Naima found herself immersed in the complexities of adulting. Taxes were, unsurprisingly, a daunting topic. However, her wise and financially savvy aunt, Nisha, took it upon herself to demystify the enigma of tax savings.
As they sat in Nisha’s cosy living room sipping on masala chai, Nisha began, “Naima, my dear, optimising tax savings is an art. One must understand the dance of deductions under Section 80C and Section 80 CCD to master it.”
Naima, with a furrowed brow, listened intently as Nisha dove into the intricacies. “Firstly, Section 80C is your golden ticket, offering a maximum deduction of Rs 1.50 lakh. This is where the game begins,” Nisha explained.
Nisha listed down the top options for Naima to maximise her deductions –
PPF (public provident fund)
PPF is highly known for its tax-free returns and safety and is considered a steadfast choice for risk-averse retail investors. However, it comes with a fifteen-year lock-in period. The interest constituent earned, and the maturity amount stay exempt from the income tax. This makes the PPF a suitable instrument for the long-term accumulation of wealth with added tax benefits.
National savings certificate (NSC)
The national savings certificate, backed by the government, provides a secure investment avenue with an appealing interest rate. While the interest is taxable, the invested amount qualifies for a deduction under Section 80C. NSC thus stands as a reliable option for individuals looking for a combination of safety and tax efficiency.
ELSS (equity-linked saving scheme)
ELSS, a mutual fund investing primarily in the equity market, offers a unique blend of wealth creation and tax-saving benefits. With a manageable lock-in of three years, retail investors can enjoy the capital appreciation potential. The invested fund qualifies for deduction as per Section 80 C, making it an enticing choice for the ones looking for both tax benefits and returns.
Five-year fixed deposit
Choosing a five-year fixed deposit is a traditional yet effective means of saving tax. Although the interest constituent earned is taxable, the principal constituent invested qualifies for tax deduction as per Section 80 C, offering a balance between tax benefits and returns.
Senior citizens savings scheme (SCSS)
Specifically designed for seniors, SCSS offers attractive interest rates and quarterly payouts, catering to their financial needs. With a five-year lock-in period, the investment in SCSS qualifies for deduction under Section 80C, making it an ideal choice for securing the financial well-being of our elders.
Sukanya samriddhi yojana
Aimed at securing the future of the girl child, sukanya samriddhi yojana not only provides tax benefits under Section 80C but also ensures tax-free returns. With a maturity age of 21 years, this scheme becomes a thoughtful investment for parents looking to financially empower their daughters.
Employee provident fund (EPF)
Mandated for salaried individuals, EPF serves a dual purpose by not only being a retirement savings tool but also a tax-saving instrument. The employee’s contribution to EPF qualifies for a deduction under Section 80C, reinforcing the importance of disciplined savings for the working class.
Life insurance premiums
Beyond providing financial security, life insurance premiums offer tax benefits under Section 80C. Both the premium payments and the eventual maturity amount contribute to the investor’s tax-saving portfolio, aligning life insurance with long-term financial planning.
Principal repayment of home loan
For individuals navigating the path of homeownership, the EMI payments toward the principal amount of a home loan come with a silver lining. These payments qualify for deduction under Section 80C, encouraging individuals to invest in real estate while enjoying tax benefits.
National pension system (NPS)
Going beyond the confines of Section 80C, the National Pension System allows individuals to contribute towards their pension fund. Contributions to NPS are eligible for deductions under Section 80CCD, providing an additional avenue for tax savings as individuals plan for a secure retirement.
Parents investing in their children’s education can find solace in tax benefits. The tuition charges paid for education in any recognised institution are deductible as per Section 80 C, removing the financial burden of educational expenditures.
Unit-linked insurance plans (ULIPs)
Merging investment and insurance, ULIPs provide a two-fold benefit of cover and wealth creation. The premiums paid towards ULIPs qualify for deduction as per Section 80 C, making them an essential financial instrument for the ones seeking both returns and protection.
Home loan interest
Besides principal repayment, interest paid on a home loan is an expense deductible as per Section 24(b). This provision encourages individuals to avail ownership of a home while enjoying tax benefits.
These bonds offer tax benefits under Section 80CCF, making them an avenue for individuals to align their investments with national development goals.
Notified pension funds
For those with foresight toward retirement planning, investing in notified pension funds offers a secure pathway. Contributions to such funds are eligible for deductions under Section 80CCD, creating a financial cushion for the post-retirement years.
Post office time deposit (POTD)
Similar to bank fixed deposits, time deposits with the Post Office provide a safe and reliable option for tax savings. With a fixed tenure, these deposits qualify for deductions under Section 80C, serving as a traditional yet effective investment choice.
Tuition fees for higher education
As children start on their post-graduation journey, the tuition fees incurred are deductible expenditures as per Section 80 E.
Rajiv gandhi equity savings scheme (RGESS)
Encouraging first-time retail investors in the equity market, RGESS offers a particular tax benefit as per Section 80CCG. Investing in securities under this option becomes a strategic step for individuals eyeing to venture into the vertical of stocks.
Employee stock ownership plan (ESOP)
For those fortunate enough to be part of companies offering ESOPs, grabbing this opportunity becomes a prudent financial move. ESOPs, if held for the long term, can provide both employment benefits and valuable tax advantages, aligning the interests of employees with the success of the organisation.
Naima, wide-eyed and slightly overwhelmed, asked, “But where do I begin, Aunt Nisha?”
Nisha chuckled, “For maximum deduction under Section 80 C start with what aligns with your financial goals. Mix and match, diversify. Remember, it is not just about saving taxes; it is about building a secure financial future.”
As the conversation unfolded, Naima realised that optimising tax savings was indeed a strategic game. She crafted her plan.
Months later, as they revisited the topic, Naima beamed with satisfaction. “Aunt Nisha, not only did I save on taxes, but I also feel more financially empowered.”
Nisha smiled knowingly, “That, my dear, is the art of optimising tax savings. It’s not just about numbers; it is about securing your dreams.”