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Top 5 Tax Saving Investment Plans

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by: No more debt !
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Date: Mon, 18 Jan 2016 Time: 12:19 AM

Read on to find the top five tax saving investment plans that could get you to the moon, figuratively and literally.

1. Home Loan Principle
you may wonder how a home loan can be an investment vehicle. A loan is a liability, but a home loan, being a financial assistance for an appreciating asset (like a real estate investment), the principal portion of a home loan repayment works as an investment.
The principal amount paid on any home loan can be used for availing tax benefits with a maximum deduction of Rs 1, 50,000 under Section 80C of the Income Tax Act. But before you get all set to avail the deduction, it is essential to know that this deduction is not available for any principal amount paid for a property under construction. The deduction is also available only for residential properties and not for commercial properties. The total deduction here is inclusive of all other financial instruments offering tax deductions under Section 80C.

2. Tax Saving Mutual Funds or ELSS
ELSS or Equity Linked Saving Scheme is one of the most popular taxes saving instruments that offers handsome returns. ELSS is a diversified equity mutual fund that has a three year lock in period, which is the shortest amid all tax saving instruments. You can save up to Rs.1 lakh on tax under the ELSS scheme.
ELSS funds give returns ranging from 13 per cent to 22 per cent per annum, depending on the type of fund. The average returns of ELSS funds have been around 17.5 per cent. You can join an ELSS fund with a minimum investment of Rs.500 a month as SIP. Any returns received from equity funds after one year are also tax free.

3. Tax Saving Fixed Deposits
Tax Saving Fixed Deposits allow you to save tax up to Rs.1 lakh under Section 80C of the Income Tax Act. However, the interest earned from these fixed deposits is taxable as per your income tax slab. Tax Saving Fixed Deposits come with a 5 year lock in period with an average return ranging from 8 per cent to 9 per cent per annum.
Banks do not offer any overdraft facility on these fixed deposit investments, unlike normal FDs. The interest for tax saving fixed deposits is generally compounded quarterly and gets reinvested into the fixed deposit along with the principal amount.

4. National Savings Certificates (NSC)
National Savings Certificates are also tax free deposits allowing you to save up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. Any deposits made under NSC, however, are not tax free as understood wrongly by many investors. But the interest earned can be re-invested to save tax under the same section.
NSC investments can be made at your nearest post office.  NSC investments come with options of a lock-in period for 5 years and 10 years. The rate of interest for investments made under NSC is fixed at 8.50 per cent for five years and 8.8 per cent for ten years. The minimum investment here can be as low as Rs.100.

5. Rajiv Gandhi Equity Saving Scheme (RGESS)
Rajiv Gandhi Equity Saving Scheme (RGESS) offers tax saving fixed deposit up to 50 per cent of the invested amount for the first year for a first time investor. So if you are a first time investor, you can claim a deduction of 50 percent of the invested amount subject to a maximum deduction of Rs. 50,000. However, the deduction can be claimed by only those who have an annual income below 10 lakhs.
The attraction of RGESS is that the deduction offered under it is applicable for money over and above the Rs. 1.5 Lakhs limit available under Section 80C. This scheme has reported returns of about 9.6per cent during the last financial year.

Do not miss these Tax Deductions

The financial year close is behind us and the tax filing for returns for financial year 2014-15 has begun. If you are not satisfied with your tax saves, here are some deductions which can help you save some tax.

1. Employee Provident Fund or EPF
 Your employer deducts 12 per cent of your Basic Salary towards your contribution to the Employees Provident Fund. The contribution made by you is eligible to be claimed as deduction under Section 80C, which allows a maximum deduction of Rs 1,50,000 from your Gross Total Income. Assuming your basic salary is Rs 30,000, a 12 per cent PF of Rs 3,600 is deducted each month from your salary towards EPF. This adds up to Rs 43,200 for the year and you can claim this full amount as a deduction under Section 80C, at the time of filing your return.

2. Life Insurance Premium 
The life insurance policy holder is eligible for tax benefits under Section 80C. When you pay a premium on a life insurance policy to insure your own life, or your spouses life, or the lives of children who may be dependent/independent, minor/major, or married/unmarried – a deduction is available under Section 80C for the premium paid by you. The only condition is the premium paid should not be in excess of 10per cent of the sum assured in the policy. If you have paid a premium for a life insurance policy- do remember to claim it as a deduction under section 80C.

3. Tuition Fees of Children 
Tuition fees paid to any school, college, university or other educational institution, which is situated in India for full time education of your children, can be claimed as a deduction under Section 80C. These expenses are allowed to be claimed for up to 2 children. In case your children are small deduction is available for fees paid for play school, pre nursery and nursery as well.

4. Interest on Savings Bank Account 
Interest earned by you from a savings bank account is taxable under the head Income from Other Sources. A maximum of Rs 10,000 can be claimed a deduction from this interest income under section 80TTA. If your interest earned is lower than Rs 10,000 such lower amount shall be exempt. This interest may have been earned in a savings bank account or a post office savings account. When earn such interest income and file with websites like Clear Tax, they automatically give you the deduction – so you do not end up paying any additional tax.

5. Differently abled Dependants 
In order to provide tax benefit to those who are differently abled or those caring for dependents that are differently abled Income Tax Act has laid out deductions under Section 80DD and Section 80DDB. Under Section 80DD, if you have spent money for medical treatment (including nursing), training & rehabilitation of a disabled dependant or you have paid for insurance scheme for caring for the dependant, this deduction is allowed from your Income. If the disability is more than 80per cent deduction allowed is Rs 1, 00,000, and where the disability is 40 per cent to 80 per cent a deduction of Rs 50,000 is allowed. This deduction is for these fixed amounts and is available irrespective of the actual money spent by you.

Under Section 80DDB, deduction is allowed when money is spent by a tax payer for medical treatment of a specified disease or ailment for a dependant. Where the dependant is less than 60 years old – the actual amount spent or Rs 40,000 whichever is less can be claimed as a deduction. If the dependant is more than 60 years old – deduction is Rs 60,000 or actual amount spent whichever is lower. Deduction under section 80DDB can also be claimed by the tax payer for his own treatment provided it's a specified disease as per the section and the other conditions in the section are met. Taking benefit of these tax deductions can reduce your tax burden significantly. We have an exhaustive guide of all the deductions available under section 80.


About the Author

Anil Surma Anil S business professional working in Banking Services likes to write articles about finance, Auto Loan, Home Loan, Loan Against Property

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