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Income Tax Saving Schemes

Modifications By Union Budget 2010

According to Union Budget 2010-11, a few changes have been made in Income Tax Saving Schemes structure. Here is a glimpse to new additions in tax saving methods :
  • The relaxation limit under section 80C has been inceased to Rs. 2 lakhs.
  • The presumptive tax limit has also been raised to Rs 60 lacs.
  • Announcement of a deduction of Rs 20000 on investment in infra bonds
In India, the middle class feels the heat of Income Tax more than anyone else. However the intensified tax system poses great stress on the earner's thinking to manipulate different ways to save tax. Here is a list of certain steps which can help you save your income and minimize your Income Tax.

House Rent Allowance
Applicable If
  • A portion of your salary is marked as House Rent Allowance or HRA
  • You are paying rent of your house
  • Conditions
  • The house should not be in your kids, spouses or your own name.
  • Max Deductions
  • The total amount of rent paid or the amount earmarked as House Rent Allowance in your payslip, whichever is less, will be deducted from your taxable income.
  • Limitations
  • It should not be more than 50 percent of salary for those living in metro cities or 40 percent of salary for others
  • If you are paying more than Rs.5000 per month as house rent, you will have to submit a lease document
  • Rent receipts should have a revenue stamp.

  • Section 80C and Section 80D

    Section 80C Deductions
    Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is
    Applicable If
  • Contribution to Provident Fund or Public Provident Fund
  • Payment of life insurance premium
  • Investment in pension Plans
  • Investment in Equity Linked Savings schemes (ELSS) of mutual funds
  • Investment in specified government infrastructure bonds
  • Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit)
  • Payments towards principal repayment of housing loans.Also any registration fee or stamp duty paid.
  • Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)
  • Conditions
  • Upper Limit is Rs. 1,00,000 (Rupees One lakh) which can be any combination of the above list.
  • Deductions  
    Limitations
  • The investment can be from any source and not necessarily from income chargeable to tax.

  • Section 80D
    Medical Insurance
    Applicable If
  • Premium paid on medical insurance for oneself, spouse, parents and children
  • Cheques paid by proprietor firms
  • Conditions
  • The house should not be in your kids, spouses or your own name.
  • Deductions
  • Up to Rs 30,000 (additional to Rs.1,00,000 savings)
  • Up to Rs. 20,000 (for senior citizens)
  • Interest on Housing Loans
    (See Next Section)

    Life Insurance Plan
    Applicable If
  • All life insurance plans gives you the tax benefit
  • Conditions
  • You should have Life Insurance Policy
  • Max Deductions
  • Complete amount invested in life insurance policy is tax free.
  • Payout from life insurance policy is tax free.
  • Limitations
  • Go for plan which is suitable to your life and your financial planning.
  • You need not buy every year new policy.
  • If you think that you have already invested enough in life insurance plan but want to invest again then you should go for ULIP plans.

  • Home Loans
    Applicable If
  • You have taken a Home Loan from any bank
  • Conditions
  • The house should be in your kids, spouses or your own name.
  • Max Deductions
  • Only principle repayment can be exempt
  • Tax deduction on the interest component comes under section 24 and will depend upon whether home is rented or self occupied.
  • Limitations
  • Over a period of time the principle payment increase and the interest payment decrease.

  • Education Loans
    Applicable If
  • You have taken an Education Loan from any bank
  • Conditions
  • The loan should be in your kids, spouses or your own name.
  • Max Deductions
  • Only principle repayment can be exempt
  • Limitations
  • The interest that you pay will be tax deductable.

  • Tax Deductions on Investment
  • Investment in under monthly income scheme of the post office
  • Investment in Debentures or Bonds of an institution/ authority/ public sector company/ cooperative society or other such organization notified by central government.
  • Investment in with banking institutions
  • Investment in under other schemes which are notified by central government like national saving schemes, time deposit schemes, recurring deposit schemes.
  • Investment in units of UTI and Mutual Funds (under Section 10(23D) of the Income Tax Act)
  • Investment in such authorities which are working for planning & development of cities and village
  • Investment in financial institution working for Industrial Development of India
  • Investment in co-operative societies
  • Investment in under National Deposit Schemes as notified by Central Government

  • Investments and Payments
    National Savings Certificate (NSC)
    Investments In multiple of Rs. 100/-
    Interest Rate Return at interest rate of 8%
    Maturity Period 6 years
    Upper Limitation No
    Lower Limitation Rs.100/-
    Availability of Loans Yes
    Mode of Operation Singly, jointly, or by a minor with his/her parent or guardian
    Max. Deductions
  • Under section 88 of the Income Tax Act, 1961 any person can take benefit in income tax on amount invested in this scheme
  • Under section 80L of Income Tax Act, 1961 there is a provision of benefit on interests coming from scheme.


  • Public Provident Fund (PFF)
    Investments From your Salary
    Interest Rate Return at interest rate of 8%
    Maturity Period 15 years
    Upper Limitation Rs. 70,000/-
    Lower Limitation Rs. 500/-
    Availability of Loans The first loan can be taken in the third financial year from the date of opening of the account, or upto 25% of t credit he amount at at the end of the first financial year.
    Mode of Operation Singly, jointly, or by a minor with his/her parent or guardian (Nomination facility available)
    Max. Deductions
  • Under Section 88 of Income Tax Act, 1961 there is a provision of tax benefit by investing in this scheme
  • Interest on this scheme is tax free.


  • Special Schemes for Retiring People
    Government Employees
    Interest Rate Return at interest rate of 8%
    Maturity Period 3 years
    Upper Limitation Total retirement benefit
    Lower Limitation Rs.1000/-
    Max. Deductions According to Income Tax Act, 1961 interest on this scheme is tax free.

    Public Sector Employees:
    Interest Rate Return at interest rate of 9.5% payable half-yearly on 30th June and 31st December respectively
    Maturity Period 3 years
    Upper Limitation Total retirement benefit
    Lower Limitation Rs.1000/-
    Mode of Operation Retired PSU employees in his/her own name or with the spouse, jointly.
    Max. Deductions According to Income Tax Act, 1961 interest on this scheme is tax free.


    Dividend
    According to Income Tax Act,1961 there is a provision benefit in Income Tax if assessee has an income as a dividend on investment in any of the following:
  • Shares
  • Mutual Funds
  • Unit of UTI

  • This dividend can be given by any company or co-operative society.

    Infrastructure Bonds: Investment in bonds issued by specified Infrastructure companies is also eligible for Section 80C deductions. Investment in Infrastructure bonds is just one of the various options available for the purpose of Section 80C deduction.

    Bank Term Deposits: Term deposits with scheduled bank for minimum tenor of 5 years.

    Term deposit with Post Office: Minimum tenor 5 years.

    NABARD Bonds: Investment in notified bonds issued by National Bank for Agriculture and Rural Development (NABARD) is also eligible for Section 80C deduction.

    Post Office Schemes
    It is one of the best Income Tax Saving Scheme. It can be operated by either singly or jointly. In case of minor, with parent/ guardian. It is available throughout the year. There are several types of post office schemes depending upon the type of investment and maturity period. Post office schemes can be divided into following catagories:
  • Monthly Deposit
  • Saving Deposit
  • Time Deposit
  • Recurring Deposit

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