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
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)
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