Category: Tax Planning

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
Deduction of up to Rs.2 lakhs on home loan interest if self-occupied
The deduction for home loan interest on let out property is limited to the extent to which loss of such house property does not exceed Rs 2 lakhs.
Tax deduction on loan principal repayment available U/s 80C

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
Life Insurance Premium payment
Children’s Tuition Fee
Principal Repayment of home loan
Investment in Sukanya Samridhi Account
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
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