Deduction is the reduction that you can claim under different heads to cut your tax liability, thereby reducing the income tax you pay.
Section 80C
Section 80C offers a window of investment opportunities on up to Rs 1.5 lakh investment in each financial year. This benefit is available to everyone, irrespective of their income levels. For instance, if you are in the highest tax bracket of 30 per cent, the investment of Rs 1.5 lakh under this section will save you Rs 46,350 (including education and Secondary and Higher Education cess) each year. The various financial products that qualify for Section 80C benefits are as follows:
- Life Insurance premium payment
- Home loan principal repaid, wherein the principal portion of the home loan EMI qualifies for deduction under Section 80C
- Employees Provident Fund (EPF) where 12 per cent of your salary is deducted every month and an equal amount is contributed by your employer and put into a fund maintained by the government or your company's provident fund trust. Only your contribution towards the fund is eligible for deduction from taxable income of the basic salary towards EPF
- Tuition fees up to two children can be claimed for. However, any payment towards any development fees or donation to institutions is excluded
- Contributions to the public provident fund
- Investments in the senior citizens savings scheme
- Savings in notified term deposits in scheduled banks with a minimum period of five years under the bank term deposit scheme, 2006. Savings in post office time deposits with 5-year lock-in
- National Savings Certificate, five-year government-backed security available at post offices
- Investments in tax planning mutual funds, popularly known as Equity-Linked Savings Scheme (ELSS)
- Investments in pension plans
- Investment in Sukanya Samriddhi Yojana
- Apart from the Rs1.5 lakh deduction allowed under Section 80C, an additional Rs50,000 deduction is available on investment in National Pension System (NPS)
Other Deductions
Section 80D: Premium payments towards medical insurance for self, spouse, children and parents qualify for deduction. You can claim up to Rs 25,000 or Rs 30,000 (if you or your spouse is a senior citizen) for self, spouse and dependent children. Additional deduction of up to Rs 25,000 or Rs 30,000 is available for premium paid parents' policy. Preventive health check-ups up to Rs 5,000 within limits also qualify for tax deductions under section 80D. This limit has been increased to Rs 50,000 for senior citizens w.e.f. April 1, 2018.
Section 24: Interest on home loan with a maximum deduction of Rs 2 lakh as interest payment on home loan.
Section 80E: Interest on educational loan qualifies for deduction on full-time studies for any graduate or post graduate course. However, there is no benefit on principal repayments.
Section 80G: Donations to funds and charities from 50 or 100 per cent of the donated amount, depending on the charity, is deductible from income. But this shouldn't exceed 10 per cent of your gross total income.
Section 80DD: Deduction of up to Rs 75,000 or Rs 1.25 lakh on the medical treatment of a dependent with a disability, certified by a medical authority.
Section 80DDB: Deduction of up to Rs 40,000 for an individual under 60 years of age, Rs 60,000 and Rs 80,000 for very senior citizens on costs incurred for treatment of specified illnesses such as malignant cancer, chronic renal failure, Parkinson's disease and other listed diseases. Deduction limit under this section has been increased to Rs 1 lakh for senior citizens w.e.f. April 1, 2018.
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