Tax Saving Options

About Tax Saving


An income tax is imposed on an individual or a company by the Government of India only if his or her income is included in the slab of taxable income. The Indian Income Tax Act of the year 1961 governs the levy whereas C. B. D. T. (Central Board for Direct Taxes) governs the Department of Income Tax in India. However, as per some of the sections of this Act like Section 80 C, 80 CCF, 80 D etc., exemptions are given on certain incomes. There are many tax saving options, investing on which, one can get a deduction on his or her total income tax.

Tax Saving Options


India has got several government as well as private sector organizations offering numerous tax saving options to the residents of this country. Some of them are as follows:

Public Provident Fund: Commonly known as P. P. F., this tax saving option falls within the Section 80 C of the Income Tax Act in India. Public Provident Fund allows a maximum contribution of INR. 100, 000 per year. The return in this scheme is compounded annually at the rate of 8.5%. It is one of the long term ventures that does not allow complete withdrawal before 15 years. Post 5 years of investment, withdrawal is possible though. No tax is levied on the earned interest. Besides these, it even forms a retirement-planning tool. One can have such an account in either the State Bank of India or some of the nationalized banks or at some of the designated post office branches.

InstrumentMinimum ContributionMaximum ContributionLock-in PeriodRiskLiquidityReturnTax Relief u/s
PPFRs.500.00Rs.100,000.005 yearsModerateModerate8.6% annual80C
ULIPRs.5,000.00Unlimited3 yearsAlways PresentHighAs per Market situation80C
ELSSRs.500.00Unlimited3 yearsAlways PresentHighAs per Market situation80C
FDRs.100.00Unlimitedscheme to scheme differsNoModerate9-9.5% anual80C
EPF11% of monthly incomeN/ACan be withdrawal at termination of jobNoVery Low8.5% annual80C
NSCRs.100.00Unlimited5-10yearsNoModerate8-8.5% annual80C
Infrastructure BondRs.10,000.00Rs.20,000.005-10yearsModerateLow8% annual80CCF
Life InsuranceRs. 5,000 to 10,000Unlimiteddepends upon length of policyModerateLow6-7% annual80C
Tuition FeeThe tuition fee paid for upto 2 chidren is fully tax deductable.     80C
House Loan RepaymentEMI paid is fully Tax Deductable.     80C


Unit Linked Insurance Plans: Covered by the Income Tax Act's Section 80 C, U. L. I. P. is a unique blend of investment and insurance that gives a tax exemption of INR. 100, 000 per year. Here, the premium, which is being paid by a customer, gets deducted with initial charges while the rest of the amount is invested. Such a plan can be of the following three kinds:

Aggressive ULIPs where one can invest 80 % to 100 % in equities. The rest can be invested in debt instruments though.

Balanced ULIPs where an individual can invest 40 % to 60 % in equities
Conservative ULIPs, which allows one to invest up to 20 % in equities

Equity Linked Saving Scheme: Popularly called E. L. S. S., this is a kind of mutual fund that comes within the Income Tax Act Section 80 C. With a minimum investment period of 3 years, this investment option helps one get exempted from income tax payment and offers an exemption of maximum INR. 100, 000 in a financial year as well. The interest rate depends on the performance of this scheme in a given year. However, if it does well, then it is more likely to increase even the interest rate of P. P. F.

Fixed Deposits: Fixed Deposits (FDs) are another popular tax saving option covered by the Section 80 C of the Income Tax Act. With a maximum exemption of INR. 100, 000 annually, the rate of interest varies from one bank or post office to another. However, the tax saving can only be done of FDs once you have invested for a minimum duration of 5 years. This scheme neither allows the encashment of the money prior to completion of the 5 years term nor can this be used as the security against any loan.

Employee Provident Fund: Famously called E. P. F., this scheme offers a total yearly exemption of INR. 100, 000 as mentioned in the Income Tax Act Section 80 C. In this fund, 10 % to 12 % of a person's basic salary gets deducted and the other 12 % is contributed by the employer. One can withdraw the entire amount in instances of leaving job, retirement after 58 years of age or taking V. R. S. Partial withdrawal can be done for home, medical or marriage related expenses though.

National Saving Certificate: This tax saving scheme known as N. S. C. helps one get exempted from tax by an investment of up to INR. 100, 000 per year under the Section 80 C of the I. T. Act of India. The interest rate is compounded half-yearly at the rate of 8 % and reinvested every year from the last year's N. S. C. The minimum period for this investment scheme is 6 years post which, one is provided with the entire interest along with the initial capital. The major benefit of this is that one can earn a maximum tax saving interest of INR. 100, 000.

Infrastructure Bonds: Over and above the deduction allowed by the Section 80 C, one can save income tax on a maximum amount of INR. 20, 000, by investing in different infrastructure bonds. Covered by the Section 80 CCF of the Indian I. T. Act, this bond has got a lock-in period of 5 to 10 years. The rate of interest even varies from 8 % to 8.3 %.

Insurance: Life insurance is among the best and authentic tax saving options covered within the Section 80 C of India's Income Tax Act. Though the policy allows a maximum deduction of INR. 100, 000 in a given financial year, but in case anyone surrenders the plan before paying two year's premium, then it will have reverse effect of tax benefit. However, the tax benefit for the premium is restricted to 20 % of the initial amount of the capital invested. Apart from that, this helps one plan for the unforeseen events in his or her life.

Health Premiums: Popular as Mediclaim Policies, which are a form of health insurance, comes within the Section 80 D of the country's Income Tax Act. Applicable even on the proprietor firm's cheques, these policies offers a maximum deduction of INR. 35, 000. This deduction is calculated in addition to any other tax saving done as per the Section 80 C. The total amount of INR. 35, 000 can be divided as follows:

  • INR. 15, 000: Premium for policies on spouse, children or self
  • INR. 15, 000: Premium towards policies for dependent parents, who are non-senior citizens
  • INR. 15, 000: Premium for dependent senior citizens
Besides saving your income tax, these policies even help you deal with your or your family's health related problems with ease during any emergency situation.

Tuition Fee: Covered under the Indian I. T. Act Section 80 C, payment made towards the education of children is even exempted from one's yearly income tax. Being a part of Section 80 C, one can get a maximum exemption of up to INR. 100, 000 per financial year. Tuition fee for school, college and university as well as coaching fee for varied competitive exams are considered under this policy. However, just 2 children are considered for such a kind of tax exemption.

Post Office Saving Options: Under the Section 80 C of the I. T. Act of the nation, one can invest in any of the different tax saving options provided by the post offices. Though, along with the terms and conditions, the interest rate as well as the tenure of the investment varies from one scheme to another, they provide a maximum deduction of INR. 100, 000. To name a few of such schemes offered by India Post are:

  • Recurring Deposit Account (5 Year)
  • Time Deposit Account
  • Public Provident Fund Account (15 year)
  • National Savings Certificate (VIII issue)
  • Senior Citizen Savings Scheme
Mutual Fund: Being covered under the Section 80 C of the I. T. Act of India, this type of investment plan helps in a total exemption of INR. 100, 000. The entire tenure of such a scheme varies from 3 years to 5 years. Equity Linked Saving Scheme is considered to be one of the best tax saving mutual funds.

Tax Rebate


Such a rebate is actually the deduction calculated on the tax, which is computed over one's annual income. Under Section 88 of the Act, certain rebates are allowed. Apart from the different tax saving schemes, one can get a rebate at the rate of 20 % of the payment, deposit or investment made on a maximum amount of INR. 60, 000. Under the Section 88 B, a rebate of INR. 15, 000 is given to a senior citizen of the country (65 years of age or more) irrespective of his of her income. However, the Section 88 C grants a woman assessee an extra rebate of INR. 5, 000.

Tax Saving Options in Public Sectors Banks


Fixed deposits are among the most popular tax saving options in most of the public sector banks. Besides that, some of the public sector banks like the State Bank of India, Allahabad Bank, Punjab National Bank and many more offers some other tax saving options like P. P. F., mutual funds and infrastructure bonds etc. Another unique bond, which helps to save tax payments, is 6.5 % Savings Bonds, 2003 by R. B. I. (Reserve Bank of India). This bond's tenure is for 5 years with an annual interest rate of 6.5 %.

Tax Saving Options in Private Sectors Banks


The private sector banks in India like ICICI Bank, HDFC Bank, City Union Bank etc. offer varied tax saving options to the country's citizens. To name a few of them are fixed deposits, mutual funds, life insurances, infrastructure bonds, recurring deposits and many more.

2012 Income Tax Calculator



Last Updated on 18/6/2012