Dr. Suresh Surana 

The deadline for making tax saving investments is 31 March. But, there is still time to adopt last minute tax saving tips to claims tax benefits offered by the Government. This article discusses some tax investment avenues which can be utilized before 31 March to lower one’s overall tax liability.

The most significant benefit is deduction under section 80C of the Income-tax Act under which investments in various savings instruments (public provident fund contribution/life insurance premium/national savings certificates/ 5 year term deposit with banks), repayment of housing loan and payment of tuition fees for children are eligible. Further, for those who are looking for attractive return as well as deduction over and above the limit of section 80C i.e. Rs. 1.5 lacs, contribution to the New Pension Scheme (section 80CCD (1B)) is appropriate. Apart from this, an Individual can make donations to charitable trusts and institutions and deduction under section 80G. Notably,  these deductions are allowed only on payment basis, i.e., if the investment/deposit  has to be actually made during the current financial year ending 31st March 2017 for  claiming benefit in the tax year 2016-17. Most importantly, even if investments could not be reported to the employer  on time  (as per employer’s policy ) and as a result, the same is not getting reflected in the Form no. 16, , these deduction can be legitimately claimed by an employee while filing his tax return for the tax year 2016-17. Also, specified professionals falling under presumptive taxation under section 44ADA (having a total gross receipts (‘Receipts’) not exceeding Rs. 50 lakhs) can claim deduction under Chapter VI-A ( 80C,80D etc.) Thus, even they can make investment in the eligible investment instruments by 31st March if they are yet to make these investments.

Apart from above, there are several other ways to lower tax burden. For instance, payment of Municipal tax before 31st March: Municipal taxes are allowed on payment basis. If municipal taxes relating to earlier years have been paid in the current financial year on or before 31st March, an Individual can also claim deduction for the entire amount.

Investments eligible for deduction under section 80C

Under Section 80C a wide range of tax preferences is available to an Individual. A salient feature of some of the tax saving investment instruments is as under:

Investment avenues Key  aspects
Equity Linked Saving Scheme

 

  • Depend upon market performance – about 12% per annum
  • Lock in period- 3 years. As return on investment is market-oriented and some risk is involved
  • Dividend and maturity tax exempt
Public Provident Fund (PPF)

 

  • Yield – around 8.1% p.a.
  • 15 years lock in period
  • Suitable for an individual with a zero risk appetite
  • Interest income tax exempt. No tax at the time of withdrawal
Sukanya Samriddhi Accounts
  • To be opened in the name of girl child. Max two. Girl child Account can be opened up to age of 10 years only from the date of birth.
  • Yield – 8.6 % p.a.
  • Account can be closed after completion of 21 years
  • Partial withdrawal permitted after Account holder’s attaining age of 18 years.
Senior Citizen Saving Scheme 2004 (SCSS)
  • Individuals above 60 years. (In certain cases above 55 years and NRIs are not allowed)
  • Yield – 8.6% p.a
  • Lock in period-5 years extendable by another 3 years
  • Suitable for an individual with a zero risk appetite
5- Year Term Deposits (Tax Saving)
  • Yield- Varies from time to time from bank to bank
  • Lock in period-5 years
  • TDS is applicable if interest exceeds 10,000 per annum per branch of each bank

Contribution to National Pension Schemes (80CCD)

Investments under the NPS scheme, up to 10% of gross income will be eligible for deduction under Sec.80CCD (1). This Sec.80CCD (1) is part of Sec.80C limit. Hence, the maximum tax benefit one can avail is Rs.1,50,000. Employer’s deductions will be claimed by employees under Sec.80CCD (2). Apart with above two tax benefits, one can claim additional Rs.50,000 tax benefit under Sec.80CCD (1B). This is over and above Sec.80C limit. Further, 40% of total corpus is exempt. Balance 60% is also exempt, if invested in annuity.

Health Insurance Premium (section 80D)

Section 80D provides for deduction available for health insurance premia paid. An Individual can claim deduction in respect of premium paid on the health of himself or family or parent which is calculated as under:

Persons for whom payment made Allowable Deduction (in Rs.)
Employee or his family Rs.25,000/
(Rs 30000/- for senior and very senior citizen)
Parent of employee Rs.25,000/
(Rs 30000/- for senior and very senior citizen)

Donations to charitable trusts and institutions and deduction under section 80G

An Individual who would like to claim further deduction from his gross total income can make donation to certain funds and charitable institutions. Generally, deduction is allowed @ 50% except in case of certain funds and institution such as PM’s Relief Funds, the National Children’s Fund, Swachh Bharat Kosh etc.

As can be seen that suitability of any tax saving instrument depends on various factors such as return, liquidity, risk appetite and tax treatment. Therefore, individual shall have to take into account all these aspects before making investment decision.

(Above are the views of Dr. Suresh Surana, Founder, Rsm Astute Consulting Group)

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Category : Income Tax (24916)
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Tags : Income Tax Tips (77) Section 80C (134) Tax Planning (56)

2 responses to “It’s Not Too Late To Save tax!”

  1. Alka Gurung says:

    With new financial year starting, saving tax should be the first agenda to address. Nice Article.

  2. Caji says:

    Thank you for providing valuable information on taxation. I would appreciate it if one could write specifically on NRI’s investments in equity, mutual funds and pension plans, bonds and PE investment.

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