There are various tax saving options for Indian citizens under Income Tax Act,1961. The short term investment savings include Post Office Government Bonds and Mutual funds.Under Long term, the various investment options are Public Provident Fund,Life Insurance, Bank deposits(both Fixed and Recurring deposits) and so on.
A few sections of the Income Tax Act,1961 are mentioned below which are essential for the investment purpose.
Deductions under section 80C for debt instruments:
Contribution to Employee Provident Fund (EPF):
Provident Fund is deducted from the salary.Both employer and employee contribute towards Provident fund.Employer's contribution is fully exempt from tax. Employee contribution is counted towards 80C.Voluntary contributions can be made by employee.Current Rate of Interest is 8.5% annually and tax free.
Pubic Provident Fund (PPF):
Current Interest Rate = 8% tax free
Maturity period = 15 years
Minimum Amount= Rs.500
Maximum limit = Rs.70,000 per annum
National Saving Certificate (NSC):
Current Interest Rate = 8% compounded half yearly
Maturity period =6 years
Minimum amount = Rs.100
Maximum amount = No limits
Interest accrued every year is liable to tax.But,in case if it is reinvested, it is eligible for deduction under 80C.There is also eligibility of deduction for the interest under section 80L under Income Tax Act,1961.
Unit Linked Insurance Plans (ULIPs):
ULIPs are covered under Life Insurance. There are three types of Funds under this scheme-Equity Fund,Balanced Fund and Debt Fund.
Tenure = 10 years
Eligible for tax deduction under section 80C.
Equity Linked Saving Scheme (ELSS):
Lock in period =3years
Deduction up to Rs. 1 lakh allowed.
Dividend and Bonus not eligible for deduction.
Tax exemption can be availed under section 88 also.
Some of the tax saver plans under Mutual funds are
1.Birla Tax Relief 96
2. Stan Chart Tax Saver Fund
3.Kotak Tax Saver
4.UTI Equity Tax Saver
5.Tata Tax Saving Fund
6.HDFC Tax Saver
7.ABN Amro Tax Average
8.SBI Tax Saving Plan
9.Prudential ICICI Tax Saving plan etc.
These are issued by institutions/banks such as ICICI, IDBI etc in the name of ICICI safety bonds and IDBI Flexi bonds.
Tax liability relief upto Rs.16000 per annum is available under section 88.
Senior Citizen Saving Scheme:
This scheme is considered to be lucrative and eligible for deduction under section 80C.
Current Rate of Interest= 8% for Government Employee and 9.5% half yearly for Public sector employee.
Maturity period -3years
Minimum Investment =Rs.10,000.
Maximum Investment= Total Retirement Benefit
Interest Income chargeable to tax.
NABARD Rural Bonds:
There are two types of Bonds issued by NABARD-
1.NABARD Rural Bonds
2.Bhavishya Nirman Bonds
NABARD Rural Bonds are eligible for deductions under section 80C.At present, subscriptions is not open.
RBI Relief Bond:
These bonds are issued by RBI.
Interest compounded half yearly
Maturity Period= 5years
Interest received is tax free.
5 year Bank Fixed Deposits:
Rate of Interest =8.25% for general investment and 8.75% for senior citizens
Maximum limit= Rs 1,00,000 per annum
Interest income is taxable.
Post office schemes:
Post office offers numerous tax saving options in India and popular among Indian citizens.This is similar to bank deposit
Post office schemes includes
-Post Office Term Deposit Scheme
-Post Office Monthly Income Scheme
-Kisan Vikas Patra Time Deposit Scheme
-Deposits for Retired Government Employees
-Post Office recurring Deposits
-Deposit Schemes for Retiring Employees of Pubic Sector companies.
Tenure: For 1 year -6.25% interest per annum
For 2 years -6.50% interest per annum
For 3 years -7.25% interest per annum
For 5 years- 7.50% interest per annum.
Maximum Rate of Interest =8% per annum and 10% bonus on principal amount at the time of maturity.
Interest is entirely taxable
Tax relief available under section 80L.
Mutual Fund Pension Plans:
Few Mutual Fund Pension Plans available in market are
-Templeton India Pension Plan
-UTI Retirement Benefit Pension Plan (UTI-RBT)
These Mutual Fund Pension Fund Plans are open-ended debt oriented mutual fund schemes.
Better returns are expected in Long terms.
Eligible for tax rebate under section 80C.
Any amount paid towards Life Insurance premium for the family and oneself is eligible for tax break under section 80C.
Life Insurance Saving Schemes include- Government owned Life Insurance Corporation of India and Private Life insurance Companies such as Bajaj Alliance,Birla Sun Life,HDFC Life Insurance and ICICI Prudential etc.
Public Sector Banks Tax saving Options:
-6.5% Saving Bonds Cumulative Bonds
-6.5& Saving bonds non-Cumulative bonds
Lock in Period =5 years
Rate of Interest =6.5%
Complete Tax exemption under Income Tax Act,2961.
Private Sector Banks Tax Saving Options:
UTI Bank, HDFC, IDBI bank, ICICI Bank offer the following schemes to Indian Citizens
-8% Cumulative saving Bonds
-8% Non Cumulative Saving Bonds
Lock in Period= 6years
Entitled to pay tax on interest income of the bond but not deductible at source.
Tax Rebates can be availed under section 88 of Income Tax Act,1961.
Deduction Under Section 80CCC(1)
In case of an Individual,in respect of contribution to pension scheme of any other Insurance companies deduction up to Rs.10,000 under section 80CCC(1) is available.
The following are some tax saving plans available in the market
- LIC Jeevan Suraksha
- ICICI Prudential Life Time Pension
- Aviva Life Pension Plus
- Max Easy Life Policy
- Tata AIGs Nirvana Plus etc.
Deduction Under Section 80CCE;
Aggregate deduction Under Section 80C,80CCC and 80CCD is available for Section 80CCE.The maximum limit is Rs. 1,00,000.
Deduction Under Section 80D:
Deduction Up to Rs 10,000(Rs.15,000 in case of Senior Citizens is allowed in respect of Premium paid by Cheque towards Health Insurance Policies.Mediclaim on such premium can be paid towards health insurance of spouse,dependent parents and dependent children.
Expenses Related deductions under Section 80C:
-Tuition Fees includes admission fees paid for the full time education of two children of asses see which is eligible under section 80C. The other expenses like development fee or donation or payment of similar nature shall not be eligible for deduction.
-In case of Repayment of Housing loan,Equated Monthly Installment(EMI) of Housing loan Constitutes of Principal and Interest. Principal is deducted under Section 80C,but there is a separate deduction for interest portion under section 24(B) of Income Tax Act,1961.
-Expenses incurred on puurhase of House propewrty ike Stamp duty,registration fees and other expenses incurred for purpose of purchase of house propery are entitled to deduction under section 80C.
Deduction Under Section 24(b)
Interest on borrowed Capital on house purchase or construction is deductible for the taxable income up to Rs. 1,50,000 with some prescribed conditions
Capital Gains Under Section 54 EC:
When an asses see transfer Long Term Capital Asset(Original Asset) and invest the Capital gain in Long Term specified Capital Asset(New asset).He is eligible for some exemptions and entitled to deductions with specific conditions.
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