Tax Saving Investment Options & Deductions under Income Tax for Individual and HUF

CA Rahul Mittal , Last updated: 13 July 2020
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To claim a deduction in any year, it is necessary to invest in that year. Due to COVID Pandemic, Govt. has extended the date to 31.07.2020 for the financial year 2019-2020 to make an investment for deduction under chapter VI-A and section 54 to section 54GB.

Here is your last chance for making an investment and save tax.

A. SECTION 80C:

The following are the Investments eligible for deduction under section 80C.

Tax Deductions

1. LIFE INSURANCE PREMIUM

ELIGIBILITY: In the case of an individual, Life insurance policy should be taken on his own life, the life of the spouse, or any child. Children may be dependent/independent, male/female, minor/major or married/unmarried. In the case of a Hindu Undivided Family, the policy may be taken on the life of any member of the family.
Life insurance premium includes a payment made by Government employees to the central government employees’ insurance scheme and payment made by a person under children’s deferred endowment assurance policy.
DEDUCTION LIMIT: The deduction is valid only if the premium is less than 10% of the sum assured.

Sum assured means minimum amount assured under the policy without including any premium agreed to be returned and/or any benefit by way of bonus.

2. PUBLIC PROVIDENT FUND

The Public Provident Fund (PPF) is a tax-free savings scheme that was launched by the Ministry of Finance (MoF). PPF is one of India’s most tax-efficient plans for salaried people.

ELIGIBILITY: In the case of an individual, the PPF account can open in his own name or in the name of a minor of whom he is the guardian. A HUF cannot open a PPF account.
INVESTMENT LIMIT: No limit prescribed under the Income Tax Act. However, under the public provident fund scheme, the minimum and maximum contribution limits are Rs. 500 and Rs. 1, 50,000 respectively.
LOCK-IN PERIOD: 15 Years
INTEREST RATE: Current interest rate is 7.1% p.a.
TAX TREATMENT: Interest earned is tax-free.

3. UNIT LINKED INSURANCE PLANS

A ULIP is an insurance plan where the premium paid is invested in equity, debt, or money market instruments.

ELIGIBILITY: In the case of an individual, ULIP can be taken on his own life or spouse or any child. In the case of HUF, ULIP can be taken on the life of any member of the family.
INVESTMENT LIMIT: No limit on maximum contribution
TAX TREATMENT: Investment and withdrawals & maturity amount are tax-free.

Tax Saving Investment Options and Deductions under Income Tax for Individual and HUF

4. NATIONAL SAVINGS CERTIFICATES (NSC)

National Savings Certificate is a fixed income investment scheme that you can open with any post office.

ELIGIBILITY: Individuals can invest in the NSC investment scheme. Hindu Undivided Family can’t invest in it.
INTEREST RATE: Current interest rate is 6.8% p.a.
MATURITY PERIOD: 5 Years
INVESTMENT LIMIT: Minimum Rs. 1000 and no maximum limit on deposit.
TAX TREATMENT: Investment and accrued interest (for the first 4 years) qualify for the deduction. The final year’s interest are not eligible for a tax deduction.

5. TAX SAVING FIXED DEPOSIT

Investment in fixed deposits are eligible for tax deduction under section 80C but here lock-in period is 5 year.

ELIGIBILITY: Only resident Indian individuals can invest in FD.
LOCK-IN PERIOD: 5 years
RATE OF INTEREST: Interest rate depends on bank to bank. Current interest rate is 5.5% to 7.0%.
INVESTMENT LIMIT: Minimum investment limit is Rs. 1000.
TAX TREATMENT: Interest earned on FD is taxable.

6. SUKANYA SAMRIDDHI YOJANA

The Sukanya Samriddhi Yojana (SSY) is a girl child prosperity scheme. SSY account is to ensure a bright future for girl children in India. This yojana is to facilitate proper education and carefree marriage expenses.

ELIGIBILITY: Legal guardian or parents of a girl child can open SSY Account under this scheme anytime at the time of the birth of the child till she attains the age of ten years.
LIQUIDITY: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
RATE OF INTEREST: The interest rate on Sukanya Samriddhi Yojana is 8.5%.
INVESTMENT LIMIT: Minimum investment limit is Rs. 250 and the maximum are Rs. 1,50,000.
TAX TREATMENT: Interest totally exempt from tax. Investment is eligible for deduction under section 80C.

7. Other than the above investment schemes, section 80C also prescribed other payments which is eligible for deduction under the Income Tax Act.

Payment in respect of non-commutable deferred annuity.
Contribution towards statutory provident fund and recognized provident fund.
Contribution towards an approved superannuation fund.
Subscription towards notified units of Mutual Fund or UTI.
Any sum paid as tuition fees whether at the time of admission or otherwise to any university/college/educational institution in India for full-time education of any two children of an individual.
Repayment of Housing Loan
Investment in Senior Citizens Saving Scheme

Note:

Investments/payments are eligible for deductions on a payment basis.
The maximum amount deductible under section 80C is Rs. 1, 50,000.
Under section 80C, the deduction is available from gross total income.

B. SECTION 80CCD: NATIONAL PENSION SYSTEM

Deduction for contribution to the pension account

Employee’s contribution under section 80CCD (1)

Maximum deduction: 10% of salary in case of the taxpayer is an employee or 20% of gross total income in case the taxpayer being self-employed.

Additional contribution to NPS under section 80CCD (1B)

Section 80CCD (1B) provides additional deduction in respect of any amount paid up to Rs. 50,000 towards NPS. On this contribution, the ceiling of Rs. 1, 50,000 under section 80CCE will not be applicable.

As per section 80CCE, the combined maximum limit for deduction which can be availed under section 80C, 80CCC and 80CCD (1) is Rs. 1, 50,000.

Employer’s contribution to NPS under section 80CCD (2)

Employer’s contribution to NPS is deductible under section 80CCD (2) in the hands of the employee in the year in which contribution is made. The deduction is available up to 10% of the salary of the employee.

C. SECTION 80D

MEDICAL INSURANCE

ELIGIBILITY: an individual or a Hindu Undivided Family
MODE OF PAYMENT: Payment of medical insurance should be made by any mode other than cash. Payment of preventive health checkups can be made by any mode (including cash).
DEDUCTION LIMIT: Individuals can claim a deduction of Rs. 25,000 under section 80D for medical insurance for a self, spouse, and dependent children. An additional deduction for insurance of parents is available up to Rs. 25,000, if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs. 50,000.
The aggregate payment on account of preventive health check-up of the family can’t exceed Rs. 5,000/-

MEDICAL EXPENDITURE

MODE OF PAYMENT: Payment of medical expenses should be made by any mode other than cash.
ELIGIBILITY: medical expenditure on the health of a person who is a senior citizen and medical insurance premium is not paid on the health of such person.
Senior citizen is a resident individual who is at least 60 years of age at any time during the previous year.
DEDUCTION LIMIT: Maximum amount of medical expenditure available for deduction under section 80D is Rs. 50,000.

OVERALL DEDUCTION UNDER SECTION 80D

The maximum amount of deduction under section 80D (medical insurance premium and medical expenditure) is Rs. 50,000 for family and Rs. 50,000 for parents. Total deduction is Rs. 1, 00,000.

D. SECTION 80EEA

INTEREST ON LOAN TAKEN FOR CERTAIN HOUSE PROPERTY CONDITIONS:

The assessee is an individual.
The assessee is not eligible to claim any deduction under section 80EE.
The assessee has taken a loan for the purpose of the acquisition of residential house property.
The loan is sanctioned from 01.04.2019 to 31.03.2021.
The stamp duty value of the residential house property on the date does not exceed Rs. 45 lakh.
The assessee does not own any residential house property on the date of sanction of loan.

DEDUCTION: Interest payable on the loan of Rs. 1, 50,000 whichever is less.

SAME INTEREST IS NOT DEDUCTIBLE TWICE: if any individual claims deduction of interest under section 80EEA then such amount of interest is not eligible for deduction under section 24 (b) or any other provision of the Income Tax Act for the same year or any other assessment year.

E. SECTION 80EEB

INTEREST ON LOAN TAKEN FOR PURCHASE OF ELECTRIC VEHICLE CONDITIONS

The assessee is an individual
The assessee has taken a loan for the purpose of the purchase of an electric vehicle.
The loan is sanctioned from 01.04.2019 to 31.03.2023.

DEDUCTION: Interest payable on the loan of Rs. 1, 50,000 whichever is less.

SAME INTEREST IS NOT DEDUCTIBLE TWICE: If any individual claims deduction of interest under section 80EEB then such amount of interest is not eligible for deduction under a provision of the Income Tax Act for the same year or any other assessment year.

F. SECTION 80GGC

CONTRIBUTION TO POLITICAL PARTY

ELIGIBILITY: any person
DEDUCTION: any amount of contribution eligible for deduction.
MODE OF PAYMENT: any mode of payment other than cash.

G. SECTION 80TTA - INTEREST ON SAVINGS ACCOUNTS

ELIGIBILITY: an individual or a HUF but not a senior citizen
DEDUCTION: Interest earned or Rs. 10,000, whichever is lower.

First, you have to show interest income in Other Income after that you can claim this deduction.

Which interest deduction is available?

Interest on deposits in savings accounts with-

a banking company
a co-operative society engaged in carrying on the business of banking
a post office

H. SECTION 80TTB

INTEREST ON DEPOSITS IN CASE OF SENIOR CITIZENS

ELIGIBILITY: Assessee is a senior citizen
DEDUCTION: interest earned or Rs. 50,000, whichever is lower.