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Time to take stock of your Tax Savings Investments

Come December, you are asked by your Accounts/Finance department to submit the proof for the various income tax deductions you have claimed.  You are requested to provide the photocopies of various investments which you have claimed when you submitted the investment declaration form at the beginning of the year.

The two most popular deductions which are utilized by the salary earners in India are Section 80C and 80D.

Understanding deductions u/s 80C:

The most important point to note here is that the maximum amount deduction allowed under this section has been increased to Rs150, 000 from the financial year 2014-15.  Earlier it was limited to Rs100, 000.

So, you get to invest additional amount of Rs50, 000 per annum to invest for the purpose of tax deduction. 

Section 80C eligible investments are:

  1. Provident Fund (PF) contribution deducted directly from your salary by your employer
  2. Voluntary provident Fund (VPF), if any, opted by you over and above the statutory PF limits
  3. Public Provident Fund (PPF) contributions made during the financial year
  4. Principal repayment of housing loans
  5. Life Insurance Premiums paid during the year
  6. National Savings Certificate
  7. Equity Linked Savings Scheme through Mutual Funds
  8. Premiums paid towards Unit Linked Insurance Plans (ULIPs)
  9. Contribution towards Pension Schemes of Life Insurance Companies
  10. Fixed deposits with Banks and Post Office

So, total your contributions made under the above heads and if it is less than the maximum limit of Rs150, 000, then you can invest the balance in any of the above mentioned products till 31st March 2015. 

My recommended choice is to invest in Equity Linked Savings Scheme as it provides an opportunity to participate in the growth of the equity markets and also which has the least of the lock in periods, 3 years.   There are excellent ELSS funds `which has returned more than 20% over the last 10 years.

Understanding deduction u/s 80 D:

The deduction u/s 80 D is specifically provided to encourage people to opt for health insurance schemes.  The Income Tax Act allows you to set off the insurance premium payable under the health insurance under two categories.

Category 1: For the health insurance premium paid by you for your family (excluding your parents) – Maximum amount of deduction allowed is Rs15,000 per annum

Category 2:  For health insurance premium paid for coverage of parents – Maximum amount of deduction allowed is Rs20,000 for both the parents put together per annum.

The total deduction allowable under section 80D can go up to Rs35,000 per annum (Rs15,000 for self + Rs20, 000 for parents).  Please note that the additional deduction of Rs20,000 is available only in respect of parents and not for your in-laws.  So, it requires a bit of tax planning availing the tax break.

So, take some time off and check if you have utilized the full limit under section 80 C and 80 D.   You still have time till 31st March 2015 to complete the investments and claim the tax benefits.

Please reach out to us if you require any help in planning your taxes, identifying the suitable investment and insurance options.

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