My Tax & Diary

Home >> Income Tax >> You are Here

Tax Planning Investment Options or Tax Savings Instruments
& the Expenses that save tax

Income Exempted and Chargeable under the Head "Salaries"

You can Save Tax Upto Rs. 83,945/-*

Choose the Right Tax Saving Options

(1) EPF

  • Features - Compulsory deduction from salary is a good way to build a retirement fund also
  • Liquidity - VERY LOW, partial withdrawal allowed for major goals
  • Taxability - The amount you get on retirement is completely tax free

    (2) PPF

  • Features - Assured Returns for risk averse investors and it is a Risk Free Investment Click to View details of PFF Scheme
  • Liquidity - LOW; withdrawal allowed after a certain period
  • Taxability - PPF income is tax free

    (3) Sukanya Samriddhi Deposit Account

  • Features A natural / legal guardian can open a/c on behalf of a girl child in the name of a girl child from the birth of the girl child till she attains the age of ten years - Assured Returns for risk averse investors and it is a Risk Free Investment Click to View details of Scheme
  • Liquidity - LOW; Up to 50 per cent of the accumulated amount can be withdrawn only after the account holder turns 18 while full withdrawal is possible after she turns 21. period
  • Taxability - Any payment from the scheme shall not be liable to tax. Overview - To promote the welfare of Girl Child and behind this initiative is to address the Gender imbalance and create a positive environment in favour of Girl Child.

    (4) 5-yr Bank Deposit

  • Features - Assured Returns for risk averse investors and it is a Risk Free Investment
  • Liquidity - Lock In Period till maturity
  • Taxability - income is taxable

    (5) RGESS (Rajiv Gandhi Equity Savings Scheme)

  • Features - Rebate under section 80CCG for 50% of Investment amount upto a maximum investment of Rs. 50000/- i.e eligible tax deduction is Rs. 25000/-
  • Liquidity - lock in period of 3 years
  • Overview - It is a Long Term Investment

    (6) Sr. Citizen's Saving Scheme

  • Features - Best tax saving option for Sr. citizen
  • Liquidity - LOW; interest paid quarterly
  • Taxability - Interest Income is taxable
  • Overview - Risk Free Investment

    (7) New Pension Scheme

  • Features - Allows exposure to equity marketsReturns - Completely market linked returns
  • Liquidity - VERY LOW; No withdrawal before retirement
  • Taxability - Tax free withdrawals after retirementLong Term Investment

    (8) Pension Plans

  • Features - Allows equity exposure but with high chargesReturns - 7-10% (NAV market linked )
  • Liquidity - LOW; partial withdrawals allowed
  • Taxability - Presently Not taxable

    (9) ULIPS

  • Features - Gives life cover but charges are very highReturns - NAV market linked
  • Liquidity - MODERATE; partial withdrawals allowed
  • Taxability - Tax free income
  • Overview - Good for long term, wait for fresh investments till DTC comes into force

    (10) Endowment Money-Back Insurance

  • Features - Do not consider it a good tax saving tool or life coverReturns - 5-6%
  • Liquidity - LOW; but loan against the policy is available
  • Taxability - Tax-free income
  • For those planning to buy a insurance cover : Don't buy a life insurance plan with a cover of less than 20 times the annual premium. It would not get benefit when new tax laws are passed (as proposed in DTC)

    (11) ELSS

  • Features - May give high returns among all options
  • Liquidity - MODERATE; lock in period of 3 years But in case liquidity is there when you opt for dividend option.
  • Taxability - Tax free incomes
  • Overview - Long Term & start SIP in young age.
    The cost is even lower if you go direct plans of these funds

    (12) NSC

  • Features - Assured Returns for risk averse investors and it is a Risk Free Investment
  • Liquidity - Lock In Period till maturity, however loan is available from banks on pledge of instrument as security
  • Taxability - income is taxable

    Expenses that Give Tax Benefits


    Income Exempted and Chargeable under the Head "Salaries"

    (1) Expenses - School Fees

  • Deductions allowed - Tuition Fees of two children
  • Limit - Rs. 1.50 lakh
  • Overview - Both parents can't claim deduction for the same expenses

    (2) Expenses - Housing loan interest

  • Deductions allowed - The interest paid on the loan under Sec 24(b)
  • Limit - Rs. 2.00 lakh a year
  • Overview - It brings down the cost of housing loan

    (3) Expenses - Housing loan repayment

  • Deductions allowed - The principal amount of loan repaid during the year
  • Limit - Rs. 1.50 lakh
  • Overview - For a large amount of EMI, little left for them for tax savings in other options

    (4) Features - Medical Insurance

  • Deductions allowed - Premium for self, parents deductible under Sec 80D
  • Limit - Rs. 15000 for self and family
  • Rs. 25000 for parents and Rs. 30000 in case of parents are Sr. Citizen

    (5) Expenses - Education Loan interest payment

  • Deductions allowed - The interest payment of education loan is deductible from taxable income under Sec 80E
  • Limit - The interest paid is fully deductible
  • Overview - Earlier the deduction was allowed only to the borrower. Now, parents or legal guardian can claim deductions for the interest paid for upto the eight successive years.It helps lower the cost of the loan.