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Tax Planning

Tax Planning: Various Income Tax Saving Plans

According to a wise old saying, “A penny saved is a penny earned”. By undertaking tax planning in India you can save a lot more than a few pretty pennies. Here are some legitimate avenues and tax planning tips, which can help you reduce the amount of tax that you pay…

Tax Saving Investment Avenues:

Equity Linked Saving Scheme [‘ELSS’]

– Under section 80C, ELSS refers to equity-oriented mutual fund schemes that invest in a diversified portfolio of Indian stocks. ELSS schemes can be purchased online and come with a lock-in period of 3 years.

House property – Principal Instalment and Interest paid

–In case you have taken a loan to buy property, you are eligible to get a tax deduction on the interest that you pay, to an unlimited extent [‘In case of let out properties’] under Section 24(b) and principal amount to the extent of INR 1 Lakh under Section 80C.

Life Insurance and Pension Plans –

To save tax, you can buy life insurance and other retirement / pension plan with or without life cover. However, policies are to be issued in Indian Rupees.The overall exemption available under Section 80C, 80CCC, 80CCD is Rs 1 lakh per annum.

Various tax saving schemes in India

Health insurance premium payment

– Non-residents can purchase health insurance policies in India for themselves, their family and also dependant parents and claim a deduction under section 80D for the premium paid up to Rs 15,000, in case of non-senior citizens and Rs 20,000 for senior citizens.

Donations for specified Donations -

Donation made to specified entities are eligible for a deduction under section 80G of upto 50% / 100%, depending upon the institution to which the donations are made.

Interest payment towards Educational loan

– If you have taken a loan from any bank/approved financial institution for higher studies (comprising full time as well as vocational studies pursued after passing senior secondary examinations studies) for yourself or any immediate family member (children, spouse), then the entire interest payable is eligible for deduction under section 80E. Know more about availing loans by improving your credit rating.

Unit Linked Insurance Plans (ULIPS):

These are typically insurance-cum-investment plans which enable you to invest in equity and/or debt instruments depending on what suits you as per your age, income, risk profile, and financial goals. All you simply need to do is, select the allocation option provided by the insurance company offering such a plan.

Generally, they are classified as “aggressive” (invests in equity), “moderate or balanced” (invests in debt as well as equity), and “conservative” (invests purely in debt instruments).

These policies have a minimum 5-year lock-in period, and also have a minimum premium paying term of 5 years. The overall term of the policy varies from product to product.

Deduction: The premium you pay for your ULIP is eligible for tax benefit, subject to the maximum eligible amount of Rs 1.50 lakh p.a. as available under Section 80C. Moreover, a positive point is that at maturity the amount you or your beneficiary receives is tax free (exempt) as per the provisions of Section 10(10D) of the Income Tax Act.

National Pension System (NPS):

National Pension System, available earlier only for Government employees, on May 1, 2009 was also introduced for people in the unorganised (private) sector, as there was a need for higher participation in pension contribution (through this product).

For NPS, if you (eligibility age: from 18 years to 60 years) belong to the unorganised sector (i.e. private sector); the contributions you make towards the scheme are voluntary, and you can invest in either the Tier I or Tier II account.

Deduction: Those who are salaried employees may claim deduction under Section 80C, for upto Rs 1.50 lakh for their own contributions towards NPS account. In addition to this, a deduction can be claimed under Section 80CCD, if there is any contribution made by the employer; upto 10% of their salary (for this purpose, salary construes as Basic Salary plus Dearness Allowance). It is noteworthy that the deduction under Section 80CCD can be claimed over and above the permissible deductions under Section 80C (Note: It is only if the employer contributes to employee for NPS – Section 80 CCD is applicable).

Other Tax Planning Instruments include PPF, NSC, etc.

However, if you have opened an account while you were still a resident, you can hold this till maturity.

Capital gains

You can legitimately avoid payment of long-term capital gains tax by investing the profit that you receive from sale of long term capital (as defined in the income tax act) in capital gains bonds such as NHAI or REC or investing in another property in accordance with section 54EC / Section 54 of the Act in case of sale of another residential house property. Use the income tax calculator and know how much you can save on various investments.

Let’s read more on different types of tax saving investments that are available today.

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