A simple primer on how much money taxpayers can save under various sections of the Income Tax Act.
Saving on taxes is a key agenda for every salaried individual. Tax planning season is almost coming to an end with the end of the current financial year (March 31, 2015). However many salaried people end up paying higher taxes by not effectively planning for tax saving well in advance. This can be due to lack of understanding with respect to tax saving avenues that one should consider and the maximum amount that one can invest in.
Apart from tax saving investment avenues one can also consider claiming certain deductions like Medical Bills, HRA, Home Loan, Education Loan etc.
Benefits u/s 80 C
The total amount which can be invested u/s 80 C is Rs 1.5 lakh. Earlier the limit was Rs 1 lakh which was increased to Rs 1.5 lakh in the previous budget, presented by the newly elected government. Section 80 C has a list of different investment avenues which one can consider in order to save on taxes.
Following are the list of different asset classes which one can consider for investments u/s 80 C:
- Public Provident Fund
- Equity Linked Saving Schemes (ELSS)
- National Saving Scheme
- 5-year Fixed Deposits
- Tuition Fees
- Life Insurance Premiums
- Repayment of Housing Loan Principal
- Also employees' contribution towards Employee Provident Fund is eligible for deduction U/s 80 C
Benefits u/s 80 D
Apart from Sec 80 C, one can also claim benefit U/s 80 D. Sec 80 D comprises of premium paid towards one's health policy. The maximum amount of premium which can be claimed u/s 80 D is Rs 15,000.
Also one can claim benefit on the premium paid for parents, the limit for the same being Rs 15,000. However if the parents are senior citizens then the limit is enhanced to Rs 20,000.
Benefits u/s 80 E
Section 80 E comprises of interest paid on one's education loan. Suppose one has taken an education loan and is servicing EMI on the same then the interest component of the EMI can be claimed u/s 80 E for deduction.
However there is maximum limit on the amount of interest which can be exempted under this section.
Claim tax benefit on Housing Rent
If one stays in a rented accommodation then the rental paid towards the same can be considered for deduction as per the Indian Income Tax law. However, one has to submit the proof, that is, rental receipts in order to claim the same. The deduction available is least of the following:
- Actual HRA received
- Rent paid minus 10 per cent of Basic Salary
- 40 per cent of Basic Salary in case of non-metro city and 50 per cent in case the person is residing in a metro city
Leave Travel Allowance, Medical Bills
One can claim the expenses done towards medicines up to Rs 15,000 per annum under this head. However one has to submit proofs, that is, medical bills in order to claim this benefit.
A salaried person is entitled to claim Leave Travel Allowance (LTA). Under LTA one can claim the amount spent on travelling. It can be claimed twice in a block of four years. Current block is 2014-2017. However the amount should not be exceeding Air Economy or Rail AC 1.
Benefit on Housing Loan
If you have taken a housing loan then the EMI serviced can be considered for tax benefits. However the principal component can be claimed u/s 80 C and the interest component u/s 24.
In case of self-occupied house the maximum amount of interest that can be claimed is Rs 2 lakh; this limit has been enhanced from Rs 1.5 lakh in the previous budget. However in case the property has been let out then there is no cap on the maximum amount of interest which can be claimed for benefit.
Key Take Away:
There are different segments and avenues available as per Indian Tax law wherein one can invest smartly and save on taxes. However investment should also be aligned to one's need and goals. It is also recommended to check other sections where one can save on taxes without any additional investments like -- Housing Rent Allowance, Medical expenses etc.
- Plan for tax saving in advance
- Keep the required documents/necessary proofs ready for submission
- Invest in avenues which suit your risk profile
Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.