Check these 7 tax savers before you invest again

It's always better to plan your tax saving investments in advance than make the wrong moves at the fag end of the financial year.

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It is always better to plan your tax saving moves in advance, so take an estimate before you make fresh investments.
It is always better to plan your tax saving investments in advance than make the wrong moves at the fag end of the financial year. With FY 2018-19 nearing its end, some of you could have been late in tax planning and are likely to invest in any tax-saving instrument just to reduce the tax liability for the year.

However, reducing tax liability may not necessarily require an investment to be made as there are certain expenses which also give you tax breaks. Further, one needs to be aware of certain important sections and avenues of the Income Tax Act under which the tax benefits can be availed.

Of the many tax saving avenues, the most popular are the tax benefits under Section 80C of the Income-tax Act. Let's first see how Section 80C helps in reducing tax liability. Under Section 80C, an amount equal to the investment that you make in specified instruments, or if you incur any expense specified under the section up to a maximum of Rs 1.5 lakh in a financial year reduces your gross total income (GTI) by the same amount. This, in effect, reduces your taxable income and thereby reduces tax liability. For example, if your GTI is Rs 10.5 lakh and you make an investment of Rs 1.5 lakh in any specified instrument, the GTI gets reduced by Rs 1.5 lakh and stands at Rs 9 lakh. The taxable income becomes Rs 9 lakh now, on which tax has to be paid.

When it comes to reducing tax liability, Section 80D and Section 24 also come in handy. While the former relates to premium paid for health insurance, the latter deals with home loan.

The areas available under Section 80C include benefits for expenses incurred as well as for investments made. The investment-related tax breaks are only on specified investments such as five-year notified tax saving bank deposits, life insurance premium, Employees' Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizens' Savings Scheme (SCSS) and Equity-linked Savings Scheme (ELSS) from mutual funds (MFs). Repayment of the principal on home loan and payment of tuition fees also qualify for tax benefits under Section 80C.

But before you start looking for tax saving investments under Section 80C, do a small exercise to determine how much you have already committed towards it. You may not have to make additional tax saving investment under Section 80C this year. Here's how:

1. EPF: Involuntary
As a salaried individual, an employee contributes 12 per cent of his basic pay towards the EPF account, which qualifies for tax benefit under Section 80C. The employer is supposed to match the employee's minimum contribution of 12 per cent of the basic pay but the employee is not entitled to take tax benefit on it. Currently, (2017-18) contributions and the balance earn 8.55 per cent tax free interest. Of the employer's contribution, 8.33 per cent (on a maximum salary of Rs 15,000, i.e., Rs 1,250) is diverted towards EPS and the balance of 3.67 per cent moves into the employee's PF account each month. Check your (employee's) total contributions for the year (assuming basic remains same) and count it towards Section 80C benefit.


2. Life insurance premium: Existing or new commitment
Irrespective of age, if one has financial dependents, owning a life insurance is a must. If you already have one, keeping it active by paying renewal premiums is sacrosanct. Renewal premiums also qualify for tax benefit under Section 80C. If your policy lapses, revive it by paying unpaid premiums, but only if the policy is worth it. You would be eligible to claim tax benefit under Section 80C on the entire premium paid (including the previous unpaid premiums) subject to the limit of Rs 1.5 lakh. All life insurance plans, including pure term insurance, endowment, Ulips and money-back plans qualify for this benefit.

EPF+Life insurance premium+......

3. Home loan principal repayment: Outflow
If you have a home loan, the principal repaid qualifies for tax benefit under Section 80C. The EMI of the home loan constitutes both principal and interest. You may ask your home loan lender to issue a statement showing the provisional break-up of principal, interest for the entire year. Even partial or full principal repayment made during the year qualifies for tax benefit.

EPF+Life insurance premium+Home loan principal repayment+......

4. Home loan interest payment: Outflow
The interest component in the EMI can be claimed as deduction from "income from house and property" under Section 24. The maximum tax deduction allowed under this section is Rs 2 lakh for self-occupied property for which the loan is taken.

And if the construction is still on, the benefit is delayed. After possession, provided it happens within five years, the pre-construction (pre-completion) interest can be claimed from the year when the construction is complete and after getting possession, in five equal instalments.

EPF+Life insurance premium+Home loan principal repayment+Home loan interest payment......

5. Tuition fees: Outflow
Parents can also claim a deduction for tuition fees for a maximum of two children within the overall limit of Rs 1.5 lakh under Section 80C. However, any payment towards any development fees or donation to institutions is excluded. When both spouses are taxpayers, the situation may be tricky. Archit Gupta, Founder and CEO,, explains, "Deduction for tuition fees can be claimed by the parent who has made the payment.

Say, if A made the payment for his daughter's school fees of Rs 1.7 lakh in FY 2018-19, he can claim Rs 1.5 lakh in his return under Section 80C (maximum limit of Section 80C is Rs 1.5 lakh). The remaining amount of Rs 20,000 cannot be claimed by A's wife. However, if A has another child, he and his wife can plan to pay school fees of the two kids between them. A can pay for child 1 and his wife can pay for child 2. This way the payment made can be claimed by both separately in their tax returns. The one making the payment can claim the amount paid in his/her tax return."

EPF+Life insurance premium+Home loan principal repayment+Home loan interest payment+Tuition fees+......

6. Health insurance A must-have
It is often suggested by financial planners to initiate one's financial planning process by buying a health insurance cover. Buy adequate coverage for self and family members and, if already bought, even renewal premium qualifies for tax benefit under Section 80D.

On the premium towards self, spouse, children and parents, the maximum deduction that can be availed is capped at Rs 25,000 a year, provided the age of the individual is not above 60. If the premium paid by individual is towards health policy for a parent (senior citizen with age 60 or more), the maximum is capped at Rs 50,000. Illustratively, if someone in the 30 per cent tax slab pays Rs 10,000 premium, the tax liability reduces by about Rs 3,000 and there's a health cover to meet medical expenses.

And yes, if you are waiting to undergo a health check-up, go for it. A maximum of Rs 5,000 spent on preventive health check up can be availed as deduction under section 80D , but this limit is within the overall cap of Rs 25,000 or Rs 50,000 (whichever is applicable) and is not exclusive of it.

EPF+Life insurance premium+Home loan principal repayment+Home loan interest payment+Tuition fees+Health insurance premium+......

7. Educational loan: Outflow
The interest paid on an education loan for self, spouse, children, or for a student under your guardianship qualifies for tax benefit. Loans taken for siblings and relatives do not qualify. The amount paid as interest in a financial year is eligible for deduction from GTI without any limit, thereby reducing one's total taxable income and thereby the tax liability. Only the interest portion qualifies for tax benefit and not the principal amount repaid.

To claim this deduction, make sure that the loan is taken for higher education, i.e., any course pursued after completing 12th standard. This deduction is available for eight years, starting from the year in which the interest payment began. One will get the full amount of interest paid as the deduction for eight years from the date of taking the loan or until the interest is paid in full (whichever is earlier).

To get I-T benefits under Section 80E, you must take the education loan from any of the scheduled banks in India or from the two notified financial institutions Credila Financial Services and HDFC.

EPF+Life insurance premium+Home loan principal repayment+Home loan interest payment+Tuition fees+Health insurance+Educational loan......=Tax saving with no fresh investment

Before you think of investing in any of the Section 80C tax savers, make an approximation of your income for FY 2018-19. Find out your tax liability based on the assumed yearly income. Thereafter, factor in various existing commitments as seen above that would get deducted from the GTI. This leaves you with a reduced tax liability and also gives you a better picture of how much more to invest to further bring the tax burden down. Remember, link your fresh investments to a long-term goal and not merely focus on reducing taxes.
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