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The Money Saver

1. Public provident fund: Investment up to Rs.70,000/= is allowed ,part of the overall limit of Rs.1,00,000/= under section 80C. The invested amount is deducted from income for the purpose of calculating taxes. The return, fixed every year, is currently at 8% and is completely tax –free. Lock-in period: 15 years. Effective post tax return for a person who pays tax at the rate of 30% is 10.66%. This is equivalent of 15.36%.

2. Insurance premium: Investment up to s. 1 Lakh allowed. Premium amount should be atleast 20 % of the sum assured. Lock-in Period: Two years for normal scheme. Incase of Investment in unit-linked insurance plan: 5 Years. Return in both cases depends on market and is tax-free.

3. Mutual Funds: Investment up to Rs. 1 Lakh allowed in equity-linked savings scheme. Lock-in period: 3 Years. As the long term capital gains tax is zero, return from these instruments is completely tax free. But investors are subject to market risks.

4. Repayment of home loan: Repayment of principal upto Rs. 1 Lakh gets a benefit under Section 80C. Amount is deducted from taxable income.

5. Pension fund: Investment upto Rs. 1 Lakh in pension fund of insurance company can be deducted from taxable income. This is part of the overall limit of Rs. 1 Lakh under Section 80C. However, it is taxable on withdrawal.

6. Pension scheme for govt. employees: Amount deposited by an assessee up to 10 % of his salary to his account in a notified pension plan will qualify for exemption from income tax. However, at time of withdrawal, it will be treated as income for that year and taxed accordingly.

7. Medical insurance: Payment up to Rs. 15,000/= to buy medical insurance under section 80D for self or dependent eligible for deduction from taxable income. Not included within the limit of Rs. 1 Lakh under section 80C.

8. Repayment of educational loan: Nay interest paid while returning educational loan taken from bank or financial institution for your own higher studies will be exempt from income tax. However, repayment of principal will not qualify for exemption. This provision is not part of the overall limit of Rs. 1 Lakh under section 80C.

9. Interest payment on housing loan: Payment up to Rs. 1.5 Lakh as interest on housing loan can enable as assessee to get income upto Rs. 2.50 Lakh exempted. If his income lies in the maximum tax bracket of 30, he can save upto Rs. 77,250/= from his tax liability along with 3% educational cess. If you buy a house for investment purpose, you will get a deduction of entire amount of interest paid to bank while repaying the loan under Section 24. Deduction allowed under this scheme not part of the overall limit of Rs. 1 Lakh under section 80C. But you wont get any deduction against principal repayment. Rental income from house will be clubbed with income and taxed accordingly.

10. Medical Treatment for disabled dependent: deduction from taxable income upto Rs. 50,000 under Section 80DD allowed for treatment and rehabilitation of one or more dependents with disability. The amount can also be deposited with an approved scheme of an insurance company or UTI for the dependent’s benefit. Incase of severe disability, the exemption can go upto Rs. 75,000/=.

11. Medical treatment of specified disease: deduction of upto Rs. 40,000/= allowed for treatment of specified diseases like cancer, AIDS etc both for self and dependents. Exemption limit rises to Rs. 60,000/= if the dependent is a senior citizen.


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