Finance Minister Piyush Goyal said individuals earning up to Rs 9.5 lakh can escape liability by taking advantage of saving schemes.  Probably he is referring to below saving schemes mentioned below.

Section Particulars Limit
80C PF / VPF / PPF/NSC/FD/MF 1,50,000/-
80CCD(1b) Additional NPS Contribution (External Investment) 50,000/-
80D Medical Insurance – Self 25,000
80D Medical Insurance – Parents 25,000
80E Education Loan Interest Benefit No limit
24 Loss on Self-Occupied house property & Let out House Property (Housing loan interest) 2,00,000

However, one critical assumption made by the minister is that individual needs to have a very high rate of saving to achieve the zero-tax status.

So, you need to invest 2,50,000 /- under 80C, 80D and 80CCD1B and pay interest of 2 lakhs. IF we assume principle component of 30,000 for home loan, total cash outflow would be more than 4,75,000/- a staggering saving rate of more than 50%

If your monthly expenses are high and you cannot afford such high saving rates, investment recycling can be your savior. Here are some ways to get a tax benefit without blocking your capital for long duration.

Section 80C Investments

You can easily meet your 80C investment limit without investing any fresh cash, below are few tips you can use.

Tuition Fees

An individual can claim a deduction up to Rs.1,50,000/- in respect of tuition fees paid to any university, college, school or other educational institution situated in India, for full-time education of any two children of the employee.  full-time education includes play-school activities, pre-nursery and nursery classes.

So, get all your school/college fee receipts and ensure you consider this amount for the 80C limit.

Principle repayment of housing loan

Not only the interest component but also principle paid to financial institutions is allowed as deduction under 80C.

So, check the provisional certificate provided by the financial institution/Bank and consider this amount for the 80C limit.

Employee PF contribution

You are required to contribute 12 % of basic to your PF account and the government rewards you by allowing such contribution as deduction under 80C

So, check your pays lips and calculate the amount which needs to be considered for 80C limit

The above is mandatory spends which also give you a tax benefit in terms of 80C, you can also redeem and reinvest your previous investments to claim tax deductions.

Equity Linked Saving Scheme (ELSS)

After the re-introduction of long-term capital gains (LTCG) tax, individuals need to pay a tax of 10 per cent on capital gains exceeding Rs 1 lakh in a financial year.  If you do not sell any equity/mutual fund with LTCG your limit for that year gets wasted.

Hence make the most of your previous years ELSS investments which have completed 3 years. Sell them and book LTCG and avoid additional cash outflow in current year.

Term Deposits, NSC certificate, Infra bonds

Roll over your Term Deposits, NSC certificate and infra bonds after maturity, if you plan well, in few years, you can create a self-sustaining portfolio which will meet your 80C limits without contributing a single penny in future.

Section 80D – Mediclaim

There are two types of Mediclaim available in the market with OPD and without OPD, do your math and check if it makes sense to go for OPD cover.

If the insurance company allows for spectacles and normal doctor consultation charges to be claimed, you can pay a higher premium and get the income tax deduction and your OPD expenses would be paid by the insurance company tax-free.

There are plans that allow upto 50% of premium to be claimed as OPD charges after a waiting period, so check them out and save more tax.

Buy a house

The government provides subsidy of more than 2,00,000 /- under PMAY and provides you with tax-break for both principle and interest deduction.

You can further reduce you cash outflow, by taking loan from your parents or asking them to prepay the loan and then pay interest to them, these would reduce your external loan liability and would give you deduction for interest under income tax.

So plan out your investments and ensure that tax-saving does not come in the way of enjoying a decent standard of living.

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Company: Asian Paints
Location: Mumbai, Maharashtra, IN
Member Since: 05 Nov 2018 | Total Posts: 2
He is a chartered accountant since 2011 and has cleared all his CA & CFA (US) exams in first attempt. He is passionate about educating people on personnel finance View Full Profile

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June 2021