Tax Saving

Normally common employees who will comes to tax saving slab are very much irrerated when the savings have to be done. But if one have a minimum knowledge of tax savings and plans the savings from the year starting itself, it will be a very interesting one. Because of that only I started writing this blog to tell the common factors which one should know when tax savings have to be done.

First I will mention by how many types we can save the tax and later will explain one by one.

1. Providend Fund
2. Mutual Funds (ELSS)
3. Life Insurance
4. Home Loans
5. Fixed Deposits
6. Educational Loan
7. Children Tution Fees
8. NPS (New Pension Scheme
9. NSC Bonds
10. Health Insurance
11. HRA under 10 (Caliculation)
12. Infrastructure Bonds

Let me explain each one in detail.

1. Providend Fund:

Normally for every employee depending on the company he works, 12% of the basic pay or Rs 780/- will be deducted as PF which one can show as Tax Saving. We can increase the employee PF contribution using VPF (Valentary Providend Fund) option where we get a standard 8.5% interest.
One more option is also available like PPF (Public Provident Fund). This needs to be opened in a nationalised bank (sbi) and will get 8.5% interest on that yearly. Any type of PF we pay, we can show them as tax saving through 80C.

2. Mutual Funds (ELSS)

ELSS stands for Equity Linked Saving Scheme. These type of funds are only eligible for Tax saving. Normally these type of funds are maintaining by all major banks and financial institutions. There will be a fund manager for these funds and he will allocate the amount we invest in different shares depending upon the type of fund. On this mutual funds I will explain in detail in the later blogs. The amount we invest here can be shown in 80C.

3. Life Insurance

Insurance should be a major part in our tax saving. Here we have so many types of insurances like Endowment, Money Back, ULIP, Pension Schemes etc. Here the premium we pay for a particular year can be shown as a tax saving in 80C for that particular financial year.

4. Home Loans

If one purchases any home using home loan, the principle amount he pays through the financial year comes under 80C and the interest amount he pays through out the year can be shown as tax saving upto maximum of 1.5 Lakhs.

5. Fixed Deposits

Fixed deposits made for 5 years (locked) through some nationalised banks can be shown as tax saving through 80C.

6. Educational Loan

One can get the tax benifit on education loan only if the loan is in your name and is taken for the purpose of higher education of yourself, your spouse or your children. Here the amount one pays as interest to the loan can be shown as Tax Saving under 80E.

7. Children Tution Fee

Under this the tuition fees one pays towards their children (upto max. of 2) upto maximum of 1 Lakh covers. For more details check the link : http://www.simpletaxindia.org/2008/02/tuition-fees-paid-for-children-us-80c.html

8. NPS (New Pension Scheme

NPS stands for New Pension Scheme which is introduced by central government for private sector employees also from 2010. This is useful to get regular pension after mentioned stipulated period. The premium amount we pay per year can be shown as tax saving under 80C.

9. NSC Bonds

NSC stands for National Saving Scheme which are issued by Post Office. One can take NSC bonds for any predefined amount which will be locked for next 7 years (roundly) and the interest rate we get is 8.5%. One more advantage on this NSC bonds is one can get the loan by showing the bond in the nationalised banks after 2 years. One more advantage is if we get the acknowledgement for the interest we get yearly, that interest we can show as tax saving for next 7 years, which is a added advantage.

Till now the points covered are all comes under 80C (Max. of 1 Lakh)

10.Health Insurance

Health Insurance is the key part for us not only for tax saving but also for the hospitalization purpose. In this we can show maximum of 15000/- per year. This insurance can include your parents. If the parents are senior citizens, additionally 25000/- one can show additionally.

11. HRA (House Rent Allowance)

As per the Indian income tax law, the HRA exemption should be calculated as the least of the following.

a.Rent paid in excess of 10% of basic salary.
b.Actual HRA received by the employee.
c.Forty percent of basic salary, if the location of the residence is in a non-metro city/town or 50% of basic salary, if the location of the residence is in a metro city
From the above “least of three” rule, it is clear that HRA exemption amount is determined by a number of factors — Basic pay, location of the residence, rent paid by the employee, and the HRA paid to the employee.


12. Infrastructure Bonds

From year 2010 this new tax saving was started and in this we can maximum save upto 20000/- for tax purpose. Saving in this will be helpful if one completes the 1 Lakh tax saving under 80C.

Comments will be appreciated