Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Many taxpayers don’t maximise sections 80C, 80D breaks

If you prefer aggressive investments albeit with higher risk, you can choose an equity-linked savings scheme (ELSS) or a unit-linked insurance plan (Ulip)

Of the people who filed their taxes through our website, 70% did not make full use of the section 80C benefits available under the Income-tax Act, 1961. They could have saved a few thousands by claiming the full 1.5-lakh benefit. Given the host of eligible expenses and investments, I am astounded that such a large number (70%) of taxpayers did not make use of the breaks they had. Here’s how one can make the most of tax breaks available.

Start filling your cup with EPF: Your employer deducts 12% of your basic salary to put in Employees’ Provident Fund (EPF). This contribution can be claimed under section 80C. For a basic of 30,000 per month, an amount of 43,200 (3,600 x 12) is contributed to EPF by you annually. Claiming your EPF as deduction takes you one step closer to the 1.5-lakh mark.

Choose a safe investment: Invest in Public Provident Fund (PPF), National Savings Certificate (NSC) or Sukanya Samridhi Account Yojana if your aim is steady returns and secure investment, and you are willing to stay invested for a longer term. Even today you are not late to make these investments. NSCs can be bought from the post office. PPF and Sukanya Samridhi accounts can be opened with some banks. Don’t worry if you can’t make a lump sum investment right away; you have time until 31 March.

As section 80C deductions can be claimed directly in your tax returns, you can choose to stagger your investments over the next two months. Though your employer will end up applying a higher rate of tax deducted at source (TDS), you can claim a refund by filing your tax return.

PPF, too, is a great way to save and invest, for freelancers, too, as they do not contribute to EPF. Investing 1.50 lakh brings discipline in your savings and helps builds a good corpus over time.

Benefit from the equity markets: If you prefer aggressive investments albeit with higher risk, you can choose an equity-linked savings scheme (ELSS) or a unit-linked insurance plan (Ulip). An ELSS invests at least 65% of its funds in equity. Lock-in period is 3 years and returns are tax-free. Pick a consistent fund and if you plan to invest now, you can spread your investment over the coming two months. Deduction is also allowed on premium paid for a Ulip. Do remember though to weigh the Ulip for its benefits and conditions. Buying a Ulip involves investing regularly over a few years. Many taxpayers purchase Ulips in haste and do not pay premiums on time. If a Ulip is discontinued before two years, tax benefits availed under section 80C can be added back to your taxable income in the year in which the Ulip is closed.

Getting there without funds to invest: Don’t worry if you don’t have sufficient funds to make the above investments; that’s because a bunch of expenses are also allowed to be deducted under section 80C. Life insurance premium payments, school fees of children, principal repayments on home loan, stamp duty and registration charges paid on purchase of a house property, can all be claimed.

Purchase medical insurance: Medical insurance has also been largely ignored as a tax-saving mechanism. About 60% of tax filers with us did not claim deduction under section 80D, and earned in excess of 5 lakh. Medical costs have been rising. A visit to the hospital or a short stay can set you back by a few thousands if not lakhs. While you may still enjoy the benefits of a corporate health cover, consider purchasing medical insurance for your family, including parents. A variety of ailments and situations can be covered. This year, there has been an enhancement in the deduction allowed. For medical insurance for self, spouse and children, 25,000 can be claimed. An additional 30,000 can be claimed for securing your parents. If your parents are more than 80 years of age and are uninsured, medical expenses of up to 30,000 can be claimed under section 80D. But total deduction for parents should not exceed 30,000.

Saving for pension: Those who belong to the higher tax bracket with taxable income in excess of 10 lakh, could consider the National Pension System (NPS). If your employer does not offer NPS, you can open an account yourself. Deposits of up to 50,000 can be claimed under section 80CCD(1B). Currently, withdrawals from NPS are taxable. But given the intensive lobbying by fund houses, in the coming years, NPS is likely to be brought at par with PPF and withdrawals and maturity shall be made exempt from tax. Pension funds when committed to over a long term (close to 20 years) can also offer higher returns than the traditional products.

Filing a tax return for capital losses: Several taxpayers who incur short-term losses in equity markets do not file a tax return or do not include losses. Not all losses are bad; short-term capital losses can help you save tax. Short-term loss from equity shares can be adjusted against short-term and long-term capital gains. If these are not set off fully in the year they are incurred, they can be carried forward for eight years. These can be set off against capital gains income in future. The only requirement to get this advantage is that tax return be filed before due date.

Staying invested in equities for the long term, upwards of 12 months, is tax efficient. There is zero tax on long-term gains on sale of equities.

Archit Gupta, co-founder and chief executive officer, ClearTax.in

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