Tax Saving Tips & Schemes

5 MinsJanuary 31, 2020

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Most of us start thinking about tax planning in January. Then we are left with time only till March to invest in tax-saving instruments. If you are one of those who have yet to do your tax planning, here is a ready reckoner of the tax-savings investments, the current returns and how much taxes you can save by investing in them. You can invest up to Rs. 1.5 lakh in these instruments and save taxes under section 80C of the Income Tax Act.

In addition, your investment in retirement products launched by the Government, such as NPS (National Pension System) or APY (Atal Pension Yojana), or your payment of health insurance premium, can help you save additional tax over and above the Section 80C investments.



Here are some important tax saving tips:

• Life Insurance Premium

• ELSS (Equity Linked Saving Scheme)

• PPF (Public Provident Fund)

• Tax Saving Fixed Deposits

• Unit Linked Insurance Plans (ULIPs)

• Sukanya Samriddhi Scheme

• NPS (National Pension System)

• APY (Atal Pension Yojana)

• Health Insurance Premium

1. Life Insurance Premium

Any amount paid as an insurance premium for yourself, spouse, and children, is eligible for tax exemption. Besides, since the payout received from the policy is entirely tax-free, it is an apt safety net for your family in your absence. There is no limit to the number of policies you can hold, but keep in mind that the sum assured has to be 10 times the premium to be eligible for tax exemption.

2. ELSS (Equity Linked Savings Scheme)

ELSS are under the umbrella of mutual funds with a lock-in period of three years. Gains made in ELSS are tax-free up to Rs. 1 lakh. While returns vary depending on the scheme chosen and market conditions, generally they tend to range between 9-12% per annum.

3. PPF (Public Provident Fund)

An investor looking for assured tax-free returns in the long term can invest up to Rs 1.5 lakh in a PPF account every year. The PPF interest rate for the quarter January - March 2020 is 7.9%. A guardian can also invest in the PPF account held by a minor. However, the total annual limit for investment is Rs 1.5 lakh, combining the amount of investment in PPF accounts of minors and guardians. The PPF account needs to be held to maturity for 15 years, although you are permitted to make a premature withdrawal of up to 50% of the balance if the PPF account is held for at least 5 years.

4. Tax-Saving Fixed Deposits

Tax-saving fixed deposits are a great way to save taxes and earn an assured income. Currently, Axis Bank offers an interest rate of 6.5%. These deposits come with a lock-in period of five years. Senior citizens get a higher rate of 0.5 percentage points compared to regular citizens. You can opt to reinvest the interest or a quarterly payout. However, the interest on these deposits is fully taxable.

5. Unit Linked Insurance Plans (ULIPs)

ULIPs are a combination of insurance and market-linked equity and debt investments. Thus they offers protection, savings and the opportunity to participate in the market. Both the investment amount and the maturity amounts are exempt from taxes. ULIPs carry a lock-in term of five years. Again, while performance varies depending on market conditions, generally they tend to give a return of 8-11% per annum.

6. Sukanya Samriddhi Scheme

Under the government scheme Sukanya Samriddhi Yojana, you can open an account in the name of your daughter if she is below the age of 10. You can use this scheme for two girls (three in case of one birth being twins). A maximum of Rs 1.50 lakh can be invested per year in Sukanya Samriddhi account, and deposits need to be made annually for 15 years. The account matures after 21 years and the corpus is tax-free on maturity. Premature withdrawal up to 50% of the proceeds is permitted, only after the account holder attains the age of 18 or has passed the tenth standard, whichever is earlier. The current interest rate on this scheme is 8.4%.

7. NPS (National Pension System)

An investment of up to Rs 1.5 lakh is tax-free under the NPS scheme under section 80CCD (1). However, you can also claim an additional contribution of Rs 50,000 as a deduction under section 80CCD (1B). If you are a salaried individual, your employer can make a monthly contribution to NPS account up to 10% of your salary (Basic+DA). This entire amount is eligible for deduction from your taxable income u/s 80 CCD(2). The returns on NPS are market-linked, but in the last five years, they have ranged between 8.68 – 10.19%. The corpus accumulated in NPS post-retirement is tax-free. Up to 60% of the corpus can be withdrawn as a lump sum, and the remaining 40% has to be used to purchase annuity/ pension.

8. APY (Atal Pension Yojana)

The annual investment made in Atal Pension Yojana (APY) is eligible for deduction under section 80CCD (1B). Any Indian citizen between the ages of 18 to 40 years, holding a savings bank account is eligible to open an APY account. This government scheme provides guaranteed monthly pensions post 60 years, which range from Rs 1000 to Rs 5,000. The contribution required in APY depends upon your age of joining the scheme. For example, a 35-year old individual applying for APY has to pay Rs 902 per month, in order to receive the pension of Rs 5,000 post -retirement, whereas an 18-year old applying for APY has to pay Rs 210 per month for the same benefit. You can open APY through any bank where you hold a saving account and make contributions either monthly, quarterly or half-yearly.

Two other tax-saving instruments that also offer tax exemption under Section 80 C are NSCs (National Savings Certificates) and Five-Year Post Office Time Deposit Scheme. Both have a lock-in of five years and give interest income. The initial investment is tax-exempt under Section 80C, but the interest earned is taxed. These are available with any post-office in the country. You can check the India Post website for interest rates and other details.

Tax Savings

The amount of taxes you can save by using any of these investment schemes depends on your taxable income and age. Here is a table indicating the savings for different tax slabs and age groups.

People below the age of 60 years

IncomeApplicable tax ratesInvestments Under Section 80CTaxes to be paid if no investments under 80C are madeSavings if Rs. 1.50 lakh are invested in 80C instruments
Rs. 0 – Rs. 2.5 lakhNILRs. 1,50,000NILDoesn’t apply
Rs. 2,50,001 – Rs. 5,00,0005% of total income above Rs. 2.5 lakh + 4% CessRs. 1,50,000Nil (considering Standard Deduction of Rs. 12,500)Doesn’t apply
Rs. 5,00,001- Rs. 10,00,000Rs. 12,500 + 20% of total income above Rs. 5 lakh + 4% CessRs. 1,50,000Rs. 0 to a Maximum of Rs. 1.06 lakh (at the top of the slab)Maximum of Rs. 30,600 (at the top of the slab)
Rs. 10,00,001 and overRs. 1,12,500 + 30% of total income above Rs. 10 lakh + 4% CessRs. 1,50,000From Rs. 1.06 lakh to Rs. 32 lakh (for a taxable income of Rs. 1 crore)Starting with Rs. 30,600 to Rs. 51,000 (for a taxable income of Rs. 1 crore)

People between the age of 60 and 80 years

IncomeApplicable tax ratesInvestments Under Section 80CTaxes to be paid if no investments under 80C are madeSavings if Rs. 1.50 lakh are invested in 80C instruments
Rs. 0 – Rs. 3 lakhNILRs. 1,50,000NILDoesn’t Apply
Rs. 3,00,001 – Rs. 5,00,0005% of total income above Rs. 3 lakh + 4% CessRs. 1,50,000Nil (considering Standard Deduction of Rs. 12,500)Doesn’t apply
Rs. 5,00,001- Rs. 1,000,000Rs. 10,000 + 20% of total income above Rs. 5 lakh + 4% CessRs. 1,50,000Rs. 0 to a Maximum of Rs. 1.04 lakh (at the top of the slab)Maximum of Rs. 31,200 (at the top of the slab)
Rs. 1,000,001 and overRs. 1,10,000 + 30% of total income above Rs. 10 lakh + 4% CessRs. 1,50,000From Rs. 1.04 lakh to Rs. 31.97 lakh (for a taxable income of Rs. 1 crore)Starting with Rs. 31,200 to Rs. 51,000 (for a taxable income of Rs. 1 crore)

People above the age of 80 years

IncomeApplicable tax ratesInvestments Under Section 80CTaxes to be paid if no investments under 80C are madeSavings if Rs. 1.50 lakh are invested in 80C instruments
Rs. 0 – Rs. 5 lakhNILRs. 1,50,000NILNIL
Rs. 5,00,001- Rs. 10,00,00020% of total income above Rs. 5 lakh + 4% CessRs. 1,50,000Rs. 0 to Rs. 93,600 (at the top of the slab)Maximum of Rs. 31,200 (at the top of the slab)
Rs. 10,00,001 and over Rs. 1,00,000 + 30% of total income above Rs. 10 lakh + 4% CessRs. 1,50,000From Rs. 93,600 to Rs. 31.86 lakh (for a taxable income of Rs. 1 crore)Starting with Rs. 31,200 to Rs. 51,440 (for a taxable income of Rs. 1 crore)

Health Insurance Premium

You can also save up to Rs 25,000 on payment towards health insurance premium for self, spouse, children, and parents, under Section 80D. For senior citizens, the limit is Rs 50,000. The exemption for parents is available irrespective of whether they are dependent on you or not.

If you have an Axis Bank savings account, you can even invest in these schemes using net banking.

Disclaimer: The Source, a Mumbai-based content creation, and curation firm have authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.