As we have entered into the new year 2020, everyone must have thought of resolutions for the new year but very few of us have promised ourselves to save more. Savings in today’s world is very much important to cope up with inconsistencies of life.
Here we are suggesting a few options to choose from which can help you to save more and earn more for the future needs.
We can bifurcate options in the following manner:
(A) Tax savings through investment: These options will help you earn more on your savings as well as reducing your tax liability. Investment in bank fixed deposits, Public provident fund or investing in mutual funds are few of the options.
Let’s have a detailed analysis of options that you can choose to earn more and save more.
- Payment towards life insurance premium or towards a contract for a deferred annuity.
Note: The above option is available to individual & HUF.An individual can invest for his spouse or children and HUF can invest for any of his family members. Taking a policy for parents is not allowed as a deduction.
- Payment towards contribution to provident fund (public provident fund / recognized provident fund / approved superannuation fund)
- Payment towards contribution to a unit-linked insurance plan of the LIC Mutual Fund.
- Investment in National Savings Certificate
- Sukanya Samridhi yojna: A scheme for the betterment of girl child where every parent or legal guardian having a girl child below ten years can invest in this option.
- Investments in Tax savings Mutual Funds. These investments are quite risky as they are subject to market risk but it can also give you higher returns. A few examples of tax saving mutual funds are Tata India Tax Savings Fund growth, LIC MF Direct Tax plan Kotak Tax saver fund direct growth, etc.
(B) Tax savings on expenditure: A very common question in the layman’s mind is whether the amount we spend in our day to day life can help us in savings tax?
The answer is yes but not all kinds of expenses. In the coming points, we will discuss some daily life expenditures which can help you in saving taxes.
- Payment towards tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter,—
(a) to any university, college, school or other educational institution situated within India;
(b) for the purpose of full-time education.
- Repayment of housing loan: You can claim a deduction for the principal component of housing loan repaid during the year. However interest part can be claimed u/s 24b in schedule income from house property.
- Medical Expenditure: Incurring medical expenses is very common in everyone’s life but tax savings from medical expenditure have the following implications.
- For making payment of medical insurance premium you can claim the maximum deduction of Rs 25000 (if insured is less than 60 years) and Rs 50000 (if insured is 60 years or more).
- If you have not taken any medical insurance or the amount of the premium paid is less than 25000, you can claim Rs 5000 deduction on account of preventive health checkup. However maximum deduction in aggregate for medical insurance premium & preventive health checkup should not exceed Rs 25,000 (if insured is less than 60 years) and Rs 50,000 (if insured is 60 years or more).
- Income tax act gives few leverages in case of expenditure incurred on medical treatment of senior citizens. If you have made expenditure on medical treatment of senior citizens and there is no medical insurance in the name of that individual, you can claim a deduction of up to Rs 50,000 for the medical expenses incurred.
- Interest on Loan for Higher Education: Interest on education loan is allowed as deductions subject to the following condition
- The loan is taken for pursuing higher education that is for study pursued after passing the Senior Secondary Examination or its equivalent.
- The loan is taken for the individual, his spouse or children
- The deduction is allowed from the year in which the assessee starts repaying the loan.
- The deduction can be claimed up to the period of 8 years
- Interest on Loan for Electric Vehicle: Budget 2019 has introduced something to encourage the use of electric vehicle and that is “Interest on Loan for electric vehicle”
(a) Any individual taking a loan for the purchase of an electric vehicle on or after 01st April 2019 can claim a deduction of up to one lakh and fifty thousand rupees against interest payable on such loan.
Deduction in respect of Rent paid: Very few of us know that paying rent can help us saving taxes. However such deduction is restricted to a minimum of following.
- Actual rent paid – 10% of Total Income
- Rs 5000 per month
- 25% of Total Income
However, if you are a salaried person and claiming a deduction for HRA u/s 10(13A) you can not claim the deduction for House rent paid.
Note: To claim deduction on account of house rent it is mandatory to file Form 10BA.
Let’s have a tabular presentation of sections of Income Tax where you can claim the deduction for above-mentioned investment/expenditure :
|Nature of Investment / Expenditure||Section of Deduction|
|Payment towards life insurance premium or towards a contract for a deferred annuity||80C|
|Payment towards contribution to provident fund (public provident fund / recognized provident fund / approved superannuation fund)||80C|
|Payment towards contribution to a unit-linked insurance plan of the LIC Mutual Fund.||80C|
|Investment in National Savings Certificate||80C|
|Investment in Sukanya Samridhi yojna||80C|
|Investments in Tax savings Mutual Funds||80C|
|Payment towards tuition fees||80C|
|Repayment of housing loan||80C|
|Medical Insurance / Expenditure||80D|
|Interest on Loan for Electric Vehicle||80EEB|
|Interest on Loan for Higher Education||80E|