There are many financial instruments available, which serve dual purpose of investment and tax saving. Section 80C of Income Tax act comes on to rescue of tax payers. The members of this family are as follows:-
1. PPF (Personal Provident Fund) - The amount that can be invested is in range of Rs 500 to Rs 70,000.Current interest rate are 8 % and maturity period is 15 years. The whole amount is tax free; apart from it the tax earned on the amount is also tax free.
2. NSC (National Saving Certificate) - There is no limit of amount that can be invested, but the whole amount has to be invested in one go. Maturity period is six years. Current interest rate is 8% and interest is calculated half yearly. The maximum amount upon which tax rebate can be enjoyed is Rs 1, 00,000.
3. Senior Citizens Saving Scheme - The scheme is intended for the citizens who are above 60 years of age. Maximum amount that can be invested is Rs 1.5 lakh. But the rebate is applicable up to the amount allowable Rs 1 lakh.Rate of interest is 9%.
4. Post Office Time Deposit - It is also called post office FDR. There is no limit for the amount to be invested. But the rebate is applicable up to the amount of Rs 1 lakh. Rate of interest is 7.5%.
5. Insurance - On the payment of premium for life insurance policies tax rebate can be enjoyed up to the limit of Rs 1 lakh. This condition is applicable even if the premium is paid for policy of spouse or children.
Even mediclaim policies amounting Rs 15 ,000 are also exempted from tax, even paid for policies of parents.
6. Unit Linked Plan (ULIP) - All amounts which are invested is eligible for tax rebate up to the limit of Rs 1 lakh. The return earned is also tax free.
7. Employee Linked Saving Scheme (ELSS) - These schemes have the lock in period of three years. The amount invested in these schemes & returns earned are exempted from tax.
8. Tax saver fixed deposit – All amounts which are invested for fix duration of five years is eligible for tax rebate up to the limit of Rs 1 lakh.
The sections of Income Tax Act which are helpful for tax savers are -
Section 80CCC Pension fund of insurance companies
Maximum amount allowable Rs 1 lakh. Payment should be made before 31 March
Section 80CCD Government or private pension scheme
Maximum amount allowable Rs 1 lakh. Payment should be made before 31 March
Section 80D Mediclaim policies (for self/parents/children/spouse)
Maximum amount allowable Rs 15,000 but for senior citizens Rs 20,000.Premium should be paid through cheque
Section 80DD Treatment of any physically handicapped dependent
Maximum amount allowable Rs 50,000, but for severe handicapped person Rs75, 000.Medical certificate of physical impairedness from registered practitioner
Section 80DDB Treatment of any dependent who is suffering from AIDS, cancer, any neurological disorder
Maximum amount allowable Rs 40,000, but for senior citizens Rs 60,000.Certificate from government hospital
Section 80U Self treatment in case of physical impairedness
Maximum amount allowable Rs 50,000, but for severe handicapped person Rs 75,000.Medical certificate of physical impairedness from registered practitioner
Section 80E Loan taken for higher education
Exemption on interest paid (not on principal amount).It will start when payment of interest will start maximum for the period of 8 years.
Section 80G Donations to government established trusts and NGOs
Whole amount is tax free in case of govt. established trusts & NGOs, 50% exemption in case of private trusts ( the amount should be maximum 10 % of the income after deductions due to section 80C to section 80U, except section 80G).Private trusts should possess nomination from Commissioner
Section 80GG Expenses made for house rent
25% of total income
Or
Monthly amount allowable Rs 2,000
Or
10% of total income minus Actual rent, whichever of the three is minimum. Applicable to only employees who do not receive House Rent Allowance or persons who do not receive salary.