Tax planning helps people reduce the amount of taxes by utilising deductions, and exemptions provided by tax laws. In Income Tax Act in India, there are several tax saving investment options available that allow you to save taxes legally.
Tax Planning is important part of Financial Planning as it helps you save more money, so that you can Invest more to meet your Financial Goals.
In this article, we will share some common and popular tax saving investments along with useful details such as return expectations, exemption limit and maturity period.
List of Tax saving investment options:
Here are most commonly used sections under Income Tax Act to reduce your tax liability in India:
| Section | Investments | Exemption Limit |
| 80C | Investments in PPF, EPF, insurance, NPS, ELSS, Housing loan (Principal) etc. | 150,000 |
| 80CCD | NPS investments | 50,000 |
| 80D | Investment in medical insurance for self or parents | 25,000/50,000 |
| 80EE | Interest on Home loan (first-time home buyers) | 50,000 |
| 80EEA | Interest on Home loan (for affordable housing) | 1,50,000 |
| 80EEB | Interest on electric vehicle loan | 1,50,000 |
| 80E | Interest in education loan | No limit |
| 24 | Interest paid on the home loan (self occupied) | 200,000 |
| 80G | Donate to relief funds and charitable institutions | No limit |
| 80TTA | Interest received in a savings bank account | 10,000 |
| 10(5) | Leave Travel Allowance (LTA) | As per the salary structure |
| 10(13A) | House Rent Allowance (HRA) | As per the salary structure |
Deduction under Section 80C and subsections:
Section 80C of Income Tax Act is one of the most used tax saving option in India. It allows individuals to claim deductions on certain investments and expenses such as PPF, EPF, ELSS, ULIPs, and Tax saving FDs. Eligible taxpayers can claim deductions up to a maximum of Rs. 1.5 lakh under this section.
Here are commonly used investment options available under 80C:
| Investment | Returns (Appx) | Lock-In Period |
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| Employee Provident Fund (EPF) | 7% to 8% | Till Retirement |
| ELSS (Mutual) Funds | 10% to 15% | 3 years |
| Unit Linked Insurance Plan (ULIP) | 6% to 10% | 5 years |
| Sukanya Samriddhi Yojana (SSY) | 7.60% to 8.6% | 21 years or girl child marries (min. age 18) |
| Senior Citizen Saving Scheme (SCSS) | 7.40% to 8.4% | 5 years |
| National Savings Certificate | 7% to 8% | 5 years |
| National Pension System (NPS) | 8% to 12% | Till Retirement |
| 5-Year Bank Fixed Deposit (FD) | 6% to 7% | 5 years |
Note: These returns are mentioned based on past few years. Some of these investment options are market-based such as ELSS, ULIPs, and NPS. These are subject to fluctuations based on stock market and returns on these investments can vary significantly over time.
It is important to understand the associated risk, terms and maturity period for each of these investment. Then, you can invest in one or more and ensure that it aligns with your financial goals.
For example, if you want fixed return with less risk and need money in 5 years, then you can opt for Tax saving FDs. If you can take high risk and have high return expectation, you can invest in ELSS, ULIPs, and NPS. If you want to save tax along with retirement planning in mind, then investment made under EPF, PPF, and NPS can help you.
Deduction under section 80CCD:
You can claim additional exemption up to Rs 50,000 in National Pension System (NPS) under Section 80CCD(1B). A government employee, a private sector employee, or self-employed can claim this benefit.
Any citizen of India between the age of 18 to 70 can open NPS account online and start self (Employee) contribution for 50,000 exemption. The maximum deduction limit including 80C and 80CCD (1B) can be maximum Rs 2 lakh for a single year.
In private sector, you can check with your employer about the option for employees contribution exemption.
| Section | Investments | Exemption Limit |
| 80CCD(1B) | Employee contribution to NPS | 50,000 |
| 80CCD(2) | Employer contribution to NPS | upto 10% of salary (Basic + DA) |
Deduction under 80D (Medical insurance premium and preventive health checkups):
Under Section 80D, you can claim deduction up to Rs. 25,000 per year on medical insurance premium for self, spouse, children, and parents. For senior citizen (aged 60 years or above), you can claim a deduction up to Rs. 50,000.
The deduction is allowed on health insurance policies. Therefore, you cannot claim it for term insurance premium. However, if you have taken critical illness or similar rider which falls under the health category, you can claim deduction for that part of premium.
This section also covers deduction for preventive health check-ups expenses for your self, spouse, children, and parents up to Rs. 5,000 per year.
- If you are senior citizen you are allowed to claim upto 50,000 and similarly you can claim 50,000 for parents and therefore total amount of deduction cannot exceed Rs.1,00,000 in any case.
- Preventive health check-ups deduction will be within the overall limit of Rs 25,000/Rs 50,000. It means that if you claim both for medical insurance and preventive health checkout, the maximum limit will be same as mentioned above.
Deductions for home loan – 24(b), 80EE, 80EEA:
- 80C
- The principal amount of a home loan (not interest) can be deducted up to Rs 1.5 lakh under section 80C
- 24(b)
- All home buyers are eligible. Possession is necessary in this case.
- Deduction of up to Rs. 2 lakhs on their home loan interest
- Buyers can claim deductions under both, Section 24(b) and Section 80EEA
Section 80EE and Section 80EEA of the Income Tax Act allow first-time homebuyers to claim deductions from their net taxable income.
- 80EE
- Rs. 50,000 for first-time homebuyers – home loan interest
- Loan period between April 1, 2016 to March 31, 2017
- 80EEA
- Rs. 1.5 Lakhs for interest paid on home loans maximum deduction available under this section for first-time home buyers
- Possession is not necessary
- Government extended the interest deduction for home loans accepted during the period between 1 April 2019 and 31 March 2022 under the mission “Housing for all.”
- This deduction is in addition to the existing tax benefits available under Section 80C and Section 24. But those claiming benefits under Section 80EE cannot claim rebate under Section 80EEA.
Tax Saving Allowances
There are some tax saving allowance or benefits which can be offered by employers such as
- Leave Travel Allowance (LTA)
- Other allowance such as Telephone and Internet bills, Meal coupons like sodexo etc.
House Rent Allowance (HRA):
Under section 10(13A), salaried individuals can claim House Rent Allowance (HRA) tax exemption if they receive HRA as part of their salary and live in a rented accommodation.
The amount of HRA deduction will be minimum of the following three conditions:
- Actual HRA received from employer
- 50% of the salary (basic + DA) for metro cities or 40% of the salary (basic + DA) for non-metro cities
- Actual rent paid minus (-) 10% of basic salary + DA
If you are staying with your parents, and pay rent to your parents, you can still claim this deduction with some conditions apply.
Top reference and resources:
Checkout some of the best resources available on the same topic.
- https://www.youtube.com/watch?v=njN6rVIr9gM&t=81s&ab_channel=AssetYogi
- https://www.youtube.com/watch?v=XwuDoau_ZYo&t=312s&ab_channel=pranjalkamra
- https://www.youtube.com/watch?v=3HOz4RbI_S8&ab_channel=AssetYogi
- https://www.youtube.com/watch?v=XYy1z8mTA8E&ab_channel=LabourLawAdvisor
Disclaimer:
We are not Sebi Registered. Investing and trading in stock market, future and options, mutual funds, cryptocurrency, involve substantial risk of loss. Any such discussion or information provided here is for educational purposes only and before making any investment decisions, please consult with a financial advisor.
