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Tax Saving Options for Indian Residents

As Indian residents, you are qualified to avail tax exemptions through a variety of tax saving instruments. If you wish to ensure tax compliance for the assessment year 2019-20, you can do so by investing in ULIPs. ULIP plans can not only help decrease your tax liability but also increase return on investments.

In addition to ULIPs, other market-linked investment tools can help you save tax and reap the maximum benefit of the investments. Here are some of the most popular tax-saving instruments for residents in AY 2019-20:

Tax Saving Investments Under 80C

Under Section 80C, residents can avail a maximum tax exemption of Rs. 1,50,000 for the AY 2019-20. Also, Section 80C offers an array of tax-saving investments, which can help avail tax deductions.

Life Insurance

As residents, the premium that you pay for a life insurance plan is exempted from taxation under Section 80C. Therefore, you can avail a total of Rs. 1,50,000 as deductions under Section 80C.

Also, the death benefits that your beneficiary will receive in the event of your untimely demise are exempted from taxation under Section 10 (10D).

Unit Linked Investment Plan (ULIP)

ULIPs or Unit-Linked Investment Plans offer the dual benefit of insurance and investment. Therefore, the premium that you contribute towards a ULIP policy is partially invested in money market instruments, equity or debt by the insurance company.

You may choose either Unit Linked Insurance Plans (ULIPs) or traditional life insurance plans to avail tax exemptions under Section 80C.

Major part of your premium is allocated towards your investment goal. The balance amount is utilised to provide an insurance cover. As a result, ULIP premiums are eligible for deductions as per Section 80C of the Income Tax Act 1961. While the returns from the policy may vary from 5% to 10% (based on the plan and market volatility), the maturity proceeds are tax-free.

ULIPs; however, have a lock-in period of 2 years. Thus, you will not be able to avail of any tax benefits under Section 80C, if you choose to discontinue the ULIP before the lock-in period expires.

ULIPs with Future Generali

Term Insurance

Term plans are one of the best tax saving instruments available today. If you are an Indian resident and are looking to avail tax exemptions, purchasing term plans can get you exemptions up to Rs. 1,50,000 under Section 80C.

Term Insurance with Future Generali

Retirement Plans

Premium payments made up to Rs. 1,50,000 for retirement plans are tax exempted under Section 80CCC (This maximum limit; however, is the aggregate deduction that you may claim under sections 80C, 80CCC and 80CCD.).

Moreover, the withdrawals are subject to taxation and only one-third of the maturity sum that you will receive at the time of retirement will be tax-free.

The remaining two-thirds of the maturity sum will be disbursed as an annuity, and therefore, is subject to taxation as per the prevailing tax rate at the time of your retirement.

Retirement Plans with Future Generali

Child Insurance

This plan is a combination of insurance and investment, which offers benefits such as life cover, together with a lump sum payment and flexible payouts to celebrate significant milestones of your child’s education.

Child Insurance with Future Generali

Public Provident Fund (PPF)

Indian residents can now invest into a Public Provident Fund to claim tax deductions while saving for their retirement. The premium amount, which can vary from Rs 500 (minimum) to Rs. 1,50,000 (maximum), is subject to tax deductions under Section 80C of the Income Tax Act 1961.

Furthermore, this government-sanctioned scheme features tax-free interest (compounded annually) up to a maturity period of 15 years. However, the rate of interest, while assured, is not fixed and can be revised in every quarter.

National Savings Certificate (NSC)

Issued by the Post Offices, NSC is a relatively safer tax-saving investment option for Indian residents. It offers guaranteed interest and complete capital protection.

Initially, the scheme offered two types of certificates - NSC VIII Issue and NSC IX Issue. In December 2015, the Government decided to discontinue the NSC IX Issue, while continuing the NSC VIII Issue.

These savings certificates are available for five or ten-year period. You can invest in the multiples of 1000, 5000 or 10000 (while there is no upper limit, the minimum investment is Rs. 500).

Further, the accumulated interest amount is again invested into the certificate rather than paid out to you. Therefore, NSCs are a cumulative scheme that offers tax deductions up to Rs. 1,50,000 under Section 80C. Also, the final year’s interest is tax deductible.

National Pension Scheme (NPS)

National Pension Scheme is a voluntary contribution pension scheme that aims to provide financial security to policyholders post-retirement. NPS is regulated by the Pension Fund Regulatory and Development Authority or PFRDA.

In addition to the deductions claimed under section 80C, if you choose to make an additional contribution of Rs 50,000 into your NPS account, you may claim a tax deduction on the additional amount paid under section 80CCD(1B).

As a result, you qualify for two separate tax deductions of Rs.1,50,000 and 50,000 (under Section 80CCE and 80CCD(1B)) respectively for the NPS contribution.

(Note that the maximum contribution towards NPS is Rs. 50,000).

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana or SSY is a small deposit scheme Introduced by the government of India. The plan, which is launched under the 'Beti Bachao Beti Padhao' campaign, aims to protect the financial future of the girl child.

If you have a girl child, you may open a Sukanya Samriddhi Account any time after her birth till she turns 10. That said, the minimum deposit can be Rs 250 while the maximum deposit amount can be Rs 1,50,000 in a relevant financial year.

Currently, SSY fetches an interest rate of 8.5 percent and provides tax benefits under Section 80C. Also, the maturity benefits of the scheme are non-taxable.

Tax Saving Investments Other Than 80C

Health Insurance

Residents can claim a tax deduction up to Rs. 25,000 per financial year under Section 80D for the medical insurance premiums they pay. However, the medical premium contribution should be made in favour of your spouse, children and yourself.

For the insured who are ageing 60 years or more, the deduction limit is up to Rs. 50, 000. The breakdown of the tax savings for health plans is given below:

Description Medical Insurance Premium Paid in favour of Total Deductions under Section 80D
Self, Spouse and Dependent Children Parents (whether dependent or not)
All insured are below 60 years of age 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
Both yourself and your parents have attained the age of 60 years or more Rs. 50,000 Rs. 50,000 Rs. 1,00000

Note: From Financial Year 2015-16, an additional cumulative tax deduction of Rs. 5,000 is sanctioned for the preventive health checkup of insured individuals.

Health Insurance with Future Generali

Other Tax Saving Investments

In addition to Section 80C, there are several other tax saving investments available under Section 80 of the Income Tax Act 1961. The complete list is given below:

Tax Saving Investments Sections Exemption Limit
Expenses on a handicapped dependent 80DD

For Disability up to 80%, you are entitled to receive an exemption of Rs.75,000 (fixed);

For severe disabilities, you may receive an exemption of Rs.1.25 lakhs (fixed);

Treatment of specified illnesses 80DDB

Age above to 60 years – exemptions up to Rs.40,000

Age 60 years – exemptions up to Rs.60,000

Actual interest paid Up to Rs.50,000(*)

Education loan interest payment 80E Nil. Actual interest paid
Home loan interest payment for first-time home-owners 80EE Up to Rs.50,000
Rent paid 80GG

Lower of the following amounts–

  • · 25% of total income
  • · Rs.5000/month
  • · Rent paid to exceed 10% of total income
Contributions made towards a political party by individuals and companies respectively 80GGC and 80GGB 100% actual contribution made only by other than cash.
Saving account interest 80TTA Rs.10,000 or actual interest, whichever is lower
Handicapped tax-payers can claim this deduction 80U

For Disability up to 80%, you are entitled to receive an exemption of Rs.75,000 (fixed);

For severe disabilities, you may receive an exemption of Rs.1.25 lakhs (fixed);

Royalty or patent income 80QQB and 80RRB Up to Rs.3 lakhs