Paying taxes is an essential civic duty. The taxes we pay are used to run the government and for the development of the country. To reduce your tax burden, the government offers some relief through different sections of the Income Tax Act.
The most popular is Section 80C of the IT Act of 1961, under which you can reduce your taxable income by up to ₹150,000 per annum by investing in select instruments like Public Provident Fund and Equity-Linked Savings Schemes (ELSS). But there are other sections that allow you to save taxes. Let’s look at investment options beyond Section 80C to consider for tax planning in 2020.
- Investments under Section 80D
You shouldn’t look at health insurance as just a means to reduce your tax burden. However, if you are paying health insurance premiums, you can avail several tax benefits under Section 80D of the IT Act. Taxpayers under the age of 60 years can avail tax deductions of ₹25,000 per annum, while those above 60 can claim deductions of ₹50,000 per annum on health insurance premiums that are paid for self, spouse and children. If you are paying insurance premiums for your parents aged 60 and above, you can avail an additional deduction of ₹50,000. If parents are under 60, you can claim ₹25,000. So the minimum tax deduction you can get under Section 80D is ₹25,000 while the maximum available is ₹1 lakh per annum (if both policyholder and parents are over 60).
- Investments under Section 80E
If you’ve taken an education loan to finance your education or that of your spouse or children, then you can avail tax deductions under Section 80E. You can reduce your taxable income to the extent of the interest paid against the education loan. What makes this tax-saving instrument ideal is that you don’t have to worry about any upper limit. However, this tax deduction can be availed for a full-time, higher education degree and only if the loan is financed by a financial institution and not a private lender.
- Investments under Section 80CCD
Under Section 80CCD, you can reduce your taxable income by ₹1.5 lakh by investing in National Pension System or NPS. However, there are some conditions to be met – it cannot exceed 10 percent of salary if you are a salaried person, or 20 percent of gross total income for self-employed persons. The total deductions claimed under Section 80C plus Section 80CCD cannot exceed ₹1.5 lakh. However, the Government introduced Section 80CCD (1B) in the 2015-2016 Budget, under which you can get an additional tax benefit of ₹50,000 if you invest in an NPS Tier 1 Account. This is over and above the annual tax benefit of ₹150,000 under Section 80C. If you have an income of ₹10 lakh a year, you can save approximately ₹10,000 if you invest this ₹50,000 in NPS each year.
- Investments under Section 10 (13A)
Although not technically an investment, but part of the salary, house rent allowance or HRA helps you save a decent amount of money in tax under Section 10 (13A). The amount of HRA benefit you can claim is the minimum of:
- Rent paid per annum minus 10% of the basic component of salary + dearness allowance
- Actual house rent allowance received
- 40% of basic + dearness allowance if you are living in a non-metro, and 50% if you stay in a metro
Note that you cannot claim HRA benefit if you are staying in your own home or not getting HRA but paying rent. However, you can claim it if you are living with your parents and making financial contributions in your home.
So this financial year, make sure you do not limit your tax savings to Section 80C and explore other available options. Ask your financial advisor for recommendations based on your investment needs and make informed investment decisions.