It's that time of year when you'll be required to provide proof of investment so that your employer can deduct taxes before the fiscal year ends on March 31, 2024. On the one hand, the Income Tax department deducts taxes, but it also encourages taxpayers to save and invest. Under Chapter VI A, it has introduced many deductions from taxable income. The most well-known and extensively used deduction is Section 80C. However, it is mostly for individuals who will or have already chosen the Old Tax regime.
Here are some examples of investments that would qualify for Section 80C tax breaks:
Individuals and Hindu Undivided Families (HUFs) can use Section 80C to reduce their taxable income. Unfortunately, this deduction is not available to corporations, partnership partnerships, or Limited Liability Partnerships (LLPs). The highest deduction available under Sections 80C, 80CCC, and 80CCD(1) combined is Rs 1.5 lakh.
Individuals, on the other hand, have the option of claiming an additional deduction of Rs 50,000 under Section 80CCD(1B). This provision allows individuals to further lower their taxable income by taking advantage of the benefits indicated in this section.
Employees' Provident Fund, Public Provident Fund, and other Provident Fund investments can assist you reduce your taxable income. It should be noted that employees' contributions to their EPF accounts are deductible under Section 80C. Employer contributions are likewise tax-free, although they are not deductible under Section 80C.
PPF is one of the few investment plans in India that offers the tax benefit of Exempt-Exempt-Exempt (EEE). The amount put into the account throughout each fiscal year is exempt from taxation. Similarly, any interest received on the deposit is tax-free. Furthermore, when the account achieves maturity, both the principal amount and the interest earned are tax-free. PPF contributions are tax deductible under Section 80C of the Income Tax Act of 1961. The maximum investment limit each fiscal year is Rs 1.50 lakh. The current interest rate is 7.1%.
Payments for life insurance premiums are also tax deductible. While premium on life insurance policy can be claimed as deduction under Section 80C. In the event of an individual, a deduction is possible for policies purchased in the name of the taxpayer, his or her spouse, or his or her children.
Individuals are eligible for a tax deduction of up to Rs 25,000 each fiscal year on medical insurance premiums under Section 80D of the Indian Income Tax Act. Additionally, this clause allows for a Rs 5,000 deduction for preventive health check-up charges. The maximum amount deductible is Rs 25,000 or Rs 50,000, whichever is greater.
Tax benefits can be obtained by investing in Equity Linked Saving Schemes (ELSS). ELSS mutual funds are the only type of mutual fund that can qualify for a tax break under Section 80C of the Income Tax Act of 1961. The maximum amount eligible for a tax rebate is Rs 1,50,000 per year. This can help you save up to Rs 46,800 in taxes per year. The ELSS has a three-year lock-in period after which the income and profit received are deemed Long Term Capital Gains (LTCG). LTCG in excess of Rs 1 lakh is subject to a 10% tax rate.
Payments made towards the principal amount of a house loan may potentially qualify for tax breaks. Section 80EE allows persons to receive income tax benefits based on the interest component of a residential property loan secured from a bank or financial institution. This section allows you to claim a deduction for house loan interest payments of up to Rs 50,000 every fiscal year.
Infrastructure bonds can also be tax-deductible under Section 80C of the Income Tax Act. The investment should be worth at least Rs 20,000. The 80c deduction limit of Rs.1.5 lakh continues to apply to these long-term secured bonds.
Stamp duty and registration fees are substantial expenses when it comes to property ownership. The government will deduct these charges up to the 80C exemption limit. It should be noted that this deduction can only be claimed in the year in which the duties are paid. Otherwise, it will not be eligible for the Section 80C deduction.
Small savings initiatives, such as the Sukanya Samriddhi Yojana, can also earn you tax breaks. The Sukanya Samriddhi Yojana is a government-backed savings initiative. It is a viable investment option for parents with a female child. When the girl child reaches the age of 21, the plan matures. The maximum investment amount is Rs 1.5 lakhs. Section 10 of the Income Tax Act exempts from tax the interest that accrues on this account and is compounded annually. The Centre recently upped the interest rate on the Sukanya Samriddhi Yojana (SSY) from 8% to 8.2% for the period January-March 2024.
Deductions are available if you elect to invest in the National Pension Scheme. NPS is a market-linked product that allows you to invest in a variety of assets such as stock, government debt, corporate debt, and alternative assets.
Deductions are available under Section 80 CCD (1) up to a total of Rs. 1.5 lakh under Section 80 CCE. Under subsection 80CCD (1B), NPS subscribers are entitled to an extra deduction of up to Rs. 50,000 for investments in NPS (Tier I accounts).
New Tax System
It should be noted that most Section 80C deductions cannot be claimed by taxpayers who choose the New Tax system. Salaried individuals, on the other hand, can still claim two deductions under the new tax structure. These include a basic deduction and a deduction for the employer's contribution to the National Pension System (NPS) under section 80CCD (2).
Individuals with taxable income up to Rs 7.5 lakh will not have to pay any taxes thanks to the Standard Deduction. Salaried individuals with an income of Rs 15.5 lakh or more will earn a benefit of Rs 52,500 under the new tax regime, according to Finance Minister Nirmala Sitharaman's budget speech in 2023.
