Smart Tax Saving Instruments to Reduce Your Taxable Income

If you plan to file your income tax return (ITR) under the old tax regime, it’s important to start making investments in tax-saving instruments to maximize deductions under Section 80C before the end of the financial year.

Explore various tax-saving plans under sections like 80C, 80D, 80E, and more to reduce your taxable income and optimize your tax deductions.

There are various tax-saving options available that can help reduce your taxable income, such as ELSS, PPF, insurance premiums, and home loan principal payments. However, it’s important to note that these tax deductions apply only to taxpayers who opt for the old tax regime.

Under Section 80C of the Income Tax Act, taxpayers can claim deductions for investments made in certain savings instruments, subject to a limit of ₹1.5 lakh per year. This limit applies to the total cumulative investments across all eligible schemes.

Let’s break down each of these tax-saving instruments in detail:

1. ELSS (Equity Linked Savings Scheme):

ELSS are mutual fund schemes with a 3-year lock-in period. These schemes qualify for tax deductions under Section 80C and can help taxpayers save on taxes while potentially earning returns based on market performance.

2. PPF (Public Provident Fund):

PPF is a government-backed savings scheme with an investment range between ₹500 and ₹1.5 lakh per year. Withdrawals are permitted from the 7th financial year onward, making it a long-term savings tool with tax benefits.

3. Insurance Premium:

Life insurance premiums are eligible for tax deduction under Section 80C. This helps taxpayers reduce their taxable income while securing financial protection for their families.

4. Principal Repayment of Home Loan EMI:

The principal portion of home loan EMIs is eligible for tax deduction under Section 80C, up to ₹1.5 lakh. This makes it an attractive option for homebuyers to reduce their tax liabilities.

5. Sukanya Samriddhi Yojana (SSY):

This scheme is specifically for the benefit of a girl child. Investments can be made in the name of a girl child below 10 years of age, with a minimum of ₹250 and a maximum of ₹1.5 lakh per year, all of which qualify for tax exemption.

6. National Savings Certificate (NSC):

The NSC is a small savings scheme that allows investors to invest a minimum of ₹1,000. There is no upper limit on investment, but tax exemptions are available only up to ₹1.5 lakh per year.

7. Senior Citizens Savings Scheme (SCSS):

This scheme is designed for individuals over 60 years of age. The minimum deposit is ₹1,000, and the maximum deposit is ₹30 lakh, but only up to ₹1.5 lakh is eligible for tax exemption under Section 80C.

8. National Pension Scheme (NPS) – Section 80CCD(1B):

NPS offers an additional tax deduction of ₹50,000, separate from the ₹1.5 lakh limit of Section 80C, for contributions made to the NPS account. This is available for both government and private sector employees.

9. Health Insurance Premium – Section 80D

Deductions under Section 80D are available for premiums paid on health insurance policies for yourself, your spouse, children, and parents. The deduction limit is ₹25,000 for individuals below 60 years and ₹50,000 for senior citizens (above 60 years).

10. Interest on Home Loan (Under Section 24(b))

Under Section 24(b), taxpayers can claim a deduction of up to ₹2 lakh on the interest paid on home loans taken for self-occupied properties. This deduction is applicable on both loans for purchasing a new house or renovating an existing one.

11. Education Loan – Section 80E

Section 80E offers a tax deduction on the interest paid on education loans for higher education. There is no upper limit on the amount, and the deduction is available for up to 8 years, or until the interest is paid, whichever comes first.

12. Donations to Charitable Institutions – Section 80G

Donations made to registered charitable organizations are eligible for tax deductions under Section 80G. The deduction can be 50% or 100% of the donated amount, depending on the institution, with or without restrictions.

13. Savings Account Interest – Section 80TTA

If you earn interest on your savings account, you can claim a deduction of up to ₹10,000 per year under Section 80TTA. This deduction is available for interest income from savings accounts in banks, post offices, or co-operative societies.

14. Contribution to Pension Fund – Section 80CCC

Contributions made towards pension funds, like LIC’s New Pension Scheme or other similar plans, are eligible for tax deductions under Section 80CCC. This is typically applicable to retirement planning.

15. Gratuity – Section 10(10)

Gratuity received by an employee from an employer is exempt from tax under Section 10(10), subject to specific conditions. The exemption amount varies depending on the type of employer and the length of employment.

Disclaimer: This is not financial or investment advice. Please conduct your own due diligence or seek expert guidance for financial planning.

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