With the tax season fast approaching, I thought I’d do a post with the tax rates for the current year, and the investing options that can avail you tax deductions. These don’t include things like loss from house property, or disability deductions, but are deductions that can be claimed under Section 80C or 80CCF when you invest a certain amount in some tax saving instruments.
First, let’s take a look at the tax slab for the current year:
Income Tax Slab:
| Income | Tax Rate |
| Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (senior citizens older than 65) |
0% |
| 1,60,000 – 5,00,000 | 10% |
| 5,00,000 – 8,00,000 | 20% |
| More than 8,00,000 | 30% |
Education Cess: 3% of income tax & surcharge if the taxable income is more than 160,000.
The cess is levied on the tax itself, so whatever is your final tax liability – take 3% of that and add to your tax to arrive at the tax due.
Tax Saving Schemes
The table that follows lists out tax saving schemes that entitle you to a reduction on your taxable income.
What this means is that if you have a taxable salary of Rs. 9,00,000 and invest Rs. 1,00,000 in any of these tax saving schemes then your taxable salary gets reduced by 1,00,000, and you pay tax as if you only earned Rs. 8,00,000 in the year.
The maximum investment column in this table indicates that the tax benefit ceases to exist for an amount in excess of what’s indicated there. So, if you invest more than 70,000 in PPF – you will still be entitled to tax benefit on only Rs. 70,000.
Also, note that the combination of these options will give you a maximum tax benefit of Rs. 1,00,000, so if you have already bought insurance worth Rs. 1,00,000 investing another Rs. 1,00,000 for ELSS will not get you additional tax saving.
The only exception to this is the 80CCF Infrastructure Bonds, which reduce your taxable income by Rs. 20,000 over and above the Rs. 1,00,000 saved by the other options.
Regular readers know it all too well, but it’s my duty to remind you that I’m not a tax expert, and in fact hire someone else for my own taxes, so you need to keep that in mind while looking at this list, and consider it nothing more than a starting point.
| S.No. | Name | Maximum Investment | Notes |
| 1 | Life Insurance Premium Paid | 1,00,000 | Policy should either be in your name, spouse’s name or children’s name |
| 2 | Contribution to Public Provident Fund | 70,000 | You can’t add the employer’s contribution to PF under this head. |
| 3 | Investment in NSC (National Savings Certificate) | 1,00,000 | Post office scheme with guaranteed returns. |
| 4 | Contribution to ULIPs | 1,00,000 | Do your due diligence before getting into these. |
| 5 | Contribution to ELSS Mutual Funds | 1,00,000 | Link to a post on ELSS here. |
| 6 | Contribution made to notified pension funds | 1,00,000 | UTI Pension fund is one example of this |
| 7 | Amount spent on children’s education | 1,00,000 | For tuition fee only, and a maximum of 2 children |
| 8 | Annual Repayment of Housing Loan | 1,00,000 | There are a lot of conditions in this that I’m not fully familiar with, so you need to consult an expert before banking on this. |
| 9 | Tax Saving Fixed Deposits | 1,00,000 | Term of 5 years (Full post here) |
| 10 | Premium Paid Towards Jeevan Suraksha | 1,00,000 | Pension plan with annuity for life. |
| 11 | Section 80CCF Infrastructure Bonds | 20,000 | This is over and above the 1,00,000 mentioned above. (Full post here) |
After writing this post I also created a detailed graphic that makes these tax saving schemes easy to understand, and also includes the details on home loan and education repayment which are not present here. You can view the 80C tax saving infographic here.
Update: Premium Paid towards Jeevan Suraksha does not come under Section 80C benefits as listed in this post, but is covered under Section 80CCC.
Thanks to R P Sarathy, and Nilesh Gupta for pointing out the error, and my sincere apologies for my mistake.
detail of current year tax saving schemes for FY 2011-12 available at
http://allinfoindia.com/Finance/Tax%20Saving%20investments%20in%20India%20in%20Simple%20Language.htm
i wanted to file my tax for the year 2010-11 and have purchased rs 10,000 infrastructure boind which some under 80ccf but while efiling the tax the form itr 1 available on income tax website doen not have any column related to 80ccf….kindly advice in which section the infrastructre bond will be filled for filing tax for 2010-11
Hi
If you want to file IT return for last year, you will have to file using ITR-1 (SAHAJ) for A.Y.2011-12 and not 2010-11. There was no provision for deduction during 2010-11 u/s 80CCF. It was a new section that came into existence only from A.Y.2011-12.
I thank you for this well explained article.I found it very useful for me 🙂
Thank you very much for your comment – I’m glad you found it useful.
Good morning Sir,I am sachin from ludhiana.I invested 94,500 into 5 years fd in the bank under deductions of 80 c in the last financial year.I want to ask can I invest maximum of 100000(80c fd)in every financial year?Will all my financial year fd amount will be safe and legal?More over Can I save maximum 10 lakhs in 80 c fd in 10 years?
pls reply.
Sachin
Dear Sachin,
As per your questions, you can Invest 1lac this FY.
These FDs are completely legal and safe, I hope you are making these deposits at reputed banks. Also the certificates of these deposits clearly need to mention about deduction u/s 80C.
However from next FY, these products may/will not be available for Tax deductions u/s 80c. So we will never know about saving 10 lacs in next 10 yrs.
Regards,
Mihir
Thanks alot . I had invested 94,500 last year and I can do 100000 in this year,and may be from next year it will be closed.pls reply yes if i am correct.
Yes
THANKS AGAIN
Thanks for responding to that Mihir!
hi,
i had invested 35k in tax saving FD in 2009 with ICICI. As you would be aware, interest rates during that period were too low. is there any provision of going for pre maturity of the deposit and invest it again at the higher rate?
No Lalit,
These FDs come with a Lock-in of 5 yrs and you cannot withdraw them like other FDs.
Wait till 2014.
Hi , could you please clarify me on these questions that i have
What is the difference between variable investment and fixed investment in a PPF account ? If variable investment is opted then is the interest rates dropped ?
Suppose I am not in a position to pay xxxxx after few years then can this account be closed ?
Is it better to choose for variable so that if in one financial year i cannot pay xxxxx then i will invest minimum 500Rs so that the account need not be closed ?
Dear Srikanth,
As per my experience with PPF accounts. There is nothing fixed or variable.
It depends from bank to bank on their criteria for your account to be active.
In my case I have a PPF account with BoB. I sometimes have made only 1 payment per year.
Ideally PPF accounts are told to be operated once every 6 months to be active.
Coming to the question of Rate of Interest, as per my knowledge the rate for PPF is fixed 8.5%. Unlike the EPF where in it is 9 or 9.5%(not clear about this).
It is better that you check with the Bank where you would want to get a PPF account.
Regards,
Mihir
wheter repayment of principal/ interest on Loan rased for the higher education of child is exempted for income tax purpose
yes, that can be deducted up to 1 lac – only for tuition fee and limited to two children.
Thanks for the opinion provided.
Hi,
My question is that would it be advisible to invest in ELSS schemes in the current year. As from april 2012 investing in ELSS will not give any tax benefits. There are chances that people may not invest much going forward. Also from next year customers will start redeeming from these funds and with lesser and lesser cash day by day the fund may not be able to perform. Investing at this stage may lead to negative returns after completing of login.
Kindly advise
Just like the fact that performance is not dependent on NAV, performance of any fund is also not dependent on Corpus of the fund. Infact, smaller funds can be efficiently managed.(Canara Robeco and Quantum are two fund houses that have small funds that are very efficiently managed) They pose very little liquidity risk. To illustrate : Consider a large fund like the HDFC Top 200 Fund. Since the corpus is too big, the fund necessarily has to invest a major part in large caps where there is adequate liquidity. Also the number of stocks should be large. (more than the optimal value of about 30) Else, under adverse market conditions, if the redemption is also huge, the fund would not be able to off-load in adequate time frames. Your apprehensions are misplaced. You should certainly take the last opportunity to invest in these ELSS schemes in 2011-12 also.
Hi ,
I wanted to invest in Tax Saving Fixed deposit scheme , i have some doubts in this ,
suppose i invest 10k in fd for 5 years , what amount is exempted under section 80c ? ( i know interest is taxable) , assuming i invest in april 2011 , for this april-march2012 will 10k the amount invested be fully exempted ? or its only a percentage of it based on slabs ?
Please give me some details on this .
Thanks,
Srikanth
Srikanth – if you invest 10K in this FD then that 10K will be reduced from your taxable salary while calculating tax, and give you tax benefit to that extent.
Remember that this is subject to a limit of 1 lac under 80C where there are other options available for deductions as well (as written in the post).
ok thanks manshu, that cleared my doubts
okay good – appreciate your response.
Thanks Loney. Atleast PPF is no more an option keeping the above points in mind.
Ramesh
You may use the Tax Saver Fixed Deposits as an option till March 2012. But, once the DTC kicks in, you will not have any investment opportunity.
There is still time left and there may be changes to the draft even at a later date. I think its too early to predict anything. Even the implementation may be delayed.
Remember : The main idea of DTC was to do away so many complicated exemptions and sections. Any income should be taxed: though at a lower rate. But when the final draft came, it was no longer a break through of sorts. It was only a leaner and meaner modified version of the already existing income tax act, 1961.
in view of coming DIrect Tax Code, most of these savings schemes might become become less useful. however PPF will continue to remain popular as it provides better rates than most Bank FDs even without tax rebates. some of us who had had GPF accounts which got closed on retirement never opened a PPF Account. in view of this, Is it advisable to open new PPF accounts by seniors irrespective of their age say in 60s or even 70s if they have surplus funds. how difficult is it’s redemption in case they get incapacitated or die. I am 68.
Its sad that the Direct Tax Code never took the senior citizens into consideration when scrapping most short-term investment schemes. Since the duration of the PPF scheme is 15 years, it is definitely not advisable for Senior Citizens. Withdrawal from a PPF account can be done only after the complete term of 15 years. Even the nominee cannot receive the amount before the completion of the term of 15 years. Even the post-office NSC / Term Deposit or 5-year tax-saving bank term deposit are going to be stripped of the tax-saving feature once the DTC kicks in.
On Analyzing the various tax saving opportunities, you are left with ONLY ONE option.
Immediate Annuity Plans of the Insurance Companies. – (But, I would like further debate on this subjects by other members or on the forum) Sr.Ctzn.s may pay a sum of Rs.1,00,000/- and start receiving pension from the same day. They may also claim tax exemption. But, the yield is low. They may get upto Rs.9000/- p.a. depending in the scheme for the rest of their life.
CAUTION : I would ask you to do your math well before proceeding into anything.
When I looked at these in the past Loney they seemed to be giving lower yields than bank FDs and I think at present there are banks that give 10.5% to seniors, and that option then allows them to break the FD if needed, or if the interest rate creeps up then use the redemption money to use it elsewhere.
PO gives a slightly lower rate, and I think at that age it’s best not to look at other options which are more risky.
As always – your comments and suggestions are much appreciated.
Yes.
And to add to this, the principal is lost. With Bank FDs, you get the principal as well as interest.
So, to conclude, Senior Citizens have no opportunity to save tax. (Probably, that the reason why the govt has a different slab for senior citizens. – Working people need to save for their retirement and hence the exemption of Rs.1 lakhs for investments in retirement funds like GPF, PF, PPF, etc. Once they are retired, they neednot further save for any financial goal and probably this is the rationale with which they have drafted the DTC and instead, they are given a higher initial bracket.)
Loney
Jeevan akshay policy of LIC is one such immediate Annuity scheme. There are several options under this Policy under which a senior citizen can get retuns exceeding 9%.But,the options may not appeal to many Senior Citizens.A senior citizen who may not want the principal sum to be returned to his nominees after his death may consider buying this policy as the returns as long as he lives are quite attractive.So it all depends on the mental make up of the person and the family circumstances.
hello good evening
i spent nearly 50000 rs for my parents hernia surgery.is this amount taxable. i dont have any mediclaim policy
Hi Saju – As far as I know there is no provision to get a deduction on this money spent on Hernia operation. There is a provision in 80D for insurance premium deduction and 8DDB in treating some specified ailments, but Hernia doesn’t appear to be one of those diseases.
For Tax Saving Mutual Fund Investments advice and processing, please call 9241545354 (for bangalore only)
Thanks for that information, I thought it would be from April,11.
Nice to have this interaction.
Hey Manish,
Nice one 🙂 and information was really useful.
I also appreciate the way you respond to each of the comments in all posts.
Keep up the good work.
dev bare karun
(God bless)
Thanks Kunal – you might want to get my name right in the next comment 🙂
Yeah sure, my apologies for misspell.
With tax proof around corner, I’m falling short of 18k investment apart from 20k in infra bond which i dont plan to invest in.
Considering the DTC next year, I dont plan to start new ELSS.
I’m thinking of NSC , Fixed Deposit.
What do you think would be wise?
Kunal – So you’re short 18K within your 80C limit of 100k? I ask because you mention Infra bonds that give you deduction over and above that limit. And I am not quite sure about your reasons for ELSS….could you elaborate a little please?
Thats right Manshu, 18k short of 100k limit.
My unwillingness to invest in ELSS is because of DTC coming, which I read would rule out tax saving schemes such as ELSS. Correct me if Im wrong. Hence I want to invest the 18k somewhere to save tax.
DTC will take out all of these other schemes as well, but there is still one year for that. It was originally going to come in force on April 2011, but then was delayed by a year.
I’m not saying that you should invest in ELSS, but if you were not going to because you thought DTC will kick in in another 3 months, then that’s not the case.
Hi Manshu,
Indeed a good blog.
I want to invest in infrastructure bonds and do not have demat account.
Question are little dumb but any advice would be good.
Which is good infra bond -(short term)? and good agency to open demat account?
My last date to submit proof is 20Jan.
~Kunal
Thanks Kunal – I read somewhere that there are no dumb questions, only dumb people shy of asking questions, and fully subscribe to that view, even if it means a car salesman giving me a dirty look when I ask what does it mean when you say CNG is on RC 🙂 (happened today), so I appreciate your question, and here is my attempt to answering it.
If you don’t have a demat account, then you will probably not have enough time to submit the IFCI issue which is currently open, and closes tomorrow, so you will have to wait for the next issue.
The next issue is IDFC which will open up on 17th, and they did have a paper option last time, so let’s hope they have it this time as well, and you can apply for that.
As for short term – it will have a minimum lock in of 5 years, which is the least lock in that any of these bonds have had, so there is nothing shorter than that.
As for a good place to open a demat account; here is post I did for that:
http://www.onemint.com/2010/12/03/what-is-a-demat-account-and-how-can-you-open-one/
Can i claim house rent benefit as well as annual repayment of housing loan simultaneously.
As far as I know – they are different heads and can be claimed together. But it’s been quite some time since I looked up tax laws, so I might be wrong.
Hi Khalid
That is not permissible. HRA deduction is permissible only for those who doesn’t own a house
Thanks again Loney – good thing you corrected my error.
It is permissible under certain circumstances. Visit http://www.apnapaisa.com/loan/home-loan-query/587-query.html
Hi Loney,
Can you share some insight on a scenario where a flat is under construction and EMI has already started before possession.
Another scenario is where single house is owned (and possession taken from builder) but it is in another city from city of residence. In such case if house is not rented out, but accommodation is rented in city of residence, how does it impact tax saving?
No mention about medical premiums???
Can you elaborate a little please Raja?
Hi Raja
Medical premiums fall under a different head (Section 80D) and it can be claimed over and above the Rs.1,00,000 you can claim under sections 80C, 80CCC, 80CCD put together. 80D allows you to claim deduction on the insurance premium paid for you, your spouse and children upto a maximum of Rs.15,000/-. Further, you can claim deduction of Rs.15,000/- (Rs.20,000/- for senior citizens) for health insurance premium towards parents.
So, effectively, the maximum income that can be deducted from your salary is
u/s 80C, 80CCC, 80CCD…………………………Rs.1,00,000
u/s 80CCF…………………………………………….Rs. 20,000
u/s 80D (for yourself, spouse and children)..Rs. 15,000 or Rs.20,000
u/s 80D (for your parents)……………………….Rs. 15,000 or Rs.20,000
u/s 80G (donation)…………………………………Upto 10% of your salary
HRA deduction and Prof Tax payment are also exempt
Thank you Loney – that was very detailed, and useful.