How to cut tax outgo and maximise your take home salary

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Section 80C: The Rs 1.50 lakh tax-saving window
Section 80C of Income Tax Act allows exemption of investment or spending from income tax. But here’s how you can maximise your savings by making some common investments.

1. Your Provident Fund contribution
2. Principal component of your housing loan from prescribed institutions
3. You can invest Rs 500 to Rs 1.5 lakh every year in a Public Provident Fund (PPF) account
4. Tuition fees of two children
5. Life insurance premiums for self, spouse and kids
6. Contribution to Unit-linked Insurance Plan for self, spouse and kids
7. Invest in National Savings Certificates (NSC) schemes (through post offices)
8. A 5-year term deposit with a bank under a notified scheme or a post office
9. You can invest up to Rs 1.5 lakh a year in Sukanya Samriddhi Account in the name of your daughter (limited to two children)

If your basic salary is over 1 lakh a month, most of your 80C limit will be used up by Provident Fund contribution alone, if you have opted to contribute to PF.

Savings beyond Section 80C

New Pension Scheme (NPS)
Employee’s contribution — up to 10% of salary or self-employed individual’s contribution — up to 20% of gross total income is deductible subject to overall cap of Rs 1.5 lakh (which includes investments under Section 80C). An additional deduction of Rs 50,000 is also available Employer’s contribution is exempt up to 10% of salary (without any cap).

Home loan interest
Up to 2 lakh if property is self-occupied and acquisition/construction of property is completed within 5 years from end of financial year in which loan was taken. Currently, there is no limit in case of let out/deemed let out property. However, budget 2017 has proposed to limit the amount of ‘loss from house property’ to Rs 2 lakh per annum for rented houses and ‘deemed to be let-out’ houses. This move would limit the amount of interest that a person pays on his home loan that he can claim as a set off (in case of ‘rented/deemed to be rented’ house).

Educational loan interest
No limit

Interest earned on savings bank account with a bank or post office
Upto Rs 10,000 (even for NRO savings account). No deduction if interest received from a fixed deposit.

Medical insurance premiums to cover self, spouse and dependent children
Up to Rs 25,000 (or Rs 30,000 if insurance is for you or your spouse above 60 years). If you insure your parents, you get an additional deduction of Rs 25,000 (or Rs 30,000 if they are above 60). No such deduction is allowed for parents-in-law Rs 5,000 for preventive health check-up even if you pay in cash (however, this amount is included in the overall cap for medical insurance cover)

Donations
100% or 50% of the amount donated (subject to conditions), depending on the institute/fund to which contribution is made. No deduction if donation made in cash over Rs 2,000.

Treatment for certain diseases such as AIDS, or malignant cancers for self and dependents
Up to Rs 40,000 (up to Rs 60,000 for patients above 60 and Rs 80,000 for patients above 80).

Disability related tax benefits
Rs 75,000 ( Rs 1,25,000 in case of severe disability) for expenditure towards rehab, treatment or training of self, dependent spouse, child, parent or even sibling. This can either be claimed by the dependent or by the individual on whom he/she is dependent.

Rs 85,500 over and above Section 80C
This is what an individual taxable at 30% can save if he/she invests 50,000 in NPS, pays 25,000 for medical insurance, has saving bank interest of 10,000 and also repays interest of 2 lakh on housing loan for a self-occupied property

*Tax does not include surcharge and cess. Further, the investments considered are for illustrative purpose only

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  • Praveen Kakkar

    Is the dividend payout from balanced funds exempted from income tax?

  • GOPALAN NETTUR

    NPS: Employers contribution eligibility under which section. Is it above80C?

  • Manoj Deshpande

    Please explain more on Rs 85,500 over and above Section 80C

  • Bhurpendra Patel

    Pl advise whether special family pension of army personnel is taxable?

  • Bhurpendra Patel

    very good information but u have written there is no deduction if interest is earned from fix deposit is it true under what clause pl let me know because my CA has included that as income.

  • Mahabir Singh Rawat

    Excellent updates on tax saving. However, you mentioned that ‘no deduction on FD interest in bank or post office’ but I clear here that every bank deducts TDS on amount beyond 10000/-. May I request to clear it please.

  • kk singh

    Dear To all,

    Let me know the Tax saving methods my monthly salary is 48000/-
    my rent is 13000/- p.m.
    convence is 6000/- p.m.
    electric bill approx 2500/- p.m.
    house expence approx 15000/- p.m.

  • Nehal Ahmad Siddiqui

    Information is very useful for managing savings to offset income tax to the extend possible. Excellent information indeed.

  • Kalpesh

    Very useful information even for common man
    good to know….helpful info
    Please explain more