Month: December 2018

What so ever we earn, even then if our income is taxable we don’t want to pay tax on that income. We have a soft corner for our income. In this way, we tend to avoid paying taxes. We must remember that paying taxes on time signifies that you are a good citizen of your country.

As we all know the Government of India knows that we work so hard to earn this income. So in order to save more money from being taxed, the Income-tax Act 1961 section 80C allows a certain deduction to lower tax liability against taxable income.

Who all can claim deductions under section 80C?

An individual and HUF (Hindu undivided family) can claim all deductions under section 80C.

Most of the people are concerned about taxes, especially newly joined employees. Everyone wants to know about the deductions under various sections so that they can invest their hard earned money and save tax. To help you understand more, I have listed down what all tax savings investments come under section 80C of Income Tax Act 1961.

Tax saving investments U/S 80C

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If you are in a rush and you want to cover all the points. So, we have attached a crisp video for you below.

ELSSs are equity mutual fund schemes that invest in stocks. They have a mandatory lock-in period of three years. They are riskier than other options like Public Provident Fund, National Saving Certificate, etc. However, they also have the potential to offer superior returns. ELSS category has offered an average return of 18.45 percent in the last five years. Investments in ELSSs qualify for tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs 1.5 lakh.

Options #2 – 5 yr Tax Saving Fixed Deposits

Tax saving fixed deposit (FD) is a type of fixed deposit, which comes under section 80C of the Indian Income Tax Act, 1961. This kind of deposit is offered for a lock-in period of 5 years. The maximum deduction an investor can claim through it is Rs 1.5 lakh. FD gives us 100% security of capital + guaranteed return on invested amount.

The rate of interest offered by banks ranges from 7 to 9% (may vary from banks to banks). The deduction is available to individuals, members of the Hindu undivided family (HUF), senior citizens and NRIs. As it is a lock-in fund, premature withdrawal is not allowed. This deposit account can be opened as single or joint holding mode. However, in case of a joint account, the tax benefit will be availed by the first holder of the deposit.

Options #3 – Public Provident Fund(PPF)

PPF is a long-term investment option of 15 years by the Government of India with an attractive interest rate of 8%(with returns fully exempted from Tax). One can invest minimum Rs. 500 to a maximum of Rs. 1,50,000 in one financial year. Deposits can be done in a maximum of 12 transactions only. One can also enjoy loans, withdrawals, and extension of the account. Loans can be taken against the Public Provident Fund between 3rd to the 6th financial year. A partial withdrawal facility can be taken from the 7th financial year onwards. The account can be extended for a period of 5 years after maturity but in a block-in mode.

Options #4 – Sukanya Samriddhi Yojana

This scheme is one of the most popular schemes by the Government of India. The aim of this scheme is to give a better future to the girl child in terms of education and marriage expenses. This scheme was launched in 2015 as a part of the Beti Bachao and Beti Padhao campaign. Parents or guardians can open the account anytime in the name of a girl child between the birth of a girl child till she attains the age of 10 years.

Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years. The interest rate on Sukanya Samriddhi Yojana is 8.1%. The investment amount is limited to a maximum of Rs.1,50,000 in a financial year. Investment, withdrawals & maturity amount are tax-free. The maturity of this account is after 21 years.

Options #5 – Life Insurance Premium

The life insurance premium is a payment made to secure our life. It is paid in the name of the taxpayer or the taxpayer’s wife and children. It is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured. One can get deductions up to 1.5lakhs a year.

Options #6 – National Savings Certificate(NSC)

NSC is a savings bond that encourages subscribers (mainly small to mid-income investors) to invest while saving on income tax. This investment is mainly a savings scheme for resident individuals only. Hence, Hindu Undivided Family (HUF), Trusts and NRIs cannot invest in this scheme. Indian individuals can buy it from the nearest post office in an individuals name (for a minor) or with another adult( as a joint account). This investment comes with 2 fixed maturity periods – 5 years and 10 years.

The minimum investment amount is Rs 100 with no maximum limit. Investments of up to Rs 1.5 lakhs in this scheme are allowed as a deduction under Section 80C of the Income Tax Act. The interest rate is fixed which 7.6% to 8.5% annually is currently. Many investors take loans on this certificate from the banks. The NSC can be transferred from one individual to another if the certificate holder intends to transfer.

Options #7 – Infrastructure Bonds

A bond is an instrument to borrow money. Basically, they are borrowings that are to be invested in government-funded infrastructure projects within a country. They are issued by governments or government authorized Infrastructure companies or Non- Banking Financial Companies. Infrastructure bonds are not available all the time.

Whenever the government needs some money then they issue these bonds to raise money from the common people. An Indian resident(not minor) and HUF can invest in this bond with a maturity period of 10-15 years with an option of buy-back after a lock-in of 5 years.

These bonds are listed on Bombay Stock Exchange(BSE) and National Stock Exchange(NSE).Investments up to Rs. 20000 are eligible for income tax deduction under Section 80CCF of the Income Tax Act(this is over 1.5 lakhs of deduction available under section 80C).

Options #8 – Tuition Fees

Under section 80C, the government of India allows tax exemption on the tuition fees paid by the individual for their children. To be more precise the deduction is available only on the tuition fees part of the total fees paid. Other components of fees such as development fees, transport fees are not eligible for deduction u/s 80C. The deduction can be claimed for only 2 children.

For e.g, If a person has 4 children and father is the only earning member in the family whose income is taxable then he can claim an exemption for only 2 children and not 4 children. But if both the parents are working and both of there income is taxable then they both can claim and get an exemption for all the 4 children. Adopted Children’s school fees are also eligible for deduction.

Options #9 – Senior Citizen Saving Schemes(SCSS)

SCSS is a savings scheme for a senior citizen who falls under the age group of 60 years and above. Those senior citizens who are at the age of 55 years or more but less than 60 years (who have retired on superannuation or under VRS) can also avail of this scheme, within one month of receipt of retirement benefits and the amount should not exceed the number of retirement benefits.

The senior citizen can visit the nearest post office to avail of this scheme. A joint account can be opened with a spouse or husband only( with the first depositor as the investor). The account can be transferred from one post office to another.

There can be only one deposit in the account in multiple of INR.1000/- maximum not exceeding Rs 15 lakh. The current interest rate is 8.7% per annum. Maturity period is for 5 years. After maturity, the account can be extended for three years more (by giving an application in the prescribed format).

In such cases, the account can be closed at any time after the expiry of one year of extension without any deduction. TDS is deducted at source on interest if the interest amount is more than INR 10,000/- p.a. Nomination facility is available at the time of opening the account and also after opening the account.

Options #10 – Home Loan Payment

One can claim deductions on principal repayment for the home loan. The exemption is available up to Rs. 1,50,000 within the overall limit of section 80C.
Conditions for claiming the deduction are as follows-

• The home loan must be for the purchase or construction of a new house property.
• The property must not be sold in five years from the time one takes possession

Options #11 – Registration expenses of House and Stamp duty

Registration expenses of house and Stamp Duty charges and other expenses related directly to the transfer of house are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs. 1.5 lakhs. One should claim these expenses in the same year one makes the payment on them.

Options #12 – Post Office Time Deposits

The post office time deposit is a post office scheme. An individual and minor(for 10 years and above) can open an account here. Minor after attaining majority has to apply for conversion of the account in his/her name. A joint account can be opened by two adults. A single account can be transferred into joint and vice-versa. Nomination facility is available at the time of opening and also after the opening of an account.

The account can be transferred from one post office to another. The Interest is payable annually but calculated quarterly. One can make a minimum investment of Rs 200 with no maximum limit. The investment under 5 Years Time Deposit qualifies for the benefit of Section 80C of the Income Tax Act, 1961.
The interest rates increase year after year –

• 1 year A/c is 6.9%
• 2 year A/c is 7%
• 3 year A/c is 7.2%
• 4 year A/c is 7.8% (interest rates as on 01.10.2018)

Options #13 – Unit Linked Insurance Plan(ULIPs)

ULIPs stands for Unit-Linked Insurance Plans. It is a combination of insurance and investment. Here policyholder pays a premium monthly or annually. In this plan, a small amount of the premium goes to secure life insurance and rest of the money is invested just like a mutual fund does. ULIP offers investors to invest in equity and debt. Life insurance ULIP must be kept in force for 2 years to claim deduction u/s 80C.

Options #14 – National Pension System(NPS)

The NPS is a pension scheme by the Indian Government which allows the unorganized sector and working professionals to have a pension after retirement. This can be opened by any Indian citizen aged between 18 and 60. No limit on maximum contribution.

The interest rate varies between 12% – 14%. Partly withdrawals are allowed only after 15 years but under special conditions. Investments of up to Rs. 50,000 can be used to avail tax deductions under Section 80CCD. This limit of 80CCD is deductible over and above the maximum limit of section 80C (Rs.1.5lacs).

Options #15 – Employees Provident Fund(EPF)

EPF is a retirement scheme which is available to all salaried employees. 12% of basic salary + DA, is deducted by an employer and deposited in the EPF or other recognized provident funds. Any employee with a basic salary of 15000 per month can open the EPF account.

The interest rate payable is 8.55%. The basic requirement of this scheme is that both the employer and employee will have to contribute a minimum of 12% basic pay+D.A. The entire PF balance with interest is tax-free if it is withdrawn after 5 years of continuous service.

Case Study – Radha recently started working in an organization. She wanted to have a better life after retirement. So she decided to save more for her future and requested her employer to deduct more 8% from her basic pay in terms of EPF. So all together Radha invested 20 % of her basic pay every month for her better and secure future in EPF. This phenomena of voluntarily investing more in EPF is called VPF (Voluntary Provident Fund).

CONCLUSION :

So, by now you all have come to know the various options to save your hard-earned money from getting taxed. Rather than just sticking to one option, don’t you think you should invest a little-little in few options so that you can get good interest rates and lump sum amount after maturity.

Please let us know your views about this article. If you have any doubts or query, leave in the comment section.

Have you filed your income tax return?

Yes /No?

There are many investors who have very low or zero tax liability and therefore they skip filing their income tax return. Then, there are investors who do not file their returns for years and only when something urgent comes up which requires their last few years of ITR, they go to a CA and file their old tax returns.

Today, I will share with you why you should file your income tax return, even if you have income below the taxable limit.

Before that, let me share with you what exactly is ITR, for those who are not aware of it.

What is Income Tax Return (ITR) and who should file it?

An Income Tax Return is a form, where a taxpayer discloses details of his/her income, claims applicable deductions and exemptions and taxes that are payable on the taxable income.

As a responsible citizen of India, everyone who has an income should file an ITR, because in this way we are actually declaring all sources of income whether taxable or non-taxable.

The Income Tax Department mandates everyone to file an income tax return if one’s gross total income (before allowing deductions under section 80C to 80U) exceeds Rs. 250,000 in a financial year.

One can also file it even their income is below the taxable limit or its zero (in which case it’s called NIL return). Filing Nil return will act as proof of accumulated funds in your bank accounts or other investments.

There are various benefits if one files ITR irrespective of their income. Below I have listed a few benefits of filing ITR.

Benefit #1 – Proof of accumulated earnings over the years

It might happen that a person is earning some small income over the years which is below the taxable limit and over the years they accumulate good corpus. Now it may happen that they might get tax scrutiny for some reason after a few years.

If someone has not filed the ITR over the years, it will be a lengthy and tiresome process to explain the sources of earnings over the years. However, with ITR, it will be legal proof of income earned in each year.

Benefit #2 – VISA processing

If you are traveling overseas or planning to travel in the near future, proof of earning is required. If you are salaried than the employer certificate will work but if you are self-employed than income details are needed to be submitted. So, ITR return will work as income-earning proof.

Benefit #3 – ITR serves as proof of income for Self-employed

Being self-employed does not provide earning proofs such as salary certificate from the employer and form 16. So, having ITR ready with you as proof of income is the most convenient proof.

Benefit #4 – One can Carry forward capital losses

If you have incurred capital losses, the Income Tax Act allows you to carry forward losses for eight consecutive years, and balance it against future gains and income.

To keep a track of your losses, the Income Tax Department has laid out that, Losses for a year cannot be carried forward unless that year’s return has been filed before the due date. So, even if it’s a loss return, you do not have any income to show – do file your return before the due date to declare the capital loss incurred.

Benefit #5 – Helpful for those with very small earnings

There are many people who get some small incomes such as

• Interest on bank/company deposits
• Dividends
• Family pension (received by a legal heir)
• Tax-free incomes like Agricultural Income, tax-free bonds, etc.

These people total income might be below the taxable limit and they might feel that they are not supposed to file any tax returns, as they don’t have to pay any tax (because TDS is already deducted). But by filing ITR they will get legal proof of income (in case they need it).

Benefit #6 – Claiming Tax Refund

If you have paid excess tax on your income, then you can file for a refund from the income tax department. In order to get this refund, it is mandatory that you file ITR.

Getting a refund of your taxes feels like getting a paycheck credited. Many salaried people don’t file their ITR as they feel that the tax on their income has already been deducted and they have form 16. But, it might happen that, the employer has paid more tax on your behalf, not taking into consideration your actual house rent, tax-saving investments or insurances. So, in that case, filing of ITR will lead you to ask for a refund from the IT department.

Benefit #7 – Ease of getting loans

If you apply for any loans such as a home loan, car loan, etc., then ITR for the last 2-3 yrs is asked as the mandatory documents. ITR will help your lender to assess your repayment capacity and is an important document. A lot of people who have not filed ITR on time rush at the last minute for these documents, so why not better file it on time?

Benefit #8 – Buying a high life cover

When you buy higher life insurance cover the Insurance company asks for proof of income to assess the cover amount to be provided to you. For this salary slip, bank statements or ITR of the last 3 consecutive assessment years are required.

It might happen that you don’t get a salary receipt or your monthly income is being paid from different groups so bank statements will also not work as strong proof. So, better to have an ITR return filed.

Do you know someone who should file ITR in your circle/family?

I hope the above points will make you understand why it is always preferable to file ITR, even if it might be NIL return. In a lot of families, there are people whose name there are small incomes like dividend income, income from tuition fees, small business income and this article applies.

So make sure you start filing an ITR for them and save yourselves from the future hassles involved.

Do share your views, experiences and ask queries through comments.