Tax Saving Investment Options and Deductions under Income Tax for Individual and HUF
I have brief the deductions available to Individual and Hindu Undivided Family for Assessment Year 2020-21.
To claim deduction in any year, it is necessary to invest in that year. Due to Covid Pandemic, Govt. has extended the date to 31.07.2020 for financial year 2019-2020 to make investment for deduction under chapter VI-A and section 54 to section 54GB.
Last chance for making investment for saving tax.
1. SECTION 80C: Following are the Investments eligible for deduction under section 80C.
1. LIFE INSURANCE PREMIUM
ELIGIBILITY: In case of an individual, Life insurance policy should be taken on his own life, life of the spouse or any child. Child may be dependent/independent, male/female, minor/major or married/unmarried. In the case of a Hindu Undivided Family, policy may be taken on the life of any member of the family.
Life insurance premium includes payment made by Government employees to the central government employees’ insurance scheme and payment made by a person under children’s deferred endowment assurance policy.
DEDUCTION LIMIT: The deduction is valid only if the premium is less than 10% of the sum assured.
Sum assured means minimum amount assured under the policy without including any premium agreed to be returned and/or any benefit by way of bonus.
2. PUBLIC PROVIDENT FUND
The Public Provident Fund (PPF) is a tax-free savings scheme which was launched by the Ministry of Finance (MoF). PPF is one of India’s most tax-efficient plans for salaried people.
ELIGIBILITY: In case of an individual, PPF account can open in his own name or in the name of minor of whom he is guardian. A HUF cannot open a PPF account.
INVESTMENT LIMIT: No limit prescribed under Income Tax Act. However, under the public provident fund scheme, the minimum and maximum contribution limit is Rs. 500 and Rs. 1, 50,000 respectively.
LOCK IN PERIOD: 15 Years
INTEREST RATE: Current interest rate is 7.1% p.a.
TAX TREATMENT: Interest earned is tax-free.
3. UNIT LINKED INSURANCE PLANS
A ULIP is an insurance plan where the premium paid is invested in equity, debt, or money market instruments.
ELIGIBILITY: In case of an individual, ULIP can be taken on his own life or spouse or any child. In case of HUF, ULIP can be taken on the life of any member of the family.
INVESTMENT LIMIT: No limit on maximum contribution
TAX TREATMENT: Investment and withdrawals & maturity amount are tax-free.
4. NATIONAL SAVINGS CERTIFICATES (NSC)
National Savings Certificate is a fixed income investment scheme that you can open with any post office.
ELIGIBILITY: Individual can invest in NSC investment scheme. Hindu Undivided Family can’t invest in it.
INTEREST RATE: Current interest rate is 6.8% p.a.
MATURITY PERIOD: 5 Years
INVESTMENT LIMIT: Minimum Rs. 1000 and no maximum limit on deposit.
TAX TREATMENT: Investment and accrued interest (for first 4 years) qualify for deduction. Final year’s interest are not eligible for tax deduction.
5. TAX SAVING FIXED DEPOSIT
Investment in fixed deposits are eligible for tax deduction under section 80C but here lock in period is 5 year.
ELIGIBILITY: Only Individuals and Hindu Undivided Families (HUFs) can invest in tax saving FD scheme.
LOCK IN PERIOD: 5 years
RATE OF INTEREST: Interest rate depends on bank to bank. Current interest rate is 5.5% to 7.0%.
INVESTMENT LIMIT: Minimum investment limit is Rs. 1000.
TAX TREATMENT: Interest earned on FD is taxable.
6. SUKANYA SAMRIDDHI YOJANA
The Sukanya Samriddhi Yojana (SSY) is as girl child prosperity scheme. SSY account is to ensure a bright future for girl children in India. This yojana is to facilitate them proper education and care free marriage expenses.
ELIGIBILITY: Legal guardian or parents of a girl child can open SSY Account under this scheme anytime at the time of birth of the child till she attains an age of ten years.
LIQUIDITY: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
RATE OF INTEREST: Interest rate on Sukanya Samriddhi Yojana is 8.5%.
INVESTMENT LIMIT: Minimum investment limit is Rs. 250 and maximum is Rs. 1,50,000.
TAX TREATMENT: Interest totally exempt from tax. Investment eligible for deduction under section 80C.
7. Other than above investment schemes, section 80C also prescribed other payments which is eligible for deduction under Income Tax Act.
- Payment in respect of non-commutable deferred annuity.
- Contribution towards statutory provident fund and recognized provident fund.
- Contribution towards an approved superannuation fund.
- Subscription towards notified units of Mutual Fund or UTI.
- Any sum paid as tuition fees whether at the time of admission or otherwise to any university/college/educational institution in India for full time education of any two children of an individual.
- Repayment of Housing Loan
- Investment in Senior Citizens Saving Scheme
Note:
- Investments/payments are eligible for deductions on payment basis.
- The maximum amount deductible under section 80C is Rs. 1, 50,000.
- Under section 80C, deduction is available from gross total income.
SECTION 80CCD: NATIONAL PENSION SYSTEM
Deduction for contribution to pension account
Employee’s contribution under section 80CCD (1)
Maximum deduction: 10% of salary in case of taxpayer is an employee or 20% of gross total income in case the taxpayer being self-employed.
Additional contribution to NPS under section 80CCD (1B)
Section 80CCD (1B) provides additional deduction in respect of any amount paid up to Rs. 50,000 towards NPS. On this contribution, the ceiling of Rs. 1, 50,000 under section 80CCE will not be applicable.
As per section 80CCE, the combined maximum limit for deduction which can be availed under section 80C, 80CCC and 80CCD (1) is Rs. 1, 50,000.
Employer’s contribution to NPS under section 80CCD (2)
Employer’s contribution to NPS is deductible under section 80CCD (2) in the hands of employee in the year in which contribution is made. Deduction is available up to 10% of the salary of the employee.
SECTION 80D
MEDICAL INSURANCE
ELIGIBILITY: an individual or a Hindu Undivided Family
MODE OF PAYMENT: Payment of medical insurance should be made by any mode other than cash. Payment of preventive health checkup can be made by any mode (including cash).
DEDUCTION LIMIT: Individual can claim a deduction of Rs. 25,000 under section 80D for medical insurance for self, spouse and dependent children. An additional deduction for insurance of parents is available up to Rs. 25,000, if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs. 50,000.
The aggregate payment on account of preventive health check-up of family can’t exceed Rs. 5,000/-
MEDICAL EXPENDITURE
MODE OF PAYMENT: Payment of medical expenditure should be made by any mode other than cash.
ELIGIBILITY: medical expenditure on the health of a person who is a senior citizen and medical insurance premium is not paid on the health of such person.
Senior citizen is a resident individual who is at least 60 years of age at any time during the previous year.
DEDUCTION LIMIT: Maximum amount of medical expenditure available for deduction under section 80D is Rs. 50,000.
OVERALL DEDUCTION UNDER SECTION 80D
Maximum amount of deduction under section 80D (medical insurance premium and medical expenditure) is Rs. 50,000 for family and Rs. 50,000 for parents. Total deduction is Rs. 1, 00,000.
SECTION 80EEA
INTEREST ON LOAN TAKEN FOR CERTAIN HOUSE PROPERTY
CONDITIONS:
- The assessee is an individual.
- The assessee is not eligible to claim any deduction under section 80EE.
- The assessee has taken loan for the purpose of acquisition of residential house property.
- Loan is sanctioned during 01.04.2019 to 31.03.2021.
- Stamp duty value of the residential house property on the date does not exceed Rs. 45 lakh.
- The assessee does not own any residential house property on the date of sanction of loan.
DEDUCTION: Interest payable on the loan or Rs. 1, 50,000 whichever is less.
SAME INTEREST IS NOT DEDUCTIBLE TWICE: if any individual claims deduction of interest under section 80EEA then such amount of interest is not eligible for deduction under section 24 (b) or any other provision of the Income Tax Act for the same year or any other assessment year.
SECTION 80EEB
INTEREST ON LOAN TAKEN FOR PURCHASE OF ELECTRIC VEHICLE
CONDITIONS
- The assessee is an individual
- The assessee has taken loan for the purpose of purchase of an electric vehicle.
- Loan is sanctioned during 01.04.2019 to 31.03.2023.
DEDUCTION: Interest payable on the loan or Rs. 1, 50,000 whichever is less.
SAME INTEREST IS NOT DEDUCTIBLE TWICE: if any individual claims deduction of interest under section 80EEB then such amount of interest is not eligible for deduction under provision of the Income Tax Act for the same year or any other assessment year.
SECTION 80GGC
CONTRIBUTION TO POLITICAL PARTY
ELIGIBILITY: any person
DEDUCTION: any amount of contribution eligible for deduction.
MODE OF PAYMENT: any mode of payment other than cash.
SECTION 80TTA – INTEREST ON SAVINGS ACCOUNTS
ELIGIBILITY: an individual or a HUF but not senior citizen
DEDUCTION: Interest earned or Rs. 10,000, whichever is lower.
First you have to show interest income in Other Income after that you can claim this deduction.
Which interest deduction is available?
Interest on deposits in a savings accounts with-
1. a banking company
2. a co-operative society engaged in carrying on the business of banking
3. a post office
SECTION 80TTB
INTEREST ON DEPOSITS IN CASE OF SENIOR CITIZENS
ELIGIBILITY: Assessee is a senior citizen
DEDUCTION: interest earned or Rs. 50,000, whichever is lower.
First you have to show interest income in Other Income after that you can claim this deduction.
Which interest deduction is available?
Interest on deposits with a bank/co-operative bank/post office. It may be interest on fixed deposits, interest on savings account or any other interest.
SECTION 24 (b) – INTEREST ON HOME LOAN FOR THE PROPERTY
Owners can claim a deduction of up to Rs. 2, 00,000 on their home loan interest, if the owner or his family reside in the house property. If the property is rented, then the entire interest on the home loan will eligible for deduction.
Author Bio
Under section 80c for tax saving fd eligibility you have mentioned is only for resident individual. Isn’t huf also included?