Tax Saving Options
As the financial year draws to a close, tax planning becomes crucial. There are so many options out there, so to help ease your decision making, we have rated and compared the most popular schemes.
To begin with, here’s a ready reckoner of the key provisions for Financial Year 2018-19:
Tax Slabs:
| Income Slab | |||
| Tax Rate | Individual Below 60 | Senior Citizens Between 60-80 years |
Super Senior Citizens Above 80 years |
| 0% | Income up to Rs 2,50,000 | Income up to Rs 3,00,000 | Income up to Rs 5,00,000 |
| 5% | Income from Rs 2,50,000 – Rs 5,00,000 | Income from Rs 3,00,000 – Rs 5,00,000 | – |
| 20% | Income from Rs 5,00,000 – 10,00,000 | Income from Rs 5,00,000 – 10,00,000 | Income from Rs 5,00,000 – 10,00,000 |
| 30% | Income more than Rs 10,00,000 | Income more than Rs 10,00,000 | Income more than Rs 10,00,000 |
| Standard Deduction | Rs 40,000 for salaried taxpayers and pensioners | ||
| Surcharge | 10% of tax where total income exceeds Rs. 50 lakh 15% of tax where total income exceeds Rs. 1 crore |
||
| Cess | 4% of tax plus surcharge | ||
| Rebate | Tax rebate of up to Rs 2,500 for a taxable income up to Rs 3.5 lakh. | ||
We have calculated tax payable for a few income levels for your reference. This is exclusive of all Section 80 benefits which will reduce tax liability.
| Individual Below 60 | Senior Citizens Between 60-80 years |
Super Senior Citizens Above 80 years |
|
| 2,50,000 | 0 | 0 | 0 |
| 3,00,000 | 0 | 0 | 0 |
| 3,50,000 | 520 | 0 | 0 |
| 4,00,000 | 5,720 | 3,120 | 0 |
| 4,50,000 | 8,320 | 5,720 | 0 |
| 5,00,000 | 10,920 | 8,320 | 0 |
| 6,00,000 | 25,480 | 22,880 | 12,480 |
| 8,00,000 | 67,080 | 64,480 | 54,080 |
| 10,00,000 | 1,08,680 | 1,06,080 | 95,680 |
| 15,00,000 | 2,60,520 | 2,57,920 | 2,47,520 |
| 30,00,000 | 7,28,520 | 7,25,920 | 7,15,520 |
| 50,00,000 | 13,52,520 | 13,49,920 | 13,39,520 |
There are different taxes on various sources of income. The primary ones along with their major taxation and deduction terms are mentioned below;
| Income Sources | |
| Source | Taxation and Deductions |
| Salary | Taxed at slab rates
Deductions under Section 80C, 80CCC & 80CCD |
| House Property | Deductions:
Municipal taxes paid Standard Deduction – 30% of annual value |
| Capital Gains | Equity shares / Mutual funds
Short-Term Gains (held for less than 1 year) – taxed at 15% Long-Term Gains – if more than Rs 1 lakh, taxed at @ 10% without indexation(effective april 2018) Debt Funds Short term Gains (held for less than 36 months) – At tax slab rates Long Term Gains – 20% with indexation Immovable Property Short term Gains (asset held for less than 24 months) – taxed at slab rate Long term Gains – 20% with indexation(greater than 2 years – Budget2017) Other Assets Short term Gains (asset held for less than 36 months) – taxed at slab rate Long term Gains – 20% with indexation |
Main Deductions allowed
Some of the deductions allowed under the Income Tax Act have been mentioned below;
| Tax Deductions | Head | Limit |
| Section 80 C | Investment in PPF Employee’s share of PF contribution NSCs Life Insurance Premium payment Children’s Tuition Fee Principal Repayment of home loan Investment in Sukanya Samridhi Account ULIPS ELSS Sum paid to purchase deferred annuity Five year tax saver deposit scheme Senior Citizens savings scheme Subscription to notified securities/notified deposits scheme Contribution to notified Pension Fund set up by Mutual Fund or UTI. Subscription to Home Loan Account Contribution to notified annuity Plan of LIC |
1,50,000 |
| Section 80CCC | Deduction for Premium Paid for Annuity Plan of LIC or Another Insurer | Deduction is for any amount paid or deposited in any annuity plan of LIC or any other insurer |
| Section 80CCD | Deduction for Contribution to Pension Account | Maximum deduction allowed is 20% of salary (in case the taxpayer is an employee) or 10% of gross total income (in case the taxpayer being self-employed) or Rs 1,50,000, whichever is less. |
| Section 80CCD (1B) | Deduction for self-contribution to NPS | Additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. |
| Section 80 TTA | Deduction for Interest on Savings Bank Account | 10,000
Senior citizens benefit increased to Rs 50000 in Budget 2018 |
| Section 80GG: | Deduction for House Rent Paid Diff for Metro and Non Metro cities | Deduction available is the minimum of: 1) Rent paid minus 10% of total income 2) Rs 5000/- per month 3) 25% of total income |
| Section 80E | Deduction for Interest on Education Loan for Higher Studies | No limit |
| Section 80D | Deduction for premium paid for Medical Insurance | Deduction up to 25,000 If aged more than 60, exemption rises to Rs 50,000 Deduction for insurance of parents: If aged < 60, 25,000; > 60, 50,000 For uninsured super senior citizens, medical expenditure incurred up to Rs 30,000 also allowed Within the existing limit, deduction of up to Rs. 5,000 for preventive health check-up |
| Section 80DD | Deduction for Rehabilitation of Handicapped Dependent Relative | Expenditure incurred on medical treatment Payment for maintenance of dependent handicapped relative a) Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000 b) Where there is severe disability, fixed deduction of Rs 1,25,000 |
| Section 80DDB | Deduction for Medical Expenditure on Self or Dependent Relative( critical illness) | A deduction of Rs. 40,000/- or the amount actually paid For senior citizens, the deduction can be claimed up to Rs 1,00,000. |
| Section 80TTA | Deduction on Interest on Bank savings deposit | Up to Rs 10,000 is tax free for all taxpayers.
Senior citizens can claim deduction of up to Rs 50,000 u/S 80 TTB. |
| Section 80U | Deduction for Person suffering from Physical Disability | Deduction of Rs. 75,000/- to a resident individual who suffers from a physical disability In case of severe disability, deduction of Rs. 1,25,000 can be claimed |
| Section 80G | Deduction for donations towards Social Causes | Deduction ranging from 50- 100% if not done by cash Limit is 10% of Gross Income |
Section 80C offers the maximum deductions for the taxpayer as seen above. However, although there are several investment options here, the total amount of deduction that can be claimed under section 80C, 80 CCC and 80 CCD (1) is restricted to Rs 1.5 lakh. The deductionsu/S 80C is not only available for investments but also for specified expenditures made by the taxpayer.
We have a list of the common investment options u/S 80C below.
While all proceeds of ELSS, ULIP, Insurance policies, Sukanya Samriddhi, EPF, VPF and PPF are completely tax free after the lock-in period, the interest/ earnings will be taxable for NSC bonds, Tax saver FDs, NPS, Pension Funds and Senior citizen saving schemes.
Although we have compared a variety of investment options, different people have diverse investment needs, so you may need to analyze what is your personal requirement before selecting a scheme.
| Tax Saving option | Scheme Features | Max allowed for tax deduction U/S 80 C |
Current Rate of return | Special Note |
| 1. Equity Linked Savings Scheme (ELSS) Funds | Pure equity mutual funds locked in for 3 years. | Within the overall Rs. 1.5 lakh u/s 80 C | Based on market conditions | Long term gains over Rs 1,00,000 are taxable when sold – rate of 10%
10% Dividend Distribution tax on dividend schemes of equity funds. |
| 2. Unit Linked Insurance Plan (ULIP) | A product offering life insurance as well as equity investment benefits. ULIP permits investing the premium in a mix of debt and equity funds in varying proportions, allowing inter-fund transfers through switches. Minimum lock-in period of five years and partial withdrawal is only possible after this. |
Within the overall Rs. 1.5 lakh u/s 80 C | Based on market conditions | Deduction amount is capped @ 10% of sum assured. Death benefit paid under the ULIP is completely tax free. All maturity proceeds fromULIP are tax-free. Partial withdrawal, if it doesn’t exceed 20% of fund value, is tax free. |
| 3. National Pension Scheme (NPS) | Subscribers can invest in three asset classes’ funds; equities, corporate bonds and government securities funds. Some restrictions on premature withdrawals of Tier 1 contributions. Minimum 40% of corpus has to be mandatorily invested in an annuity on retirement. Rest can be withdrawn as lumpsum. |
Within the overall Rs. 1.5 lakh u/s 80 C | Based on market conditions | Additional investment of Rs. 50,000 will be eligible for tax deduction under section 80CCD If employer puts up to 10% of basic salary of the individual in the NPS, that amount will not be taxable. Income from the annuity is taxed at normal rates Amount partially withdrawn (up to 25% of contribution) is exempt from tax. After the age of 60, upto 40% of the corpus withdrawn in lump sum is exempt from tax. |
| 4. Public Provident Fund (PPF) | Total amount contributed can be claimed for deduction. No premature closure and withdrawals only partially permitted after 7 years. Lock in of 15 years. |
Within the overall Rs. 1.5 lakh u/s 80 C | 7.60% | The interest on PPF is currently tax-free (compounded yearly) and the maturity period is 15 years. |
| 5. Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) | 12% of salary is contributed with equal contribution from employer in EPF and this full amount can be claimed as deduction. VPF is the additional amount contributed to the PF account and is also eligible for deduction. Only employee contribution is withdrawable before retirement and this is permissible after 5 years of working. |
Within the overall Rs. 1.5 lakh u/s 80 C | 8.65% | Interest earned above 9.5% is taxable in the hands of the employee. If the contribution by the employer is more than 12 %, then the excess is taxable for employee. If withdrawn prematurely, taxed at tax bracket. |
| 8. Senior citizen saving scheme | Investment by anyone over 60 or those who have availed VRS aged between 55-60. Can invest up to Rs 15 lakh or money received as retirement benefits, whichever is lower. 5-year lock in period. |
Within the overall Rs. 1.5 lakh u/s 80 C | 7.90% | Interest is paid out quarterly and rates are reset each quarter. Premature closure is possible with penalty. |
| 9. Bank Tax Saver Fixed Deposits | Lock-in period of 5 years. No premature withdrawal permitted. The interest earned can be reinvested or paid out on a monthly/quarterly basis. |
Within the overall Rs. 1.5 lakh u/s 80 C | Varies based on bank. Ranges between 6.5% to 7.7%. Senior citizens get 0.5% more. |
The total interest earned under an FD is taxable under “income from other sources”. A person can avoid TDS deduction on the interest earned by submitting Form 15G (or Form 15H for senior citizens) to the bank. |
| 10. Pension Plans | Depending on their risk profiles, investors can choose different combinations of equity and debt, although portfolios are generally debt oriented. No partial withdrawal is allowed during the accumulation phase |
Within the overall Rs. 1.5 lakh u/s 80 C | Based on market conditions | Only 1/3 lumpsum is tax free Annuity is taxable at normal rates |
| 11. Life Insurance Policies | Deduction is available for premiums of life insurance policies which are less than 10% of sum assured. | Within the overall Rs. 1.5 lakh u/s 80 C | Based on market conditions | Returns on insurance products are tax free Surrendered policies are taxed at normal rates |
| 13. National Savings Certificate (NSC) | The NSC is a small savings scheme offering guaranteed interest for lock-in period of 5 years. Premature encashment is possible after three years or in case of death of the certificate holder. |
Within the overall Rs. 1.5 lakh u/s 80 C | 7.60% | Interest is taxable on receipt, although accrued interest will qualify for deduction u/s 80 C.
No TDS on interest, it has to be declared and tax paid. |
| 14. Sukanya Samriddhi Scheme | Open for parents of daughters below 10 years, deposits have to be made until daughter turns 21. The entire invested amount along with the interest earned is tax-free. |
Within the overall Rs. 1.5 lakh u/s 80 C | 8.10% | 50% of the amount can be withdrawn after girl turns 18. Full withdrawal allowed for marriage of daughter. |
Researched by
Neena Shastry
Dilzer Consultants Pvt Ltd
25 Feb 2018