Every earning person in India has to pay income tax if he/she falls under income tax slabs. To save your tax government has given few options to save taxes legally. Almost every person takes tax exemptions. The most common is the tax rebate u/s 80C. There are sever common options but plan wisely before choosing anyone and always try to diversify your funds.
Section 80C Deductions List
|Investment options||Average Interest||Lock in period for||Risk factor|
|ELSS funds||12% – 15%||3 years||High|
|NPS Scheme||8% – 10%||Till 60 years of age||High|
|ULIP||8% – 10%||5 years||Medium|
|Tax saving FD||6% – 8%||5 years||Low|
|Senior citizen savings scheme||7.4%||5years (can be extended for other 3 years)||Low|
|Sukanya Samriddhi Yojana||8.4%||Till girl child reaches 21 years of age
(partial withdrawal allowed when she reached 18 years)
There are many other sections available under which you can take tax exemptions such as u/s 80D, 80DD, 80DDD, 80CCD (1b), 80CCD (2), 80 TTA, 80GG, 80G, 80GGB, 80TTB, 80E, 80EE
- Tax Rebate u/s 80C (up to Rs. 1.5 Lacs) – ELSS Mutual funds, NPS Scheme, LIC, Senior citizen savings scheme, Tax Saving FD, PPF.
- Tax Rebate u/s 80D (up to Rs. 1 Lac) – For Medical Insurance. For Self you can take tax rebates up to Rs. 25,000 (below 60 Years) and Rs. 50,000 (Over 60 Years). A part from taking if you become proposer for your depend on parents (over 60 years) you can take a tax rebate of Rs. 50,000 in addition to self-policy.
- Tax Rebate u/s 80CCD (1b) (Rs. 50,000) – After-tax rebate u/s 80 up to Rs. 1.5 Lac you can take tax rebate u/s 80CCD for Rs. 50,000
- Tax Rebate u/s 80CCD (2) (Employers contribution) – deduction up to 10% of basic salary plus dearness allowance under this section.
- Tax Rebate u/s 80 TTA (Interest on Savings Account Rs.10,000) – You can claim interest amount up to Rs. 10,000 for Savings Bank Interest.
- Salaried Employee – For Salaried employees there is a salary deduction of Rs. 50,000
I have shared a few standard tax-saving options. There are a lot more provisions available for tax savings.
Q1. Which is BEST among ELSS Mutual Fund, Bank FD, LIC or PPF?
A1. All the investment options have their own advantages and disadvantages. ELSS Mutual Funds is the amount option focusing on growth and the lowest locking period. Bank FD gives a 5-year locking period with zero risk. LIC provides life insurance also and PPF provides security with an average return but a 15-year locking period.
Q2, Should I choose Mutual Fund or LIC?
A2. If you are not a bread earner and nobody is dependent on your earnings you can choose mutual funds but if somebody is dependent on you should split and invest in LIC and mutual funds.
Q3. What is section 10(10D) for the income tax act?
A3. In simple terms, all the returns from Life Insurance companies are tax-free u/s 10(10D). But the income from pension plans is taxable.