Income Tax Saving Scheme

The bad luck of the taxation regime is that nobody is concerned about the technicalities, framework, compliance, etc. However, hearing the magic word ‘Tax Saving’ turns on everyone’s ear. Since Income Tax (IT) Saving Schemes is an all-time favourite topic for any taxpayer, the writer will try to be precise and comprehensive at the same time in explaining the subject matter.

Initially, this article will discuss relevant provisions targeting specific sections of the IT Act, 1961 (Act), whereby IT savings are discussed. Then the writer will try to line up all major domains of IT saving schemes protecting different interests of taxpayers. Lastly, the writer will end the present article with some takeaway tips which can be used while choosing from available options of tax saving schemes.

IT Saving Schemes: Investment Deductible from Taxable Income

The tax benefit available in the statute is vast as it has nineteen sub-sections from 80C to 80U of the Act. However, when it comes to tax saving schemes, only 3 clauses are connected with the statutory provision, namely;

• Section 80C: Rupees 1.5lacs by doing Life Insurance, Mutual Funds & Public Provident Fund, etc., and Rs. 50,000/- with National Pension Plan. Besides this, certain amount against equity-linked & saving schemes, long-term infrastructure bonds;


• Section 80D: Medical insurance for self/spouse/children/parents for up to 1lac and separate exemption in case of dependants who is physically disabled or old (senior citizen);


• Section 80E: Deductions related to education loan repayment for a maximum of 8years and exemption of Rs. 50,000/- against home loan interest.

The amount invested by them shall be deducted from taxable income; hence said used income becomes free from IT liability.

Different IT Saving Schemes

There are various public and private institutions coming with endless saving plans that can be used for claiming IT exemption in terms of the clauses/sections enumerated in the Act. This decision can vary from case to case. To make it simple broad categorization of taxpayers is done as follows:

To Save: Confused taxpayers who have enough income but are not interested in tax-saving schemes' technicalities.

• Public Provident Fund: Referring to section 80C of the Act, Rs. 1.5 lacs per annum can be saved for retirement in the best interest. The desired amount can be deposited either in parts of one go for 15 years consecutively. However, it has a lock-in period of a minimum of 5years, which could be a concern for a taxpayer;


• Fixed Deposit: If a 15years long period, then FD for 1-5years can give good returns with no tax implications. 

Free Bird: Single young person who wants to explore different notions with not much responsibility can go insurance plus investment infusion: 

• Unit Linked Insurance: Covers risk but returns not guaranteed; however, the matured amount is tax-free;


• Equity Linked Insurance: Liking mutual funds with equity may give good returns in the long run with a minimum lock-in period of 3years with a tax-free matured amount.

Growing Family: Taxpayer’s having dependants like spouse/children/parents can take care of their family with:

• Life &Health Insurance: Protecting taxpayers along with his family.
   
• Child Plans: Numerous options like Sukanaya Yogna;
   
• National Pension Scheme: An additional amount of Rs. 50,000/- per annum can be saved.

Worried Older: Senior citizen taxpayers may worry about their old age expenses.

• Senior Citizen Saving Schemes: Quarterly returns can be availed after the lock-in period of 5years with a maximum investment of Rs. 15 lacs. However, earned interest is not tax-free.


• Employees/Voluntary Provident Fund: Employees and the employer contribute to the EPF scheme on a monthly basis.

Conclusion

Ending this article, the writer just wants to clarify that taxpayers should be clear in their mind that these saving schemes are not magic-wand. Using such schemes surely diminishes tax liability, but it takes taxpayers' money as an investment. Therefore, before choosing from the buffet of IT saving schemes, output from that investment has to be evaluated.