Income Tax Saving Tips Beyond Section 80C :

We will only tell you what's available, and what's good for you, from a tax saving point of view.

When we think about making tax saving investments, the first thing that comes to mind is Section 80C.

But readers, slow down.

There are some things you need to keep in mind about Section 80C. And once we've gone through these things, we'll see what else you can do, that does not involve making fresh investments, to save tax.

Let's finish off with 80C first and then we'll move on to other deductions you can use.

First, Know Your 80C.

The most common investments people think of, when they think of 80C are PPF and ELSS.

The split in most people's minds is Rs. 70,000 into PPF and Rs. 30,000 into an ELSS fund.

But hang on.

a.                You've been contributing to your own Employee Provident Fund (EPF) all year.
Find out what this figure is from your friendly neighborhood HR department, and make a note of it.

b.               Also, do you have a home loan? If yes, the principal repayment this year counts under 80C as well.
Call your bank / housing finance company and ask them for a copy of your amortization table to see how much principal you have repaid this year.

c.                Have you been sold a ULIP recently? If yes, then first read more about ULIPs and prepare yourself better, but also – your premium, or at least part of your premium, is deductible under 80C too.

d.               Invested into any 5 year FDs in the last Financial Year? These funds count as well.

Also:

e.                Pension funds,

f.                 National Savings Certificate,

g.                Senior Citizen Savings Scheme investments

h.                Investments into the National Pension Scheme

i.                  Any life insurance premium you might be paying…

All of these investments are deductible under 80C.

Total up everything that applies to you, and now you'll know what you have left to invest under 80C to meet your Rs. 1 lakh deductible limit.

Now that you know this, lets see where you can put this money.

a.                PPF: a well-loved option. Earning interest of 8% per year, with tax deduction on the investment, and no tax on maturity, these are all great qualities. This is definitely a good investment option. Remember to limit your investment to Rs. 70,000 per year, any investment above this amount does not get any tax deduction.

b.               ELSS: You can invest up to Rs. 1 lakh into a good equity linked savings scheme, it has a lock in period of 3 years and is currently tax free on maturity as it is equity. When the Direct Tax Code comes out, this might or might not change, we will have to wait and see.

So remember, 80C involves a lot more than just PPF and ELSS. Remember to submit proof of investment when quoting 80C investments on your tax return. If you want details on all the options mentioned above, refer our article on Section 80C for more information. Remember to come back to this article and read the rest of it though.

Now we can see what else the IT Act has to offer.

New Section this year – 80CCF

This year only, you can invest into Long Term Infrastructure Bonds, and avail an extra Rs. 20,000 of tax deduction under Section 80CCF. If you're in the 30% tax bracket, you will save roughly Rs. 6,000 on tax by investing into these bonds. They are launched by IFCI, LIC, IDFC, and any non banking finance corporation such as IDBI and REC. The funds are long term i.e. a minimum tenure of 10 years, and are offering approximately 8% per annum yield, but remember that interest earned is taxable.You have until March 31st, 2011 to invest into these bonds, for it to be eligible for deduction this year.

Got Health Insurance?

This is Section 80D.

A straightforward mediclaim policy can save you tax on the premium paid.
If you are paying premium for yourself, spouse and kids, you can avail up to Rs. 15,000 deduction per annum (Rs. 20,000 if you're a senior citizen) and you can also avail deduction for premiums you are paying for your parents (Rs. 20,000 if they are senior citizens, Rs. 15,000 if they are not).
There's a reason that the IT Act includes this deduction – because it's important for people to have health insurance. So if you don't have a simple mediclaim policy, do opt for one immediately and also make use of the tax benefits.

Taken an education loan?

This is Section 80E. If you have taken an education loan for yourself, your spouse, your kids, or even of a child of whom you are a legal guardian, then every year you can avail a full deduction of the interest you are paying on the loan (capped at 8 years).

Living on rent?

Show your rent receipts to claim deduction using your HRA (House Rent Allowance) benefit available to you in your salary structure. You can avail the least of the following:

a.                Actual HRA received

b.               Rent paid in excess of 10% of your salary (Basic + DA)

c.                50% of salary (Basic + DA) if you live in a metro, 40% of salary (Basic + DA) if you live in any other city

Claimed your medical bills reimbursement?

Like everybody else, you probably spend some money on medicines each year. Keep the bills (just like everybody else does), and claim a reimbursement up to Rs. 15,000 per financial year. This has to be on actual bills paid, and you have to produce the original bills. Speak to your HR department, they will ask you to fill up a simple form, produce the bills, and will adjust it with the allowance you are entitled to.

Took a holiday anytime in this past year?

Kept your travel expense records? You can claim your Leave Travel Allowance as an exemption as well, for travel within India, for yourself and your dependents who have travelled with you. Speak to your HR department, fill a small basic form, produce your tickets, and you can claim your LTA peacefully.

Also, apart from the above, do read our article on Popular Tax Saving Deductions to see even more options that are available to help you save tax.

Your Action Steps

Once you've done all these things, and saved tax because of them, remember, make your tax saving investments on time, and save yourself the trouble of running around at the last minute, and the unpleasant feeling of being nagged by your well-meaning financial planning company.

You can invest in your PPF and your ELSS through the year rather than at the very end. The next time you take a holiday, keep your travel expense records such as flight or train tickets for yourself and your dependents. Keep a shoe box aside to hang on to your medical bills through the year. And of course, plan your tax saving investments in line with your larger financial plan

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Source : prajnacapital

Tax saving products

Q1. What are the commonly available products under section 80 C?

A. In order to avail of tax benefits under Section 80 C, you can invest in following products

• Tax saving 5 year FD’s
• Life Insurance policies
• Public provident fund
• Pension plans
• National saving Certificates
• Post office time deposits
• Buying home with housing loan ( Only principal of loan is eligible for 80C deduction )
• Equity linked saving schemes

Q2. What are the other deductions available other then section 80 C?

A. Depending upon the eligibility criteria, one can claim various deductions from the gross total income:
1. Section 80 D: You can invest upto Rs. 30,000 in medical insurance; avail of tax benefits. (Rs. 15, 000 for self, spouse and dependent children plus Rs 15, 000 for non-senior parents Rs 15,000). However, the limit of Rs 15,000 is enhanced to Rs 20, 000 in case premium is paid for senior citizens
2. Section 80 E: The interest on loans taken for higher education and vocational training is eligible as a deduction
3. Section 80 G: Donations to specific trusts/ and Funds are eligible for deduction ranging from 50-100% subject to a 10% overall ceiling of adjusted gross total income in respect of certain donation
4. Section80DD: A fixed total of Rs. 50,000 shall qualify as deduction (irrespective of amount incurred) either towards expenditure for the medical treatment of handicapped dependant or sum paid under an approved annuity scheme framed for payment of an annuity. In case the disability is severe, the claim can go up to Rs 75,000/- In this years budget The limit for severe disability is proposed to be increased to Rs.1,00,000 from the current Rs.75,000

Q3. Do all tax saving instruments offer same benefit?

A. No, Income tax treatment for different tax saving instruments are different. While most of the tax saving instruments offer tax benefits only at the time of contributions there are few instruments like insurance which not only offer tax benefits at the time of contributions but also at the time of maturity.

Q4. I hear a lot about EEE, ETE and EET, What does it mean?

A. EEE (exempt,exempt,exempt), EET (exempt, exempt, taxed) & ETE (exempt, taxed,exempt,) are different methods used for taxation of savings instrument.

Under “EEE” scheme of taxation of eligible savings instruments, the initial contributions are exempt from tax, also on accumulation of income therein is exempt from tax, and similarly the withdrawals/benefits from the investments are exempt as well.

In EET instruments while contributions and accumulations would continue to remain exempt, the withdrawals/benefits would be taxed.

In ETE instruments only the interest accrued on the investments is taxed while the contribution & maturity benefits are tax free.

Q5. Are investments made in fixed deposits subject to tax deducted at source (TDS)? What is the limit below which TDS is not applicable?

A. The following provisions of tax deduction applies for making payment of interest on securities/ and other instruments, which is applicable other than insurance products.

Section	Section description	Exemption limit
193	Interest on listed debentures issued by a company in which public are substantially interested and interest is paid by a/c payee cheque.	Upto Rs 2,500
194A	Payment of interest other than interest on securities	Rs. 10,000 if interest is payable by banks, Rs 5000 in case of others.

Q6. What are the tax benefits available to an individual in respect of premium paid on life insurance policies?

A. Entire life insurance premium paid by an individual/ HUF qualifies for a deduction upto Rupees One lakh for each financial year under Section 80C of Income Tax Act, 1961.

Q7. Can tax benefits be claimed if the premium is paid by an individual on his/her spouse's policy?

 A. Tax benefits can be claimed by an individual who pays life insurance premium on behalf of his/her spouse's policy under Section 80C of Income Tax Act, 1961.

Q8. Are maturity proceeds on life insurance and pension policies taxable?

A. The maturity proceeds of life insurance policies are not taxable. However, under pension plans, up to one-third of the maturity amount can be withdrawn and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount. Pension receipts from the same will be treated as income in the hands of the beneficiary and taxed accordingly.

Q9. What are the deductions available in respect of a medical insurance premium?

A. Medical insurance premium paid qualifies for deduction under Section 80D as follows:
• Premium paid up to Rs 15,000 (in a financial year) is eligible for deduction from gross total income.
• You can also pay medical insurance premium for your parents & claim an additional deduction of Rs 15,000 under Section 80D. In case of senior citizens, the limit is Rs 20,000
In other words, an individual who pays medical insurance premium for himself and his parents will be eligible to claim tax benefits to the extent of Rs 30,000 i.e. Rs 15,000 (for himself) and Rs 15,000 (for his parents)

Q10. Can I get tax benefits on the entire amount I pay as rent?

A. No, this is common misconception, the maximum rent amount on which you can claim tax benefit is the lowest of the following amounts
• House Rent Allowance given by the employer
• 50% of your basic salary if you live in a metro, 40% for other locations
• Actual rent paid minus 10% of your basic salary.
Thus if actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.

Q11. I have heard of Interest and Principal repayment of home loans as having separate tax benefits. How much can I save in each?

A. Yes, Tax benefits can be claimed on both the principal and interest components of the home loan under the Income Tax Act, 1961. Interest on borrowed capital is deductible up to Rs 150,000 (in a financial year). However, interest for pre-construction period is allowed in five equal instalments (within the above limit) commencing from the year in which house is constructed/ acquired. For let out properties, the entire interest paid is deductible under section 24 of the Income Tax act. Principal repayment of the loan/capital borrowed is eligible for deduction of upto Rs 100,000 (in a financial year) under Section 80C.

Q12. Does interest on loan taken for the reconstruction, repairs or renewal also qualify for deduction of Rs. 150,000?

A. Yes, the interest on a loan, taken for repairs, renewals or reconstruction, also qualifies for the deduction of Rs 150,000.

Q13. Can I invest in the name of a family member and get the tax benefits in my name?

A. Yes you can, you can invest in insurance and PPF in your name or in name of your wife and children & claim tax benefits. In case of medical insurance you can take policy for your parents & take tax benefits on the amount.

Q14. Can I claim tax savings on the investments made in my name by a family member?

A. No, you cannot, the person contributing towards the investments is only eligible for tax benefits.

Q15. What are the investment options under Section 80 C?

A. Bank deposits - Term deposits in a scheduled bank with a minimum period of five years offers tax advantage. Term deposits are a one-time investment and there is no commitment to pay in the future.


Employee Provident Fund (EPF) - This is a saving for employees and helps them save for retirement. Every month, 12 per cent of basic salary is deducted and put into a kitty maintained either by the government or company’s trust. The contribution currently earns a tax-free return of 8.5 per cent. The rate of return is fixed by the government every year in March-April.

Public Provident Fund (PPF) - This is a self-directed investment option. It is essentially a 15-year investment that gives a tax-free return of eight per cent as of now. The rate is subject to change. Investments of Rs 500-70,000 qualify for a tax deduction under Section 80C.

Home loans - The total amount eligible for deduction is up to Rs 1 lakh a year for the principal amount.

Equity-linked savings schemes (ELSS) -These are mutual fund products and carry market risk. Like all tax saving options, these plans have a lock-in period of three years. Therefore, it makes sense to go in for funds with good track records rather than the new fund offers, especially in this category.

National Savings Certificates (NSC) - These are for those who are less averse to risk. This government-backed security is available at post offices and gives an interest rate of eight per cent, compounded half-yearly as of now. The interest is entirely taxable. NSCs are good for those in lower tax slabs with an investment horizon of six years.

Life insurance – The premium for life insurance policy is eligible for a tax deduction up to Rs 1 lakh under Section 80C. If the premium paid in any of the years is more than 20 per cent of the sum assured, then deduction will be allowed only up to 20 per cent of the sum assured. This applies to all term, endowment and unit-linked plans.

Post office time deposits - The scheme is similar to bank fixed deposit. Tax benefit is applicable only for deposits under the 5-year period. Currently interest rate is 7.5 % payable annually but calculated on a quarterly basis.

Q16. How can I avail tax benefits under Section 80 D, 80DD, 80G & 80 E?

A. Health insurance - Under Section 80D, Individual/ HUF can claim deduction for medical insurance premium up to Rs 15,000, with an additional deduction of Rs 5,000 if the policy is in the name of a senior citizen (65 years or older). In addition to the above, an individual who pays premium for medical cover for parents is allowed deduction of Rs 15, 000/- each year.

Educational loan - The interest on loans taken for higher education and vocational training are also eligible for deduction from your total income under Section 80E. There is no monetary ceiling on the interest you can claim as a deduction. The loan must have been taken from a financial institution or an approved educational institution for higher education for himself/ spouse or children. Remember, repayment of loan or interest on loans taken by parents for higher education of their child is not eligible for deductions.

Charity - To avail tax benefits under Section 80G, donations must be made only to specified trusts. The tax breaks vary according to the trust to which you have donated.


Medical treatment - Any expenditure for the medical treatment (including nursing) of a handicapped person, training and rehabilitation of a person suffering from a permanent physical disability (including blindness) or from mental retardation, qualifies for a deduction under Section 80DD upto Rs 50,000. A life insurance policy bought for the benefit of such a handicapped person is also eligible for this benefit up to Rs 50,000. In case the disability is severe, the claim can go up to Rs 75,000. In this years budget The limit for severe disability is proposed to be increased to Rs.1,00,000 from the current Rs.75,000