Tax Saving Investments
As individual taxpayers, you pay taxes on your expenses and incomes. Taxes which apply to your expenses are ‘indirect taxes’, and the taxes applicable to your income are the ‘direct taxes’. To reduce the income tax burden, you can go for tax saving investments and claim deductions for the same as per Income Tax Act, 1961.
Disclaimer:
In Unit Linked Policies, the investment Risk in the investment portfolio is borne by the policyholder.
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Basics of Income Tax Investments
Taxes are one of the essential instruments for the survival of the state. Taxes collected by the Government helps in running the development projects in the country, including defence, and healthcare.
Taxpayers of the country comprise of individuals, firms and institutions. Taxes are inevitable for anyone earning and spending money.
Any person having income above the prescribed basic exemption limit is liable to file an Income tax return for the fiscal year, regardless of the tax liability. Also, you have various options to reduce your Income-tax liability. These are called ‘tax saving instruments.’
But you need to focus on tax saving only if you are liable to pay income tax.
Smart Income Tax Saving Tips
“Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.” – F.J. Raymond
Tax saving is a benefit you can avail for selective investment options and expenses. You anyways need to invest money to achieve your financial goals. Investments which save tax can help you in two ways:
- Invest more and have more disposable income
- Grow your Investment faster
Then why not, invest in your goals using tax efficient investments.
Here are our top picks for tax saving instruments according to your life stage:
1.Smart Income Tax Saving for Young Unmarried Tax-Payers & Single Income Couples
1.Smart Income Tax Saving for Young Unmarried Tax-Payers & Single Income Couples
If you are in your late 20s and early 30s, and unmarried, or you are married, but only one of you is earning, the best tax saving options for you will be:
- Buy Term Insurance cover with a Sum Assured equal to 15 to 20 times of your annual income
- Public Provident Fund (Provide EEE benefits)
- Allocate at least 20% of your annual income to Market-linked Investment Options which offer EEE benefits. For example:
- Unit Linked Insurance Plans (ULIPs) or Wealth Plans from Max Life
- Equity Linked Savings Schemes (ELSS)
Start Investing at least 10% of your annual income in a pension fund, like
- National Pension Scheme (you can save Rs. 50,000 more)
- Pension Funds from Max Life Insurance
Save up to Rs.1 lakh under Section 80D
- Buy a Mediclaim health insurance cover for self
- Buy a Mediclaim health insurance cover for parents
- Cover yourself against critical illnesses like cancer (final stage only), renal failure etc.
- Get cancer (all stages) cover for self
Invest in House Property for an Additional Tax Saving on interest amount up to Rs.2 lakh u/s 24(b)
2.Smart Income Tax Saving Tips for Single Income Couple - Parents
2.Smart Income Tax Saving Tips for Single Income Couple - Parents
If you are a parent and one of you is earning, your investment options change a little to suit your financial goals. Investing as per your financial needs will not only help you save tax but also meet the goals of your kids:
Save up to Rs. 1.5 lakh under Section 80C
- Buy Term Insurance cover with a Sum Assured equal to 15 to 20 times of your annual income
- Public Provident Fund (PPF)
- Allocate at least 20% of your annual income to Market-linked Investment Options which offer EEE benefits. For example: Unit Linked Insurance Plans (ULIPs) or Wealth Plans from Max Life, Equity Linked Savings Schemes (ELSS),Child Plans and ULIPs from Max Life
- Additionally, you can also claim children’s tuition fee for deduction under 80C
Invest at least 10% of your annual income in a pension fund, like
- National Pension Scheme (you can save Rs. 50,000 more)
- Pension Funds from Max Life Insurance
Save up to Rs.1 lakh under Section 80D
- Buy a Mediclaim health insurance cover for self, spouse and kid
- Buy a Mediclaim health insurance cover for parents
- Cover yourself against critical illnesses like cancer (final stage only), renal failure etc.
- Get cancer (all stages) cover for self
Invest in House Property for an Additional Tax Saving of home loan interest amount up to Rs.2 lakh under Section 24(b)
Use education loan to fund the kid’s higher education. The interest on education loan is completely deductible under section 80E
3.Smart Income Tax Saving Tips for Double Income Couples
3.Smart Income Tax Saving Tips for Double Income Couples
If you are married and both of you are earning, jointly you can claim more than Rs.8.5 lakh in deductions with investments and insurance:
- Save up to Rs.3 lakh under 80C
- Both of you should buy separate term insurance covers with a sum assured equal to 15 to 20 times of your annual incomes
- Public Provident Fund (PPF)
- Allocate at least 20% of your annual household income to Market-linked Investment Options which offer EEE benefits. For example: Unit Linked Insurance Plans (ULIPs) or Wealth Plans from Max Life, Equity Linked Savings Schemes (ELSS)
Start Investing at least 10% of your annual household income in a pension fund, like
- National Pension Scheme (you can save Rs.1 lakh more)
- Pension Funds from Max Life Insurance
If you are a parent
- One of you can claim the school fee paid (or if you have two kids then divide the school fee paid)
- Invest in Child Plan
- Save up to Rs.2 lakh under Section 80D
- Buy a Mediclaim health insurance cover for self (both spouses should opt for separate Mediclaim covers)
- Buy a Mediclaim health insurance cover for your (applicable to both spouses) parents
- Cover yourself against critical illnesses like cancer (final stage only), renal failure etc.
- Get cancer (all stages) cover for self
- Invest in a House Property for additional Tax Savings on home loan interest up to Rs.4 lakh
- Invest in joint names or different properties
- Both spouses can only claim the respective amounts they have paid towards the home loan interest
Tax Saving Tips for Retired or Pensioners
- After retirement, the absence of monthly salary can become a problematic situation if enough funds are not available to manage your regular expenses
- You can overcome this problem by opting for annuity schemes, which not only provide regular income in your golden days but also help save on taxes
- ‘Senior Citizen’s Saving Scheme’ is one such annuity scheme, which is the first choice of most retirees
1.The scheme is available only to individuals above 60 and can be availed from a post office or a bank
2.Investments in this scheme are eligible for tax benefits under Section 80C and allow premature withdrawals as well
- Insurance companies also offer special annuity products, which provide a regular income post-retirement
- Annuity plans provide tax benefits as no tax is charged on your invested money until you plan to withdraw it
- Besides annuity plans, Unit Linked Insurance Plans (ULIPs) also make a good tool for retirement fund creation
- Moreover, keeping your funds invested in ULIPs allows you tax benefits under:
1.Section 80C: tax exemption of up to Rs.1.5 lakh on your premiums
2.Section 10D: allows you to withdraw tax-free proceeds at maturity
- This saves a substantial amount of your money as these tax-free withdrawals help replace your taxable pension (as withdrawals on annuity plans are taxed)
- You can invest into the following tax-saving instruments you can avail benefits under section 80C and beyond
Smart Tax Saving Tip for Tax-payers Falling in the Highest Tax Bracket
- When you fall into the highest tax bracket and have exhausted all options of tax saving, you can reduce your taxable income by:
1.Transferring large sums to your non-earning spouse against an asset, like jewellery, etc.
2.Invest in the name of your parents who are retired and may fall into the lower tax bracket
3.Do not though,any transfer of an asset without adequate consideration will lead to clubbing of the income of that asset in your hands
Smart Tax Saving Tips If You Are Running a Family Business
The business itself offers huge tax saving opportunity in the early stages. However, once you have a long-established business becoming a cash cow, your income from the business assets may rise greatly.
If your income from the family business is landing you and your family in the top tax brackets, you can form an HUF to reduce the tax outgo. HUF can help you evenly distribute the income among the family members and reduce your overall tax outflow on the income.
Income Tax Liability
Are You Liable to Pay Income Tax?
Indian direct tax system offers a calculation of tax liability based on tax slabs. It also offers a minimum threshold for zero tax liability, based on the age of the taxpayer. Meaning, if your taxable income falls within the first (lowest) slab, your tax liability would be zero.
According to the Interim Budget 2019, Individual taxpayers with taxable annual income up to Rs.5 lakh are eligible to receive full tax rebate under Section 87A, and therefore, will not have to pay any income tax. in addition, the income tax slabs and rates will remain unchanged for the FY 2022-23.
What is the Minimum Threshold for Income Tax?
The minimum income threshold depends on the age of the taxpayer (Resident/ Non-resident). The minimum threshold is:
- Rs.2.5 lakh if you are below the age of 60 or filing tax as a Hindu Undivided Family (HUF)
- Rs.3 lakh if your age is 60 to 79 years
- Rs.5 lakh when you are 80 years and above
What will be the Tax Liability After the Minimum Threshold?
After you cross the minimum threshold, your excess income becomes taxable at the following rates:
For Individuals below the Age of 60 Years
| Income Tax Slab (in Rs.) | Applicable Tax |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | Rs. 12,500 + 20% of total income exceeding 5,00,000 |
| Above 10,00,000 | Rs. 1,12,500 + 30% of total income exceeding 10,00,000 |
For Individuals of the Age of 60 or above But Less Than 80 Years (Senior Citizens)
| Income Tax Slab (in Rs.) | Applicable Tax |
|---|---|
| Up to 3,50,000 | Nil |
| 3,00,001 to 5,00,000 | 5% |
| 5,00,001 to 10,00,000 | Rs. 10,000 + 20% of total income exceeding 5,00,000 |
| Above 10,00,000 | Rs. 1,10,000 + 30% of total income exceeding 10,00,000 |
For Individuals of the Age of 80 Years or above (Super Senior Citizens)
| Income Tax Slab (in Rs.) | Applicable Tax |
|---|---|
| Up to 5,00,000 | Nil |
| 5,00,001 to 10,00,000 | 20% |
| Above 10,00,000 | Rs. 1,00,000 + 30% of total income exceeding 10,00,000 |
Also, if your total income is up to Rs.5 lakh, you are eligible for a full tax rebate under section 87A
There is a 4% Cess of tax applicable across income groups. In addition, there is a Surcharge at:
- 10% for income above Rs.50 lakh but upto Rs.1 crore
- 15% for income above Rs.1 crore but upto Rs.2 crore
- 25% for income above Rs.2 crore but upto Rs.5 crore
- 37% for income above Rs.5 crore
The slabs are applied to the total income. However, the minimum tax exemption limit will vary as per the individual taxpayer’s age.
That means if you are below 60, and your annual taxable income had been Rs.7 lakh your income tax liability can go up to Rs.52,500 plus cess, for FY 2022-23.
That is, 5% of Rs.2.5 lakh (Rs.2.5 lakh to Rs.5 lakh) after the minimum exemption threshold (Rs.2.5 lakh) and 20% of remaining Rs.2 lakh.
But this is a hypothetical scenario, where you have zero tax saving investments or spends.
If you allocate your savings in tax saving investments through the financial year, you may reduce your tax liability to as low as zero.
How to File Your Income Tax Return?
- You can file your income tax return electronically on the income-tax portal incometaxindiaefiling.gov.in provided by the Government of India
- Filing the return online is an easy and straightforward process. First, you need to create your login on the e-filing portal. You will need your PAN card details to create the login. It is advisable to assign your Aadhaar Number as well to your ITR for easier processing
- Once you log in to the account, you can select your assessment status and year of filing to access the applicable ITR form
- Fill the information in the ITR form as prompted. If you are salaried, it is recommended to use Form 16from your employer and 26AS as well, while filing ITR online
- Alternatively, you can engage the services of a Tax Return Preparers (TRPs) authorized by the Government of India
What is the Maximum Tax Saving That You Can Avail?
Considering that you maximize your tax savings using investments, and voluntary spends, you may reduce your taxable income by Rs. 4,75,000 (details below) for FY 2022-23 (AY 2023-24.) Rs. 4,75,000 includes the following commonly available deductions:
| Deductions | Max Amount (Rs.) |
|---|---|
| Standard deduction | 50,000 |
| Section 80C | 150,000 |
| Section 80CCD(1B) NPS | 50,000 |
| Section 80D | 25,000 |
| Section 24(b) | 200,000 |
| Section 80D | Total |
Disclaimer: This limit only includes, investments and expenses any taxpayer can voluntarily incur.
The amount of tax you end up saving through the investments and expenses above depends on your income. See the cases below to get an idea:
CASE 1
Shobhit is a 27-year old Business Analyst. His taxable income in the financial year 2019-20 is Rs. 7,50,000 (without TDS).
His tax liability for FY 2022-23 would be:
- Rs. 52,520*without tax saving investments (after standard deduction & deduction u/s 80TTA)
- Zero tax liability with maximum tax saving investments (after deduction u/s 80TTA and other deductions)
*as per the applicable tax slabs & cess
See Calculation Details
Without any tax savings, Shobhit’s net taxable income (Rs. 750,000) goes up into the 20% tax slab. Without tax saving investments his total tax would be:
| Total Taxable Income | Rs. 750,000 |
| (Minus) Tax Saving Investments/Spends – Standard Deduction | Rs.(50,000) |
| (Minus) Section 80TTA (savings in banks, post office, etc) | (10000) |
| Net Taxable Income | Rs.690,000 |
| Tax on Net Taxable Income: | |
| 20% of Rs. 190,000 (Rs.690,000 – Rs.500,000) | Rs. 38,000 |
| (Add) 5% of Rs. 250,000 (500,000 – 250,000) | +12,500 |
| Total Tax on Income | 50,500 |
| (Add) 4% Cess | + 2020 |
| Total Tax Payable in FY 2012-23 | Rs. 52520 |
However, with tax saving:
| Total Taxable Income | Rs. 750,000 |
| (Minus) Tax Saving Investments/Spends | Rs.(475,000) |
| (Minus) Section 80TTA (savings in banks, post office, etc) | (10000) |
| Net Taxable Income | Rs.265,000 |
| Tax on Net Taxable Income: | |
| 5% of Rs. 15,000 (265,000 – 250,000) | Rs.750 |
| Rebate u/s 87A (Rs.12,500 or Actual Tax payable; whichever is less) | Rs.(750) |
| Total Tax on Income | NIL |
CASE 2
As Rajni is a 40 year old businesswoman and runs her own clothing store. Her taxable income in the financial year 2019-20 is Rs. 15,00,000.
She will need to pay the following amount as tax on her income in FY 2022-23:
Rs. 2,69,880* if she does not invest or spend anything for tax saving (after deduction under Section 80TTA)
Rs. 137,280* if she maximizes her tax saving investments (after other deductions & deduction u/s 80TTA)
- as per the applicable tax slabs & cess
She can save Rs. 132,600 in direct taxes using tax saving investments.
See Calculation Details
Without any tax savings, Rajni’s net taxable income (Rs. 15,00,000) goes up into the 30% tax slab. Thus, the total liability of Rs. 269,880:
| Total Taxable Income | Rs. 15,00,000 |
| (Minus) Tax Saving Investments/Spends Section 80TTA | 10000 |
| Net Taxable Income | 14,90,000 |
| Tax on Net Taxable Income: | |
| 30% of Rs. 490,000 (14,90,000 – 10,00,000) | Rs. 147,000 |
| 20% of Rs. 500,000 (10,00,000 – 500,000) | + 100,000 |
| (Add) 5% of Rs. 250,000 (500,000 – 250,000) | + 12,500 |
| (Add) 4% Cess | + 10,380 |
| Total Tax Payable in FY 2022-23 | Rs. 269,880 |
However, with maximum tax saving, the breakup of her net taxable income and tax implication is as follows:
| Total Taxable Income | Rs. 15,00,000 |
| (Minus) Tax Saving Investments/Spends (475000 – 50000) | (Rs. 425,000) |
| (Minus) Section 80TTA (savings in banks, post office, etc) | (10000) |
| Net Taxable Income | Rs.10,65,000 |
| Tax on Net Taxable Income: | |
| 30% of Rs. 55,000 (10,65,000 – 10,00,000) | 19500 |
| 20% of Rs. 500,000 (10,00,000 – 500,000) | Rs. 100,000 |
| (Add) 5% of Rs. 250,000 (500,000 – 250,000) | + 12,500 |
| Total Tax on Income | 132,000 |
| (Add) 4% Cess | + 5280 |
| Total Tax Payable in FY 2022-23 | Rs. 137,280 |
**As Rajni is a businesswoman, she will not get the benefit of Standard Deduction of Rs. 50000. As the benefit of standard deduction is only provided to the salaried individuals.
Rajni can save up to Rs. 132,600 (Rs.269,880 – Rs.137,280) by maximizing her tax saving investments in F.Y. 2019-20.
CASE 3
Mukesh is 65 years old. He’s one of the Directors of a Consumer Electronics Firm. His taxable income in F.Y. 2019-20 has been Rs. 20,00,000
Mukesh will need to pay the following amounts as income tax in FY 2022-23:
Up to Rs. 3,95,200*without tax saving investments (after standard deduction & deduction u/s 80TTB)
Only Rs. 2,62,600*with maximum tax saving investments (after deduction u/s 80TTB & other deductions)
- as per the applicable tax slabs & cess
See Calculation Details
Without any tax savings, Mukesh goes up into the 30% tax slab with his net taxable income of Rs. 20 lakh. Thus, the total liability of Rs. 3,95,200:
| Total Taxable Income | Rs. 20,00,000 |
| (Minus) Tax Saving Investments/Spends (Standard Deduction) | (50,000) |
| (Minus) Deduction of Interest on Bank Savings, Post Office under Section 80TTB for Senior Citizens | (50000) |
| Net Taxable Income | 19,00,000 |
| Tax on Net Taxable Income: | |
| 30% of Rs. 9,00,000 (19,00,000 – 10,00,000) | Rs. 2,70,000 |
| 20% of Rs. 500,000 (10,00,000 – 500,000) | + 100,000 |
| (Add) 5% of Rs. 200000 (500,000 – 300,000) | + 10,000 |
| Total Tax on Income | 3,80,000 |
| (Add) 4% Cess | + 15200 |
| Total Tax Payable in FY 2022-23 | Rs. 3,95,200 |
**As Mukesh is a senior citizen, he can avail deduction on bank saving, post office interest up to Rs.50000 under Section 80TTB.
Minimum tax-exempt income is Rs. 300,000 for taxpayers between 60 and 79 Years of age
Although even with maximum tax saving, his net taxable income remains in the highest tax bracket, it reduces enough to reduce his total tax liability by little more than Rs. 132600:
| Total Taxable Income | Rs. 20,00,000 |
| (Minus) Tax Saving Investments/Spends | (Rs. 4,75,000) |
| (Minus) Deduction of Interest on Bank Savings, Post Office under Section 80TTB for Senior Citizens | (50000) |
| Net Taxable Income | 14,75,000 |
| Tax on Net Taxable Income: | |
| 30% of Rs. 4,75,000 (14,75,000 – 10,00,000) | Rs. 1,42,500 |
| 20% of Rs. 500000 (10,00,000 – 500,000) | + 100000 |
| (Add) 5% of Rs. 200000 (500,000 – 300000) | + 10,000 |
| Total Tax on Income | 2,52,500 |
| (Add) 4% Cess | + 10100 |
| Total Tax Payable in FY 2022-23 | Rs. 2,62,600 |
**Under Section 80TTA, regular individuals can claim a deduction up to Rs.10000 only. As Mukesh is a senior citizen, he can avail deduction on bank saving, post office interest up to Rs.50000 under Section 80TTB.
Income Tax Investments Under Section 80C
The commonly available deductions are available to any Indian tax-payer. Thus, if you are filing your income tax returns as a resident Indian, salaried or self-employed, or as a non-resident Indian (NRI) you can use these deductions to reduce your taxable income and tax liability.
Claim Deductions up to Rs.1.5 lakh under Section 80C
Section 80C consists of multiple investments and expense items. If you invest money in any of the products or expenses listed below, you can reduce your taxable income by up to Rs.1.5 lakh.
| SR. NO | INVESTMENTS ELIGIBLE FOR TAX DEDUCTIONS | DESCRIPTION |
|---|---|---|
| 1 | Home Loan Principal Repayment | Applicable to the first house property. Home loan EMI consists of two major components: Principal and Interest. Section 80C allows you to claim tax benefits on the principal paid. |
| 2 | Life Insurance Premiums | Life insurance premium, including payments for unit linked insurance plans, are eligible for tax benefits under section 80C. The limit for claiming the benefits is Rs.1.5 lakh, which means if you make no other investments but pay Rs.2 lakh towards your life insurance policy, then Rs.1.5 lakh will be eligible for tax benefits. *Exemption allowed for premium upto 10% of sum assured (20% if policy issued before 01.04.2012) |
| 3 | Five-Year Bank Fixed Deposits | Term deposit with a tenure of at least five years qualify for deduction under section 80C. |
| 4 | Equity Linked Savings Schemes (ELSS) | Investment in mutual funds, especially the equity-linked savings scheme makes you eligible for tax exemption under this section. ELSS funds provide maximum tax benefit up to Rs.1.5 lakh per annum and come with a lock-in period of 3 years. |
| 5 | Provident Funds | All contributions made under different types of provident funds like PPF (Public Provident Fund), EPF (Employee Provident Fund) and VPF (Voluntary Provident Fund) are eligible for tax benefits under Section 80C. |
| 6 | National Pension Scheme (NPS) | Investment into Tier I account (meant for retirement) of NPS, is eligible for deduction under sec 80C |
| 6 | National Savings Certificate (NSC) | Investment made in these certificates, which come with a maturity period of 5 and 10 years, is also eligible for tax benefits up to Rs. 1.5 lakh. |
| 7 | Sukanya Samriddhi Account | Announced by the Indian government in early 2015, this special account allows parents to open an account for their girl child. Parents can deposit money up to Rs.1.5 lakh each year. |
| 8 | School/College Education Expenses | The amount paid by parents as tuition fees of their children, (at the time of admission or thereafter), is eligible as a deduction under Section 80C. However, the fees should be paid to a school, college, or university in India only. |
| 9 | Pension Funds | You can secure your retirement by investment in pension funds and become eligible for deduction under this section. |
| 10 | Senior Citizen Saving Scheme | This scheme is available only for individuals in 60 or above age group. The investment made into this scheme makes you eligible for tax benefits under this section. |
| 11 | Post Office Time Deposits | Similar to bank fixed deposits, time deposits held at post office also are eligible for tax benefits under section 80C. |
Increasing Your Deduction to Rs.2 lakh under Section 80C
Section 80CCD(1B) - For NPS Subscribers
This is possible only for NPS , NPS Lite and Atal Pension Yojana (APY) subscribers. Under section 80CCD (1) subscribers of NPS Tier-I (retirement savings account) can claim deduction up to the normal 80C limit of Rs. 150,000.
Additionally, you can claim deduction of up to Rs. 50,000 under Section 80CCD (1B) which is for contributions made by individual taxpayers towards NPS, NPS Lite & APY. So, the total exemption limit available becomes Rs.2 lakh:
Rs.1.5 lakh (Section 80C + Section 80CCD (1) + Section 80CCC)
- Rs.50,000 under Section 80CCD(1B)
Tax Saving Investment Options
Investment options which enjoy all the three types of exemptions are the best, or most tax-efficient. Usually, the order of exemption goes as follows:
| Best Tax Saving | Still Better | Okay Option | |
|---|---|---|---|
| Invested Money | Exempt | Exempt | Exempt |
| Interest/Income | Exempt | Exempt | Taxable |
| Maturity Value | Exempt | Taxable | Taxable |
| Investment type | EEE | EET | ETT |
EEE Investment Options with Max Life Insurance
Max Life Insurance offers multiple investment plans which can save your income tax under 80C and offer tax exempt growth. You can invest in multiple of these plans as per your financial goals and needs.
Term Insurance Plans & Protection Plans
- Max Life Smart Secure Plus Plan (UIN: 104N118V02, A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan)
Market Linked Investment Plans for Long-term goal planning (ULIPs)
- Max Life Fast Track Super Plan (UIN: 104L082V04; A Unit Linked Non Participating Individual Life Insurance Plan)
- Max Life Platinum Wealth Plan (UIN: 104L090V04, A Unit Linked Non Participating Individual Life Insurance Plan)
Children’s Education Goal Investment Options
- Max Life Future Genius Education Plan (UIN:104N094V03, A Non-Linked Participating Individual Life Insurance Savings Plan)
- Max Life Shiksha Plus Super (UIN: 104L084V04, A Unit-Linked Non-Participating Individual Life Insurance Plan)
Retirement Planning Investment Options
- Max Life Forever Young Plan (UIN: 104L075V03, A Unit-Linked Non-Participating Individual Pension Plan)
- Max Life Guaranteed Lifetime Income Plan (UIN: 104N076V11, Non-Linked Non-Participating Individual General Annuity Savings Plan)
Max Life Perfect Partner Super (UIN - 104N077V03, A Non Linked Participating Individual Life Insurance Savings Plan)
Guaranteed Saving and Income Plans
- Max Life Smart Wealth Plan (UIN: 104N116V06, Non-Linked Non-Participating Individual Life Insurance Savings Plan)
- Max Life Smart Wealth Income Plan (UIN: 104N120V01, Non-Linked Participating Individual Life Insurance Savings Plan)
- Max Life Online Savings Plan (UIN: 104L098V04, Unit Linked Non-Participating Individual Life Insurance Plan)
Deduction up to Rs. 1,00,000 under Section 80D for Medical Insurance & Expenses
Section 80D offers a tax deduction for the following investments/expenses:
- Premiums paid for Mediclaim/Health Insurance
- Premium paid for critical illness health insurance plans
- Preventive health check expenses
Healthcare expenses for senior citizen parents
HEALTH PREMIUM PAID FOR
| DESCRIPTION | SELF, SPOUSE AND DEPENDENT CHILDREN | PARENTS | MAX DEDUCTION UNDER SECTION 80D |
|---|---|---|---|
| Everyone is below 60 years of age | Rs. 25,000 | Rs. 25,000 | Rs. 50,000 |
| When your parents have crossed the age of 60 | Rs. 25,000 | Rs. 50,000 (incl. Expenses) | Rs. 75,000 |
| You and your parents have passed the age of 60 | 50,000 | Rs. 50,000 (incl. Expenses) | Rs. 1,00,000 |
Preventive healthcare expense of up to Rs. 5000 is part of the maximum limit under this Section.
Example of Estimating Deduction Under Section 80D
Paramjit is 37 years old and married to Kiran, both are employed. They have two kids. Paramjit’s parents are financially independent, but Paramjit pays their health insurance premiums, as they don’t want to buy a health plan at their age. They are over 70 years of age. Similarly, Kiran has bought a senior citizen health plan for her parents.
Paramjit and Kiran have paid the following amount of premiums and care expenses in the F.Y. 2019-20:
Paramjit paid:
- Rs. 18,000 for family floater policy covering him, Kiran and the kids
- Rs. 4,000 for critical illness health insurance for self
- Rs. 48,000 for family floater Mediclaim for his senior citizen parents
Kiran paid:
- Rs. 3,500 for critical illness cover for self
- Rs. 42,000 for Mediclaim cover for her parents
- Rs. 12,000 on preventive healthcare for the family (not the parents)
Since both Param and Kiran file their separate ITRs, they can claim the following amounts under Section 80D:
| Item | Param | Kiran |
|---|---|---|
| Family Floater Mediclaim Premium | 18,000 | |
| Critical Illness Health Cover Premium | 4000 | 3500 |
| Premium Paid for Health cover for Senior Citizen Parents | 48,000 | 42,000 |
| Preventive Healthcare expenses (Max. 5000) | 5,000 | |
| Total Applicable Claim | 70,000 | 50,500 |
Thus, Paramjeet can claim Rs. 70,000 as deduction under Section 80D while Kiran can claim Rs. 50,500 (whereas she spent about Rs. 57,500).
Health Insurance Plans with Max Life Insurance
Max Life Insurance offers two health insurance plans which are eligible for 80D deduction:
- Max Life Critical Illness and Disability Rider (UIN: 104B033V01, Non-Linked Non-Participating Individual Pure Risk Premium Health Insurance Rider) covering 64 critical illnesses
- Max Life Cancer Insurance Plan (UIN: 104N093V03, Non-Linked Non-Participating Individual Pure Risk Premium Health Insurance Plan) covering all stages of cancer
Deduction up to Rs.2 lakh under Section 24(b) for Home Loan Interest
1.Deduction up to Rs. 200,000
2.Buying a house can offer you an additional deduction if you avail a home loan from a housing finance institution or bank.
3.The limit of deduction on home loan interest paid is Rs.2 lakh for the current financial year (2019-20).
4.The limit for the financial year 2019-20 is same whether you are filing a return for all the following conditions:
- Self-occupied house
- Vacant house (neither self-occupied nor let-out)
Individuals can also claim deduction up to Rs.1.5 lakh on home loan interest under Section 80EEA, which is extended by the government for affordable housing. You can only avail this if:
- The value of the house is not more than Rs.45 lakh
- You should not own any other house property on the date of home loan sanction
- Loan should be taken during the FY 19-20
Apart from the home loan interest following expenses also reduce your taxable income from house properties:
- Municipal taxes
- Standard Deduction of 30% of net annual value (NAV) for the property
Standard Deduction - for Salaried Taxpayers
Best Tax Saving Investments under Section 80C
Some popular tax-saving options for individuals in India are under Section 80C of the Income Tax Act. It encompasses multiple investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year. Following are some of the best tax saving investment options under Section 80C of the Income Tax Act, 1961:
| Investment | Returns | Lock-in Period |
|---|---|---|
| 5-Year Bank Fixed Deposit[2] | 5.30% to 7.25% | 5 years |
| Public Provident Fund (PPF)[1] | 7.1% | 15 years |
| National Savings Certificate[1] | 6.8% | 5 years |
| National Pension System (NPS)[4] | Varies with Plan Chosen & Tenure | Till Retirement |
| ELSS Funds[3] | 15.42% to 32.67% | 3 years |
| Unit Linked Insurance Plan (ULIP) | Varies with Plan Chosen | 5 years |
| Sukanya Samriddhi Yojana (SSY)[1] | 7.60% | N/A |
| Senior Citizen Saving Scheme (SCSS)[1] | 7.40% | 5 years |
Note:Data mentioned above are as on 2nd August, 2021 and are subject to change without prior information.
[1] www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx (2021)
[2] www.livemint.com/money/personal-finance/taxsaving-deposits-with-best-rates-11615896758990.html (2021)
[3] www.valueresearchonline.com/funds/best-tax-savers/?return-period=3Y (2021)
[4] www.npstrust.org.in/return-of-nps-scheme (2021)
How to Calculate HRA Tax Exemption?
HRA received by you from your employer is taxable based on the following conditions:
The tax-exempt portion of the HRA is the minimum of the following:
- Actual HRA received in the financial year
- 50 percent of your 'salary' if your accommodation is in metro cities (Mumbai, Chennai, Delhi, Kolkata) or else 40 percent for other cities
- Rent paid minus 10 percent of your ‘salary’
Definition of Salary for HRA: Basic salary + dearness allowance (DA) (only that part which forms part of the retirement benefit) + commission received based on a percentage of turnover
Example of HRA Calculation
Mr Kiran lives in Mumbai and earns a basic salary of Rs. 30,000. The actual rent paid by Kiran is Rs 10,000 and the HRA component of his salary is Rs. 15,000. In this case, how much exemption will he get?
To determine the exemption, calculate the amount for different factors affecting HRA calculation:
| TYPES OF TAX SAVING ACTIVITIES | SECTION | MAX DEDUCTION LIMITS |
|---|---|---|
| Actual HRA received: | Rs 15,000 x 12 | Rs 180,000 |
| Actual rent paid - excess rent paid over 10% of the salary | (Rs 10,000 x 12) – (10% of Rs 30,000 x 12) | 84,000 |
| 50% of basic salary: | [(Rs 30,000 x 12) x 50%] | 180,000 |
As Rs. 84,000 is the least among the above figures, Mr Kiran will get an amount of Rs. 84,000 exempted.
Tax Saving for Self-Employed Living on Rent
You can still claim a deduction for the house rent paid, even if you are self-employed or do not receive HRA along with your salary.
Section 80GG of the Indian Income Tax Act allows a deduction of up to Rs. 60,000 for F.Y. 2019-20.
The deduction is applicable on per month basis with maximum amount limited to Rs. 5000 a month.
The amount you can claim a deduction will be the least out of the following:
- Rs. 5000 per month
- 25% of total income
- The amount of actual rent paid over 10% of income
See the example below to understand how much will apply to you:
Sandeep stays in a PG accommodation and pays Rs. 4500 as monthly rent starting Jan 2018. He paid the same rent till December 2018 and then the rent will increase to Rs. 5000 per month.
Sandeep is employed and earned salary income of Rs. 300,000 for the financial year 2019-20. He does not receive HRA.
Total amount of deduction he can claim under section 80GG will be the lowest of:
Rs. 5000 per month or Rs. 60,000
25% of Rs. 300,000 or Rs. 75,000
(Rent Paid – 10% of Salary) or (55,500 – 30,000) = Rs. 25,500
Thus, Sandeep can claim Rs. 25,500 as deduction under section 80GG.
Other Tax Deductions for FY 2022-23
- Tax Saving for Tax-Payers Staying on Rent
- Tax Saving for Salaried Individual Living on Rent
If salary is the major taxable income for you, you should look for the House Rent Allowance (HRA) on your salary slip. HRA is usually 50% of your basic salary and the second highest component of it.
Other Deductions & Exemptions Available to Indian Tax-Payers
| TYPES OF TAX SAVING ACTIVITIES | SECTION | MAX DEDUCTION AMOUNT |
|---|---|---|
| Expenses on a handicapped dependent | 80DD | For Disability more than 40% but up to 80%: Rs. 75,000 For severe disabilities (above 80%): Rs.1.25 Lakh |
| Treatment of specified illnesses for self or dependent | 80DDB | Based on Taxpayer's Age: Less than 60 years - Rs. 40,000 60 years or Above-&nbsb;Rs. 1,00,000 |
| Education loan interest payment | 80E | Actual interest paid (for initial 8 years) |
| Home loan interest payment for first-time home-owners | 80EE | Up to Rs. 50,000 (additional deduction over sec. 24(b)) |
| Donations to approved charitable institutes | 80G | 50% or 100% of the donated amount |
| Contributions made to a political party by companies and individuals respectively | 80GGB 80GGC | Nil. 100% actual contribution made, by other than cash only. |
| Saving account interest | 80TTA | Up to Rs. 10,000 |
| Handicapped tax-payers can claim this deduction | 80U | Disability more than 40% but up to 80% - Rs.75,000 Severe disabilities (above 80%) - Rs.1.25 lakh |
| Royalty or patent income | 80RRB | Up to Rs. 3 lakh |
| Received Gift | 56(2) | Up to Rs. 50,000 |
How to Form a HUF?
A Hindu, Sikh, Jain or Buddhist family with at least one male member can form an HUF
- Create the Deed for HUF
- Karta can transfer income generating assets to HUF as gifts
- Get a separate PAN card for the HUF
- Open a bank account in the name of HUF
What are the Benefits of Forming an HUF?
There are several advantages of forming an HUF such as:
- Family members can split the family’s income and file taxes separately, thus reducing their tax liability on both individual and HUF tax return.
- Ancestral joint family assets are not a requirement for the HUF to exist.
- Women in the family can make a gift towards the HUF and gift property in their name.
- Getting loans is easier for the members of an HUF.
- The official status of an HUF and its control can remain with the women of the family in the event of the death of the last male member, without any need to dividing the acquired or ancestral assets of the HUF.
- Women can be the co-partner with their husband (or Karta) in the HUF even though they cannot start a separate account on their own
- HUF can act as a taxpayer and invest in tax saving instruments
- Impact of forming an HUF on Family’s Tax Liabilities
Let us understand the significance of HUF’s and their impact on tax savings with an example.
Consider a family of four - husband, wife and two children. Husband’s income is Rs.24 lakh, and his wife’s income is Rs. 18 lakh. They also have a family run business from which the annual earnings amount to Rs. 8 lakh. These earnings can be either taxed in the hands of husband, wife or both.
Situation 1
If the earnings are taxed in the hands of the husband, who is currently in 30% tax bracket, he would require paying 30% of Rs. 8 lakh, i.e. Rs. 2.4 lakh as tax.
Situation 2
If the earnings are taxed in the hands of the wife, who is currently in 30% tax bracket, again she would require paying 30% of Rs. 8 lakh, i.e. Rs. 2.4 lakh as tax.
Situation 3
If the earnings are taxed equally in the hands of both husband and wife, both would require paying tax at 30% on Rs. 4 lakh, i.e. Rs 1.2 lakh each.
Situation 4
However, if the income from the family-run business is taxed in the hands of HUF, the tax payable by the HUF as computed as per the tax slabs would be approx. Rs. 75,000.
Therefore, taxing the earnings from the family-run business under HUF would lead to a tax saving of Rs. 1,65,000 lakh per annum (Rs. 2,40,000 – Rs. 75,000).
Appendix 1: Tax Slabs & Total Liabilities FY 2022-23 (AY 2023-24)
Health & Education Cess at 4% of Max Tax Liability will apply to all taxpayers.
Tax Slab for Individuals below 60 Years of Age
| AGE | INCOME TAX SLABS | TAX RATE | MAX. LIABILITY (Rs.) |
|---|---|---|---|
| Up to 2,50,000 | Nil | Nil | |
| 2,50,001 to 5,00,000 | 5% | 12,500 | |
| Less than 60 years | 5,00,001 to 10,00,000 | 20% | 112,500 |
| More than 10,00,000 | 30% | 112,500 + 30% of (Income – 10 Lakh) |
Tax Slab for Individuals ageing between 60 to 80 years (Senior Citizens)
| AGE | INCOME TAX SLABS | TAX RATE | MAX. LIABILITY (Rs.) |
|---|---|---|---|
| Up to 3,00,000 | Nil | Nil | |
| 3,00,001 to 5,00,000 | 5% | 10,000 | |
| 60 years to 79 years | 5,00,001 to 10,00,000 | 20% | 110,000 |
| More than 10,00,000 | 30% | 110,000 + 30% of (Income – 10 Lakh) |
Tax Slab for Individuals ageing 80 Years or above (Super Senior Citizens)
| AGE | INCOME TAX SLABS | TAX RATE | MAX. LIABILITY (Rs.) |
|---|---|---|---|
| Up to 2,50,000 | Nil | Nil | |
| 2,50,001 to 5,00,000 | Nil | Nil | |
| 80 years or above | 5,00,001 to 10,00,000 | 20% | 100,000 |
| More than 10,00,000 | 30% | 100,000 + 30% of (Income – 10 Lakh) |
Surcharge on the Tax
If your taxable income is more than Rs. 50 Lakh in the financial year 2019-20, a surcharge may apply to the total tax payable.
The surcharge, like the Health & Education Cess, is applicable to the tax payable on the total taxable income. The surcharge can be calculated using the below-mentioned rates:
Surcharge: 10% of income tax, where the total income exceeds Rs.50 lakh up to Rs. 1 crore
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore but upto Rs. 2 crore
Surcharge: 25% of income tax, where the total income exceeds Rs.2 crore but upto Rs. 5 crore
Surcharge: 37% of income tax, where the total income exceeds Rs.5 crore
Appendix - 2: Deductions Available to Resident Individuals & HUF
| TYPES OF TAX SAVING ACTIVITIES | SECTION | MAX DEDUCTION LIMITS |
|---|---|---|
| Investments & Expenses | 80C 80CCC and 80CCD(1) | up to Rs. 1,50,000 |
| Additional NPS Investments | 80CCD(1B) | up to Rs. 50,000 |
| Expenses on a handicapped dependent | 80DD | For Disability more than 40% but up to 80% - Rs. 75,000 For severe disabilities (above 80%)–Rs.1.25 lakh |
| Treatment of specified illnesses for self or dependent | 80DDB | Age Less than 60 years - Rs.40,000 60 or above – Rs.1,00,000 |
| Education loan interest payment | 80E | Nil. Actual interest paid |
| Home loan interest payment for first-time home-owners | 80EE | Up to Rs.50,000 |
| Donations to approved charitable institutes | 80G | 50% or 100% of the donated amount |
| Rent paid by employees not having HRA | 80GG | Lesser of the following: 25% of total income Rs.5000 per month Rent paid to exceed 10% of total income |
| Contributions made to a political party by companies and individuals respectively | 80GGB 80GGC | Nil. 100% actual contribution made, by other than cash only. |
| Saving account interest | 80TTA | Up to Rs.10,000 |
| Handicapped tax-payers can claim this deduction | 80U | Disability more than 40% but up to 80% - Rs.75,000 Severe disabilities(above 80%) - Rs.1.25 lakh |
| Royalty or patent income | 80RRB | Up to Rs.3 lakh |
| Received Gift | 56(2) | Up to Rs. 50,000 |
Appendix 3: Deductions Available to NRIs and PIOs (Person of Indian Origin)
| TYPES OF TAX SAVING ACTIVITIES | SECTION | MAX DEDUCTION LIMITS |
|---|---|---|
| Investments & Expenses | 80C 80CCC and 80CCD(1) | up to Rs. 150,000 |
| Education loan interest payment | 80E | Nil. Actual interest paid |
| Home loan interest payment for first-time home-owners | 80EE | Up to Rs. 50,000 |
| Donations to approved charitable institutes | 80G | 50% or 100% of the donated amount |
| Contributions made to a political party by companies and individuals respectively | 80GGB 80GGC | Nil. 100% actual contribution made by other than cash only. |
| Saving account interest | 80TTA | Up to Rs. 10,000 |
| Royalty or patent income | 80RRB | Up to Rs. 3 lakh |
| Received Gift | 56(2) | Up to Rs. 50,000 |
Tax Saving Investment FAQs
ARN NO: PCP/TSI/070624
www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=89
www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55
www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx
www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=134
www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx
www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11865&Mode=0
www.rbi.org.in/Scripts/FAQView.aspx?Id=79
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