We are in the 1st quarter of the new Financial Year. Let’s take a look at some of the easy tax saving options that you can avail the benefit of, to reduce the blow of income tax.
1.) Put monies into your PF/PPF account
Considered to be one of the safest tax saving instrument around, PF/PPF investments yield a ‘not-so-bad’ return of 8%. Mind you, this return is tax-free in your hands. You also have a maximum contribution limit of Rs. 70,000 per year.
2.) Invest in Pension Plans – u/s 80C
We’ve recently talked about how many Indians are now actively planning for retirement. Well this could be your gateway to a financially stable retirement. Contribution to pension funds set up by mutual funds (subject to meeting requirements) or by the National Housing Bank Act 1987 will be deducted from your total income for the relevant year, with a maximum contribution threshold of Re. 1,00,000.
3.) Tax Saver Fixed Deposits – u/s 80C
Safe, hassle free and no-nonsense is what we keep saying about Tax Saver Fixed Deposit. Subject to a maximum limit of Rs. 1 Lakh for the relevant year, amounts invested in such deposits will be deductible from your income. Your money will be locked in for 5 years and you will not be able to use these deposits as guarantees for loans. All the big banks including SBI, ICICI, Axis Bank, HDFC, Bank of Baroda and Punjab National Bank provide these deposits.
4.) Equity Linked Savings Scheme (ELSS) – u/s 80C
Soon to be withdrawn under the Direct Tax Code, this popular tax saving option has been quite the rage among tax payers who like to invest in mutual funds. If you wish to take advantage of ELSS as a tax saving option while you can, note that there is a maximum contribution limit of Rs. 1 Lakh for the year, a lock-in period of 3 years, and the re-invested dividend will be locked-in for 3 years too.
5.) Tax Saving Bonds
As the name suggests, there are certain bonds, contributions to which will be deductible against your income for the relevant year, subject to a maximum limit of Rs. 20,000. The popular tax saving bonds are the RBI Relief Bonds, IDFC Infrastructure Bonds and NHAI/REC Bonds. You should note that these bonds have a certain ‘lock-in’ period.
6.) Investment in Property
We think property has a love-hate relationship with investors, some like it and some don’t. From a tax perspective, this tip is more of a ‘planning tool’ for your investment. We take you back to tax on income from housing property which mentions that if you have more than one property, all but the one used for residential purposes will be subject to income tax. What we suggest is, that you work out the value of each property and plan your deductions in a way that causes least damage from a tax perspective. Hint: If you have two houses, the house with the highest value as per municipal records should be treated as self-occupied.
7.) Build your own house
If you’ve been renting, you may want to think of building your own house. Why? Because repayments for loans taken out for the purpose of buying or constructing a property for your residence will be tax deductible. The maximum limit is Rs. 1,00,000 and the loan must be from a recognised financial institution.
8.) Explore gifting as a tax saving method
You must know that any gifts in cash or kind more than Rs. 50,000 will be taxed as income from other sources. However, such gifts are tax free in the hands of the receiver if you gift it to your relative. We suggest that you refer to the definition of ‘relative’ for this purpose u/s 56(2) of the Income Tax Act 1961. This can be an effective method to divide and reduce tax liability.
These were some of the popular tax saving options in India. If you have a few tips up your sleeve, we’d be happy if you share them so we all can enjoy the benefit of your knowledge.