How can we Invest for Income Tax Savings?
The famous saying goes, ‘ A penny saved is a penny earned ‘. Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditures incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.
Recommended ways of saving taxes under Sec 80C,80D and 80EE
- Invest Rs 1.5 lakh under Sec 80C to reduce your taxable income. Additional deduction of Rs 50,000 can be claimed by investing in NPS under 80CCD (1b)
- Buy Medical Insurance, maximum deduction allowed is Rs. 1,00,000 (Rs 50,000 for self and family if senior citizen and Rs 50,000 for aged citizen parents) under Section 80D.
- Claim deduction up to Rs 50,000 on Home Loan Interest under Section 80EE
Investment options under Sec 80C
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act; section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year.
| Investment | Returns | Lock-in Period |
| 5-Year Bank Fixed Deposit | 6% to 7% | Five years |
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| National Savings Certificate | 7% to 8% | Five years |
| National Pension System (NPS) | 12% to 14% | Till Retirement |
| ELSS Funds | 15% to 18% | Three years |
| Unit Linked Insurance Plan (ULIP) | Varies with Plan Chosen | Five years |
| Sukanya Samriddhi Yojana (SSY) | 7.60% | N/A |
| Senior Citizen Saving Scheme (SCSS) | 7.40% | Five years |
Other Tax Saving options beyond Sec 80C
Apart from the 80C deductions, you can use various assumptions under Section 80 to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few-
- Medical insurance premium to be claimed at Rs. 50,000. (Rs 25000 for self spouse and children and Rs 25000 for dependent parents below 60 years). Claim medical insurance premium paid up to a maximum of Rs 1,00,000 per annum if availed for senior citizens. If senior citizens are not covered under any health insurance, then medical expenditure incurred can be claimed under 80D up to Rs 50,000
- Interest paid on a home loan can be claimed as a deduction under section 24 up to Rs 2 lakhs. Section 80EE also allows you to claim a deduction of up to Rs 50,000 on home loan interest, which is over and above the limit of section 24. Eligibility of additional interest of Rs 1.5 lakh on purchase of a new house under affordable housing scheme as per section 80EEA is extended till 31st March 2022
- A home loan would also help you in reducing your taxable income as the principal portion of the home loan can be claimed under Section 80C up to Rs 1.5 lakh, and the interest portion can be claimed as a deduction from income from house property
- Any charity to notified institutions or funds can be claimed as a deduction under section 80G
- Interest paid on education loans is allowed as deduction under section 80E
How to plan your tax-saving investments for the year
The best time to start planning your tax-saving investments is at the beginning of the financial year.
Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.
Use the following pointers to plan your tax-saving for the year:
- Check the tax-saving expenses you already have – like insurance premiums, children’s tuition fees, EPF contribution, home loan repayment etc.
- Deduct this amount from Rs 1.5 lakh to figure out how much to invest. You needn’t support the entire amount if expenses are covering the limit.
- Choose tax-saving investments based on your goals and risk profile. ELSS funds, PPF, NPS and fixed deposits are some of the popular options
This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year to spread the investments over the year. Doing this won’t burden you at the end of the year and allow you to make informed investment decisions.
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