The Income Tax Act, 1961, comes with multiple provisions that you can use to maximize your tax savings. Deductions offered under these sections can help you lower your taxable income, thereby reducing your taxes. Here’s a look at how you can maximize your tax savings using various investment options.
1. Invest in instruments specified under sections 80C, 80CCC, and 80CCD(1)
Individuals and HUFs can maximize tax savings by making use of the many investment options available under section 80C, 80CCC, and 80CCD. Together, a maximum of ₹ 150,000 can be claimed under these three sections. Here are some of the investment options that qualify for deductions under section 80C.
- Employee Provident Fund (EPF)
- Public Provident Fund (PPF)
- Equity-Linked Savings Scheme (ELSS)
- National Savings Certificate (NSC)
- Premium paid on life insurance
- Post office fixed deposit
- Infrastructure bonds
- Tax-saving fixed deposits with a 5-year lock-in period
- Unit-Linked Insurance Plan (ULIP)
- Sukanya Samriddhi Yojana
Section 80CCC provides tax deductions for contributions to certain pension plans, while section 80CCD(1) helps you increase tax savings by investing in the National Pension System and the Atal Pension Yojana.
2. Avail an additional deduction of ₹ 50,000 under section 80CCD(1B)
Over and above the deductions claimed under section 80C, 80CCC, and 80CCD, the Income Tax Act also allows you to save taxes on amounts up to ₹ 50,000 for investments made in the National Pension System. So, essentially, if you invest ₹ 200,000 in NPS, you can claim up to ₹ 150,000 as a deduction under section 80CCD(1) and ₹ 50,000 as a deduction under section 80CCD(1B).
3. Invest in medical insurance
Section 80D allows for tax savings on the amounts invested in medical insurance. You can claim deductions on health insurance premiums paid for self, spouse, children, and parents. You can also avail tax-saving benefits on the expenses for preventive health check-up up to ₹ 5000. This amount is also included in the maximum limit under section 80D. Here’s how the limits for deduction vary depending on your age and the age of your parents.
If you’re not a senior citizen, you can claim up to ₹ 25,000 for premium paid on health insurance for yourself, your spouse, and your kids. If you also pay premiums on health insurance for your parents (who aren’t senior citizens), you can claim an additional ₹ 25,000 under section 80D. Alternatively, if your parents are senior citizens, you can claim an additional ₹ 50,000.
And if you are a senior citizen, you can claim up to ₹ 50,000 for premium paid on health insurance for yourself, your spouse, and your kids. If you also pay premiums on health insurance for your parents (who are also senior citizens), you can claim an additional ₹ 50,000 under section 80D.
| Description | Health Premium Paid For | Maximum Deduction U/S 80D | |
|---|---|---|---|
| Self, Spouse and Dependent Children | Parents | ||
| All family members age less than 60 years | Rs. 25,000 | Rs. 25,000 | Rs. 50,000 |
| You and your family are below 60 years of age while your parents have attained the age of 60 years or more | Rs. 25,000 | Rs. 50,000 | Rs. 75,000 |
| You and your parents have surpassed the age of 60 years or more | Rs. 50,000 | Rs. 50,000 | Rs. 1,00000 |
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