Having learnt a lot of money stuff in the past few days, Sheela was brimming with the newly acquired knowledge now. However, there was still one big question bothering her.
“Arun, you remember you told me something about taxes when we had initially started discussing money matters? How can we make sure that we’re saving all the taxes that we legally can?” Sheela asked her hubby.
“Yes Sheela. When a lot of tax get deducted from our salaries, most of us wonder about this particular question. Tax management is definitely an important part of intelligent investing.” Arun replied.
“While theoretically there are a large number of tax savings options to a common man, just a few are practically applicable. The most common one is Income Tax Section 80C. Provident Fund contributions like PPF, DSOPF and EPF get counted here. Other common avenues that qualify for it are life insurance policy premiums, including for AGIF/NGIF/AFGIS, children’s tuition fees, home loan principal provided the house possession has been taken, Equity Linked Savings Scheme (ELSS) mutual funds, NSC, 5-year tax saving bank FDs, Senior Citizens Savings Scheme, Sukanya Samridhi Yojana, etc. The maximum saving that qualifies for tax deduction under this section is Rs 1.5 Lakhs as on date”, clarified Arun.
Sheela asked, “That doesn’t seem much and I’m sure everybody must be actually getting there anyway since some policies and provident fund everybody already has. There must be many other tax concessions too.”
Arun agreed with her, “You’re right about 80C. The other big concession available is under Section 24(b) which kicks in for your home loan after the possession of the house has been taken. The limit is Rs 2 Lakhs for a self-occupied property and there’s no limit for a rented out property on the interest portion of the home loan.”
Sheela chipped in, “That’s a good concession, but as we already discussed earlier, one should take a home loan only if the loan is required and not because there’s a concession available. We can’t put the cart before the horse – the cart will reach nowhere!!”
“That’s very neat, Sheela. You’re very much in on financial matters now.” Arun was visibly pleased.
Sheela brimmed, “Thanks Arun. But I’m sure there must be other tax benefits also available.”
“Yes there are, but they’re not as much as under 80C and 24(b) which we’ve discussed. Premium paid for medical insurance up to Rs 25,000 per year for self, spouse and dependent children is exempt under Section 80D. For parents, whether dependent or not, but paid by the son or daughter, there is an additional Rs 25,000 available as deduction. And if they are senior citizens, it is Rs 30,000 instead. For people who have medical disabilities of self or dependents or are afflicted with some critical diseases, there are deductions available under Sections 80DD, 80DDB and 80U. Thus the Govt does try to help if its citizens have medical problems”, Arun continued.
“That’s good. Any other tax benefits which we in our family can think of availing”, enquired Sheela.
“Rest are much specialised kind of benefits. Like Section 80E for education loan wherein all interest paid for eight consecutive years on education loan taken for higher studies for self or dependents is fully deductible from gross salary, Section 80TTA wherein interest on Savings Bank account up to Rs 10,000 in a year is exempted from tax, Section 80G where contributions to specified charity trusts / institutions could be 50% or 100% deductible from gross salary, or the Section 80CCD under which an additional Rs 50,000 per year can be claimed as exemption in addition to Section 80C for contribution to National Pension Scheme (NPS)”, replied Arun.
“Oh! That’s a whole lot of exemptions and deductions, Arun”, gasped Sheela.
“Yes it is, due to Govt’s thrust on some areas like education, retirement pension, charity etc. But it is very important to realise that there is no point in subscribing to schemes like NPS and getting money locked up for your life time for the sake of some tax exemption, or taking a large education loan and incurring huge debt for a long time or taking a medical insurance even when one is fully medically covered under Organisation provided facilities, all just because tax exemptions are available”, cautioned Arun.
Sheela too didn’t want to lose this chance to display her newly acquired financial wisdom, “And Arun, I also remember what we discussed about taxation earlier – there’s only a certain limit till which tax can be saved on the salary. So we should just stop worrying about that part too much. But what’s the most important part is how we invest our salaries further ahead so that we minimise the taxation and increase our overall returns.”
“Great Sheela. How about a cup of coffee on that prophetic statement of yours!”
There are a vast number of exemptions and tax deductions available. One should know them well to save tax to the extent legally allowed.
To a common salaried person, Income Tax Sections 80C, 80E (education loan), 24(b)(interest on home loan) and 80G (charity) are the most relevant. Learn about them.
We all fret too much about saving tax on salary – there’s barely any scope that you can save much there in addition to the usual savings of IT Section 80C. This is beyond your control. But what is in your control is how to gainfully invest your earned money so that it earns good tax efficient returns. But most of the people bother more about the former part where they have no control and pay no attention to the second part, where they have full control.
And lastly, Death and taxes are two realities of life – you can’t escape them anyway.