Tax Planning for 2009 – Part 2
- 35 Comment
Introduction
Earlier I have published Tax Planning for 2009 – Part 1. The previous post explains the basic stuff on tax savings using the home loans and the fixed deposit schemes. It doesn’t look into any specific section of the income tax act. This part of the article will be looking into section 80c of the income tax act. Section 
80c is the important provisions and provide maximum of Rs.100000 savings under this section alone. So, it is better every one to understand the different options available under section 80c. Total amount of Rs.100000 can be divided into many different investments based on your interest and the financial status. I will explore the various options inside this particular section 80c and suggest you the investment plans. I would like to answer all your queries, please post it in the comments section. You can subscribe to our future articles here.
What is Section 80c?
Let’s jump into the section 80c, and explore what are the different investment plans provided in this section. The section 80c is introduced from April, 2006 for increasing the tax benefits. Prior to this section, another section 88 provided some of the same benefits. To increase the tax benefits, section 80 has been added with many other investment options with tax provisions. In this section we will see what are the sub categories under the section 80c, later sections we will look into each category in details. The limit under this section is Rs 100,000. Also, there are no sub-limits under(except Rs.70000 limit for PPF) this overall Rs 100,000 amount. The following are the list of options available:
- Public Provident Fund(PPF)
- National Savings Certificate(NSC)
- Equity Linked Savings Schemes(ELSS)
- Principal payment of Home Loans
- Life insurance premium
Public Provident Fund(PPF)
PPF is one of the best investment schemes under section 80c. The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000. The only problem with the PPF is your investment will be locked in for 15 years. That means you can not close the PPF account before 15 years. But, you will get the option for loans and with drawls from your PPF account. The following are the key points to consider while opening the PPF account:
- You can apply for a loan from your PPF account starting third year to sixth year.
- The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year.
- You can make withdraw from the sixth year. Maximum limit for withdrawing is 50% of balance in end of forth financial year.
- For example, if the account was opened in 2000-01 and the first withdrawal was made during 2006-2007, the amount you can withdraw is limited to 50% of the balance as on March 31, 2003, or March 31, 2006, whichever is lower.
- If the account extended beyond 15 years, partial withdrawal of up to 60% of the balance you have at the end of the 15 year period is allowed.
- 8% p.a. interest will be given to the deposit in PPF. The real good thing is the interest income is fully tax exempt. Unlike other deposits FD,etc. interests are taxable.
- The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account.
- It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits.
- One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
- The Public Provident Fund Scheme is a statutory scheme of the Central Government of India.
- PPF account can be opened either in Post Office or in a Bank
- The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
National Savings Certificate(NSC)
- National Savings Certificate(NSC) is popularly known as the post office savings scheme and it is suitable for the most people. The lock in period for the NSC is just six years. That means the investment will reach the maturity within six years. Where as PPF has the long lock in period of 15 years. It is one of the reason why many people choose the NSC.
- An adult in his own name or on behalf of a minor,A minor,A trust, Two adults jointly, Hindu Undivided Family can buy a NSC scheme.
- The minimum amount can be deposited in this scheme is Rs.100 and there is no maximum limit. You can buy this scheme in any of the post offices in your city.
- The interest rate is 8% and it will be compounded every six months.
- The drawback with NSC is the interest income from the deposited money is taxable. You have to declare the income in accrual basis every year. If you are not showing the interest income on accrual basis, then you will have to pay the entire tax amount on maturity time. That may cause loss for you.
Equity Linked Savings Schemes(ELSS)
ELSS is special kind of mutual funds where in the units of funds will be invested in equity shares. This is one of the most popular investment options because they yield the highest return compare to any other investment options like PPF,PF,FD,etc. If you can select the good ELSS scheme, then it will give you good return. Before selecting any ELSS scheme look into the track record of the ELSS products. There is numerous products available in the market, you can see many sales people try to convince us to select their product. Please don’t hurry and drop into any wrong ELSS scheme. It may cause loss for you. Because the ELSS returns are linked to shares, depends on the wise investment on the stock market only it will return good money. If the person who you selected as the ELSS doesn’t have good knowledge on the market, that will affect your earnings.
The main advantage of ELSS is its short lock-in period. Whereas the lock-in period of ELSS is only 3 years. The main drawback for these schemes is that the risk component is much higher compared to the traditional tax saving products. Also, premature withdrawal from these schemes is not allowed whereas it is allowed in other instruments in some specific conditions.
Principal payment of Home Loans
Under the section 80c you can claim Rs.100000 as the principal repayment for your home loans. Not that this does not include your interest payment on the home loans. That provision is covered in the section 24b. I have written detailed article on Home Loans and Income Tax Benefits and Interest Payment. If you pay the principal of Rs.100000 every year, there is no further investment under section 80c.
Life insurance premium
It is most common investment plan amoung us. But, there is misconception about the investment and insurance. Insurance is for protect your life and can be invested small amount of money. Compare to other investments, investing on insurance is not much profitable. So, please don’t make the mistake of choosing insurance as the primeary investment option. Under section 80c you can claim the tax deduction for the insurance premium.
A lot of us confuse Investment and Insurance. Investment is something that we save up to use while we are alive. Insurance is something we save up for our family to use once we are gone. The goals of Investment and Insurance are totally different. A lot of us take Insurance policies as investments. This is the reason why there are a whole group of people running behind us telling us how great their new Insurance policies are.
Case Study for Section 80c
Let’s study some examples for how to invest on the section 80c. I will write the examples and provide the solution for how one can utilize the options available in section 80c.
case study – 1 :
Mr.Deepan is working for a software company in Bangalore and his salary is Rs.450000 per year. He is planning to avail the maximum tax benefits for his earnings and he is not much aware of the income tax rules and various sections. Think Plan Invest will suggest him ths suitable investment plans for Deepan.
Solution :
The plans may varry for different persons depends on the financial status of a person and income. I would write the common way for reducing the tex. Before start, learn about the tax slab for the male candidate as per income tax law :
Income Range Tax
Upto Rs.150000 No Tax
Rs.150000 – Rs300000 10%
Rs.300000 – Rs.500000 20%
Above Rs.500000 30%
The above tax slab is for men. If you take our case study, the taxable income for Deepan is Rs.300000 (450000 – 150000). He falls under the second option of paying 10% tax for his Rs.300000 taxable income. If he opt for no tax planning, will end up paying Rs.30000 (300000 * (10/100)) for entire year.
Many people not understanding the tax savings properly. That is the main reason why they are not very successful in saving the tax money. Every person is liable to pay tax for their income. Normally the amount you have to pay tax is called taxable income. If the taxable income is more, the tax will be more. Income tax act provides certain exemptions where you can reduce the taxable income by implementing those exemption strategies.
For example, if you are investing Rs.20000 on Life insurance premium every year, then Rs.20000 will be deducted from your taxable income and pay the tax for remaining amount. In our case, Deepan will have to pay the tax for Rs.280000(300000-20000) which is Rs.28000. He saves Rs.2000 from the tax. When the income increase the tax liability also will increase.
Lets go back to our case study. Deepan’s taxable income is Rs.300000. Now he has to plan what are the ways to reduce the taxable income. In this article section 80c specifies Rs.100000 can be exempted from the tax. If he is paying any home loans, the principal repayment of the home loans up to Rs.100000 is tax exempt else he can invest Rs.100000 on the fixed deposit or insurance premium,etc. For the highest return you can choose ELSS . The investment options are individuals interest and if you need any personal guidance please post it in the comments section, I will answer all your queries or consult any tax experts. He reduced his taxable income to Rs.200000.
If he wants to reduce the taxable income further, he has to refer the other sections related to income tax exemptions. As this article intend to explain the section 80c, I will end up the case study. I will write the next part of this series with other sections where he can save more tax amount.
Summary
This article explains section 80c and various investment options available under this section. I have explained Public Provident Fund(PPF), National Savings Certificate(NSC), Equity Linked Savings Schemes(ELSS), Principal payment of Home Loans, Life insurance premium concepts in details. The case study which provides the details on how to reduce the tax liability. I hope this article helped you to understand taxable income and the section 80c. I would like to answer all your doubts, please post your feedbacks in the comments section. Thank you for reading this article!!!
You can subscribe to our future articles here.
Related posts:
35 Comments on this post
Trackbacks
-
sanjeev agarwal said:
My taxable income is Rs 1,50,000 In this regrads please tell how i can reduce this taxable amount .because i don’t know much more about the section 80c please reply me with deatils.
June 4th, 2009 at 9:44 pm -
Inheritance tax Help UK said:
Do you think all your worries would end once you pass away from this mortal world? All our lives, we strive to attain financial freedom…for you and most especially for your family.
June 9th, 2009 at 1:31 am -
Inheritance Tax Planning UK said:
Inheritance tax UK in short means passing on a good news and a bad news in terms of financial matter to your children, family or just anyone other than your spouse or civil partner.
June 11th, 2009 at 11:16 pm -
Pramod Shenoy said:
I want more information about a deduction allowed for the expenses incurred for the wellbeing of Senior Citizens. I believe there is a certain amount of deduction allowed under the Income Tax Act.
August 24th, 2009 at 12:11 am -
krishnas said:
Hello Pramod,
Can you elaborate more about your questions. What kind of exemption you are expecting?
Thanks,
KrishnaAugust 24th, 2009 at 6:50 am -
Satish said:
I understand that contribution of Max. Rs.100000 to Sr.Citizen’s Saving Scheme 2004 is also exempted u/s 80 of Income Tax. Is it true. Please confirm
September 5th, 2009 at 3:57 am -
krishnas said:
Hello Satish,
No. there is no rebate or deduction for the investment on senior citizen’s savings scheme.
Thanks,
KrishnaSeptember 5th, 2009 at 4:13 am -
Nilesh said:
My salary is 4.31 L & I have completed the saving 1 L under 80C till now, how much tax I have to pay this year.
please guide.September 26th, 2009 at 5:55 am -
krishnas said:
Hello Nilesh,
Up to 1.6 lac there is no tax. In your case your taxable income is Rs. 3.31 lac. Then remove the 1.6 lacs, your taxable income is 1.71 lacs. You have to pay 10% for the mentioned amount.
Thanks,
KrishnaSeptember 27th, 2009 at 11:46 pm -
yogesh kumar said:
Hi
I m living in Dubai and i have the Normal Saving Account in india can u please let me know that they will charged any Tax on my saving account income or if the interest will exceed more then 10000 then they will charged of the tax on only int amt nt on full income………How can i fill the form of 15H or 15G i hv few deposits and they hv deduct alrady TDS from interest , kindly advise……
September 30th, 2009 at 11:25 pm -
Dhaval said:
sir,
My wife has income of 1.7lacs. Means within tax exemption limits. Is it necessaryto file return for her at preset.
Also let me know if her income will increase to 2lakh. Then she will invest 30000 in ppf/nsc so that her tax liability will be zero. In this case income tax return will be required or not
Please light me on these issuesThanks
November 12th, 2009 at 11:02 pm -
krishnas said:
Hello Dhaval,
One has to file the IT return if the total income is above the taxable limit. In your case, your wife need not file the IT return till she is getting the tax slab of Rs.190000 for women. If it is above two lacs, she has to file the IT return. Don’t consider how much your are investing. That is for avoiding the tax payable.
Thanks,
KrishnaNovember 12th, 2009 at 11:33 pm -
bhupati said:
Hi Krishna,
The article is self explanatory and i would like to know out of total income how much % one should for Insurance and Investment. Also let me know the GOOD ELSS available in market.Thanks
December 16th, 2009 at 9:59 pm -
Masu said:
Hi krishnas,
How are you?
Last year my papa got retired and he is planning to invest his money in safe and secure scheme.
Actually he is thinking to invest in SSCM and some one year fixed deposits but if he invests like this way his taxable income will increase with pension.
Could you please suggest something so he can parallel invest and save income tax.Thanks,
MasuDecember 17th, 2009 at 8:01 am -
Ravi said:
Hello Krishna,
Thank you for posting the useful information.
My question is for my dad. He is 55 yrs old, un-employed.
Recently my dad sold some property and I am suggesting him to open an FD or something like that so that he will get some standard income. Let’s say he opened an FD for 10L and gained 50000(annual). does he has to pay any tax ?
Or do you suggest any other schemes other than FD for seniors to support themselves going forward ? (ofcours I always support them…)
Appreciate your help!
Ravi
December 17th, 2009 at 8:52 am -
Rajesh said:
I have a query, Mr. Krishna.
In one of the above examples, a person had a gross income of 4.31 L. He had investments of Rs 1 L. So his taxable income becomes (4.31 – 1) = 3.31 L. Out of this amount, the first 1.5L would not be taxed. So now we are left with 1.71 L. Now you say that the amount of tax would be 10% on 1.71L which means 17,100. Isnt this procedure incorrect? I mean, out of 1.71L, 1.4 L (From 1.6 L to 3 L = 1.4L – Second slab of IT) would be taxed at 10% and remaining 0.31L will be charged at 20%. So the total tax would be 14000 + 6200 = 20200. Am I wrong?
January 13th, 2010 at 4:07 am -
krishnas said:
Hello Rajesh,
What you have said is correct. Do you find any wrong narrations in the above post? Can you post what is that line?
Thanks,
KrishnaJanuary 15th, 2010 at 5:14 am -
Prashant Verma said:
Please contact Prashant Verma 9350203245 he is the best insurance agent for TEX Saving Plans Child plans and investment plans, short term and long term investment plans…and all related problems with minimum charges…………….
January 18th, 2010 at 3:28 am -
Tajinder said:
have paid insurance premium for apri 2009 and may 2009 in advance i.e in mar 2009.can i claim tax rebate/exemption for the advance payment i.e april 09 and may 09 paid in mar 09 for fy 2009-10
January 20th, 2010 at 11:50 pm -
krishnas said:
HI
You can not claim the tax benefits for the advance payments. Only for that year you can claim.
Thanks,
KrishnaJanuary 21st, 2010 at 1:46 am -
AHMED said:
Sir,
What is the maximum percentage above 12%, I (Employee) can contribute towards EPF?February 1st, 2010 at 11:30 pm -
AHMED said:
Sir,
Is it necessary to file return if my taxable income(after investment under 80C) is below Rs. 1,60,000/-February 1st, 2010 at 11:39 pm -
krishnas said:
Hello Ahmed,
Yes. Your total income is above Rs.160000, then you have to file the IT returns.
Thanks,
KrishnaFebruary 2nd, 2010 at 7:43 pm -
krishnas said:
Hello Ahmed,
The maximum contribution allowed towards VPF is 100% of your basic + dearness allowance (DA).
Thanks,
KrishnaFebruary 2nd, 2010 at 7:48 pm -
binit said:
hi, i am earning since 2004 Rs.1.40 l pa and saving money approx 90 k per year , as my father run family i just save. But saved my i have kept in my almira and now i want to deposit it into bank. Approx 5 l i will deposit in bank saving account. Now i want to know that will the five lakh rupees in my saving account will be taxable every year if i do not do any investment.
April 11th, 2010 at 4:19 am -
Best Mutual Funds said:
I really appreciate your post. This is a great information for investors hoping you will be there with more updates.
May 25th, 2010 at 3:48 am -
Financial Planning said:
@Binit, if you are saving around 90k per year, then putting all that money in Almeria is not a good thought, rather you should make some investments, like investing in SIP, or in tax saving Mutual Funds etc, by doing this you can make money as well as , save your Tax.
June 29th, 2010 at 3:34 am -
Harish said:
One of my relations is working in USA. He owns a flat in India, taken a Home Loan from Bank 5 years ago, when he was working in India. He has given his flat on rent.
Income in last FY 2009-2010
Rental received in FY 2009-10 = Rs.236000/-
Less 30% = Rs.70800/-
Interest paid on borrowed capital =Rs. 173360/-
Net Income (LOSS) =Rs.8160/-
Bank Interest accrued in last FY 2009-2010 =Rs. 54493
Less Deposits u/s 80C (PPF Rs.10000 +LIC Rs.9878 +repayment of Principal component of Home Loan Rs.52768) =Rs.72646Net income (LOSS) = Rs.18153
Question No.1: Does he require to file ITR this Assessment Year 2010-2011
Question 2, If yes in Q.No.1, which ITR form,July 15th, 2010 at 4:00 am -
Harish said:
I mailed one IT quiery( above one) on July 15th, 2010 at 4:00 am. Since the last date 31st July of filing ITR is approaching, I request you to please do reply me before the last date 31st July, 2010 .
Thanks
HarishJuly 22nd, 2010 at 9:56 pm -
PersonalFN said:
Just for readers information that the last date of filling your IT returns is 31st may, and if you have not filed your income tax then you can log on to PersonalFN and pay your income tax online.
Thanks
PersonalFNJuly 22nd, 2010 at 10:44 pm
[...] In this article I will be writing about the tax savings through health insurance policies. Under section 80 D, one can claim the tax benefits for his medical insurance premium. All the medical insurance premiums applicable under the tax deduction. Tax Planning for 2009 [...]
[...] If you are employed in any company you would have got request from your employer to update the Tax Planning and Declaration for 2009 – 2010. Then you can declare tax savings on Section 80c for Rs.10000 and home loans if you have taken one, [...]
[...] article about HRA and Tax Benefits. I hope you have enjoyed this article and looking to declare the Tax Planning for 2009. If you have any doubts, please post it in the comments section. I will be happy to answer all your [...]
[...] Tax Saving Tips : Tax Planning for 2009 [...]
[...] my previous posts I have explained about the tax savings on section 80c and other useful articles on the tax planning, fixed deposit savings, etc. [...]