.
Equity-linked Savings Schemes
Equity-linked savings schemes, in short ELSS, are the 100-per cent diversified equity funds. These schemes are also called as mutual fund schemes or tax-saving mutual funds. They come in with a lock-in period of 3 years. You can direct your savings, which should be at least Rs. 500 every month, towards ELSS through a systematic investment plan (SIP). There is no eligibility criterion to invest in ELSS.
You can get tax-exemption if you are paying tuition fees for a maximum of two children. The exemption is specifically limited to the institutional tuition fee. That is, it does not cover fees paid towards coaching or private tuition. The school, college or university should be within the country itself. Hindu Undivided Family (HUF) is not allowed to take exemption through tuition fees.
If you are paying installment for a house loan, you are eligible to get tax exemptions under section 80C for the payment of the principal amount. The exemption on the interest paid by you can be claimed through Section 24 under the Income Tax Act. If there is a second house loan, the exemption would be allowed on the principal amount paid back for the house you are occupying.
You can plan your investment in the above-listed instruments as per your need and age. The point is, in whichever option or combination of instruments you choose to invest, the amount invested should not exceed Rs 1,50,000 or else the difference will be taxable.