Tax Planning: A Focus on Maximising Tax Savings

It is possible to maximise on tax savings in a financial year by making the most of deductions available under various Sections of the Income-Tax Act (ITA), 1961.

Section 80C: This allows a tax-payer a deduction from taxable income about certain investments and expenses, which include:

  • Life insurance premium paid for yourself, spouse, and children
  • Employee Provident Fund (EPF)
  • Public Provident Fund (PPF)
  • Five-year Tax-Saving Fixed Deposit 
  • National Savings Certificate (NSC)
  • Equity-Linked Savings Scheme (ELSS)
  • National Pension System (NPS)
  • Sukanya Samriddhi Account (SSA)
  • Senior Citizen Savings Scheme (SCSS)
  • Home loan principal repayment
  • Stamp duty, registration charges, and some other specified expenses paid towards the purchase of a house property
  • Tuition fees paid for the full-time education for a maximum of  two children in India

The maximum deduction allowed in a particular financial year is the amount invested or Rs 1.5 lakh, whichever is lower. The deduction under Section 80C can be availed by any tax-payer, an individual or Hindu Undivided Families (HUFs).

Section 80D: This allows an individual a deduction from taxable income for premiums paid towards health insurance as follows.

An individual can claim a deduction for health insurance premiums paid for spouse, self and children. The maximum deduction allowed per financial year is Rs 25,000 or the premium paid, whichever is lower. In case the individual or their spouse is a senior citizen, the maximum deduction allowed is Rs 50,000.

An individual can claim a separate deduction for health insurance premiums paid for parents. The maximum deduction allowed per financial year is Rs 25,000 or the premium paid, whichever is lower. In case one or both of the parents is/are senior citizens, the maximum deduction allowed is Rs 50,000.

To avail of the tax deduction, except for cash, the premium payment can be made in any electronic mode such as debit or credit card, internet banking, Unified Payments Interface (UPI), wallet, etc.

Section 80CCD: This allows an individual with a deduction from taxable income regarding contributions made towards the National Pension Scheme (NPS) as follows:

For NPS contribution, under Section 80CCD(1), while a salaried employee is permitted a deduction of up to 10% of salary., other individuals are allowed a deduction of up to 20% of their salary. The maximum deduction allowed per financial year is Rs 1.5 lakh.

As per Section 80CCD(1B), an individual can claim of an additional deduction of up to Rs 50,000 for contribution toward the NPS.

As per Section 80CCD(2), a taxpayer can avail deduction for their employer’s contributions to the NPS account. While the Central or state government employees can avail of a deduction of up to 14% of their salary, other individuals can avail of a deduction of up to 10% of their salary.

Section 24: This allows a tax-payer a deduction from taxable income for interest paid on a home loan. The maximum deduction allowed every year is the interest amount paid or Rs 2 lakh, whichever is lower. The construction or acquisition of the house should be completed within five years from the end of the financial year in which the home loan was taken.

The interest paid at the time of the construction period can be claimed as a deduction in equal instalments over five financial years after the completion of construction or acquisition of the house property.

Section 80TTA: This allows an individual with a deduction from taxable income concerning interest earned on a savings account balance. The deduction applies to savings accounts maintained with public sector banks, private sector banks, cooperative banks, and post offices. The maximum deduction allowed per financial year is the interest amount earned or Rs 10,000, whichever is lower. The provisions of Section 80TTA apply to individuals (less than 60 years old) and a Hindu Undivided Family (HUF).

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