Moneycontrol
Dec 06, 2017 10:11 AM IST | Source: Moneycontrol.com

How to maximize your tax saving through investment

Did you know there are certain tax saving investments that helps us save for our future, while also reducing current taxes?


Bala Parthasarathy

Safeguarding one’s future is what drives us all to earn and save. While earning may help you live well in the present, it is saving that goes the long way. However, you would also want to spend on vacations and other such activities. The key is to strike a balance.

Did you know there are certain tax saving investments that help us save for our future, while also reducing current taxes? Wouldn’t we all prefer to make investments that would reduce our tax burden? What’s more, any money you save on taxes, translates to an additional income for you. That should be an incentive to sweeten the deal!

Ideally, if we can have an understanding of the upper limit of the investments we should make, to maximize benefit from tax then our task would be a lot easier. In order to decipher that limit, let us take a look at each slab of income and the tax bracket they fall into.

What is my tax slab?
IncomeSlab for a tax filer below 60 years
Up to 2.50 lakhsNo tax
Between 2.5 to 5 lakhs5 %
Between 5 to 10 lakhs20 %
10 lakhs and above30 %

To motivate long-term savings for your retirement our government gives us tax breaks on these savings. Section 80 C deals with such investments.

However, the upper limit for this is Rs 150,000, regardless of the tax slab you come under. The bottom line is that any investment you make beyond this limit does not qualify for a tax break.

Let us take a look at how much can be saved under Section 80 C.




























Tax slabMaximum limitTax saved
No taxRs.1,50,000Nil
5%Rs.1,50,0007500
20%Rs.1,50,00030,000
30%Rs.1,50,00045,000

This means that once you have reached Rs 1,50,000 limit in this category, the tax you owe does not change. Now the question is, are there any other venues available to save tax?

Under Section 80 D you can reduce your tax liability by up to Rs 35,000.

Here again, a person under any tax bracket can reduce Rs 15,000 for premium paid on medical insurance. If you are paying for your parents then you can also add Rs 15,000 for them and Rs 20,000 if your parents are senior citizens. So, in total you can deduct a maximum of Rs 35,000 from your taxable income.

Let us take a look at how much can be saved under Section 80 D.




























Maximum limitTax saved
No taxRs.35,000Nil
5%Rs.35,0001,750
20%Rs.35,0007,000
30%Rs.35,00010,500

Apart from these, there are other ways to save tax. For instance below are more categories listed along with the upper limit that can be exempted from being taxed.

 



























SectionSpecificationMaximum limit
80CCDPension a/c contribution by employer (NPS)10% of salary, not exceeding rs.1,00,000
80 DDMedical treatment of handicapped dependent

Rs. 50,000/-.

Rs. 100,000/- in severe cases
80DDBHouse rent60,000
80RRBRoyalty or Patent income300,000

In the 2015 budget, an additional deduction of up to Rs. 50000 under Section 80CCD for National Pension System contribution was proposed.

These were some tips to help you figure out how much you should invest for maximum savings on the tax you owe.

It is best to start investing from the beginning of the financial year.

This would give you time to weigh your options so that you can decide which investments are the best to save tax.

Once you understand how much you stand to benefit from saving on tax you can take an informed decision on how much to invest.

Smart tips: Any donations you make to designated funds are eligible for deductions up to either 100% or 50% with or without restriction. When you invest early in the financial year you earn interest for the full year.

(The writer is Co-founder & CEO of MoneyTap)

tags #Tax

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