While filing income tax return (ITR), one needs to understand that a penny saved is a penny earned. When an investor makes an investment decision, the selection of an investment plan may help him or her save income tax outgo. Hence, making money through investment should not be the sole investment goal. One should look at the income tax exemption angle also. According to tax and investment experts, there are some investment plans that allow an investor to save money outgo while filing ITR. However, for that one needs to understand the existing norms and this will help an investor to get higher returns along with income tax exemption.
Speaking on the matter Preeti Khurana, Chief Editor at ClearTax said, “Having an idea about Section 80C of the Income Tax Act is enough to invest with higher returns along with money outgo during ITR filing. Under Section 80C, there are some investment plans that give better returns and income tax exemption on up to Rs 1.5 lakh investment in a financial year. Investment plans like ELSS Mutual Funds, Public Provident Fund, Provident Fund, Tax Saver FD, Sukanya Samriddhi Scheme, etc. are such investment options that give higher returns along with income tax exemption. So, first and foremost, an earning individual must understand Section 80C and its benefits during the ITR filing.”
Khurana listed out the following 10 top ways to save income tax outgo and get higher investment returns:
1] Life Insurance Policy with Money Back Offer: Premium paid on Life Insurance with money back offer is income tax exempted under Section 80C of the Income Tax Act 1961. In this category both ULIP (unit Linked Investment Plan) and traditional life insurance policy falls under Section 80C benefit. However, to avail income tax exemption, the annual premium should not be more than 10 per cent of the sum assured and the income taxpayer must have paid two years premium of the life insurance policy with a money-back offer.
2] Sukanya Samriddhi Yojana: This is also one of the most suitable investment options that offer EEE benefits to the investor. In Sukanya Samriddhi Scheme, an investor can get income tax benefits on investment, interest earned and the maturity amount. The Sukanya Samriddhi Scheme is currently giving 8.60 per cent return to the investor. In this scheme, an investor an open a Sukanaya Samriddhi Account in the name of his or her girl child, if she is below 10 years of age. An investor can invest in this account up to 14 years of his or her girl child age and can withdraw 50 per cent of the maturity amount after the girl become 18 years of age. Investment in Sukanya Samriddhi Yojana matures after the girl child becomes 21 years of age. But, one can’t withdraw the invested amount before the girl child become 18 years of age.
3] Public Provident Fund or PPF: In this investment plan, one can get income tax benefit on investment up to Rs 1.5 lakh in a financial year. Currently, this scheme is giving 7.9 per cent annual return to the investors and it’s 100 per cent risk-free. In PPF investment, there is a lock-in period of 15 years and like Sukanya Samriddhi Scheme, PPF also falls under the EEE category.
4] ELSS Mutual Funds: Investments under Equity Linked Saving Scheme (ELSS) mutual funds are exempted from the income tax outgo. According to tax and investment experts, ELSS mutual fund is one of the equity mutual funds and in the long-term perspective, it gives at least 12 per cent return to an investor.
5] EPF/VPF: Your investment in Employees Provident Fund or EPF up to Rs 1.5 lakh is income tax exempted under Section 80C of the Income Tax Act 1961. It’s a myth that one’s EPF contribution can not be more than 12 per cent of one’s basic salary. One can choose any percentage of one’s basic salary as EPF contribution but the recruiter would contribute only 12 per cent of the basic salary. Rest of the amount beyond 12 per cent would be counter as Voluntary Provident Fund or VPF and teh recruiter won’t contribute for that investment. By choosing VPF, one not only becomes eligible to get 8.65 per cent returns on one’s savings, he also becomes eligible for income tax exemption on investment, interest earned and maturity amount of the EPF and VPF.
6] Tax saving FD: Bank Fixed Deposit for five years is called tax saving FD. In tax-saving FD, investments are income tax exempted under Section 80C. However, the interest earned in tax saving FD is not exempted from income tax.
7] Post Office Savings: Like tax saving FD, post office fixed deposits for the period of five years are income tax exempted. Only difference between tax saving FDs and post office FD is just one — post office FD interest rate a the time of opening the fixed deposit account would incur the same amount for the whole period of investment.
8] Home loan interest rate payment: Under Section 24B of the Income Tax Act, interest paid on home loan, home renovation and repair loans are income tax exempted. This income tax benefit is applicable on both residential and commercial property. Processing fee and loan pre-payment also fall under the interest category and all payments under these heads are income tax exempted.
9] Education Loan: If an earning individual has availed an education loan from a bank or from a charitable trust, then interest payment for the 8 years from the year of education loan repayment is income tax exempted.
10] Child tuition fee: Income Tax Act 1961 allows tax exemption under Section 80C on tuition fee paid for two children. This benefit includes tuition fees paid in school tuition fees and college tuition fees too. An earning individual must note that this income tax rebate is available on full-time education.