It is the last quarter of the financial year, and hence the ideal time for tax planning if you haven’t done it already. At this juncture, it is important to keep in mind that your annual package is directly proportionate to your tax liability, meaning, as your income increases, your tax liability increases as well. The annual tax liability of an individual is almost equal to one month’s salary. However, even after the basic deductions, such as EPF and HRA, at the employer’s end, you end up sharing a substantial percentage of your salary with the taxman.
For instance, an individual with a take-home salary of Rs.50,000 a month accrues an annual tax liability of Rs.46350 which is almost equal to the take-home amount. Using the Income Tax Calculator at Policybazaar can save your tax up to Rs. 37,000 per annum and also help you compare and choose the right investment options according to their benefits and tax saving potential.
Depending on your tax slab, you can save up to Rs.45,000 in income tax by claiming deductions under Section 80C and up to Rs.7,500 by the means of claiming deductions under Section 80D.
Table 1: Tax Saving Under Section 80C for Various Income Groups
Net Annual Income (A)
Applicable Tax Rate (B)
Max. Deduction under Section 80C (C)
Max. Tax Savings (B*C)
2.5 to 5 Lacs
5+ to 10 Lacs
Investing in the following instruments can help you claim deductions with accordance to Section 80C and Section 80D of the income-tax act and eventually, legally save tax:
A Term plan requires you to pay premiums for a definite period of time and provides full financial coverage for that period. If the insured person passes away during the policy term, the beneficiary is entitled to the insured sum, but, if the person survives the policy cover period, then survival benefits are not given to the beneficiary.
From a tax-saving perspective, all insurance plans are equal. Therefore, irrespective of the type of life insurance plan you have, you will get the same tax benefits as others. As life insurance falls under EEE (i.e. Exempt-Exempt-Exempt) category, both, the premium paid as well the sum assured is exempt from income tax.
For instance, if a non-smoker starts at an age of 25, then paying nearly Rs.15,000 per annum can get him a sum assured of nearly Rs.3 crores. The amount of Rs. 15000 that you pay towards premiums will be treated as a deduction from your taxable income, while the sum assured will be a totally tax-free income.
You can claim for tax deductions against the money spent for medical expenses for self or a dependent family member. An individual can claim maximum deduction of Rs. 50,000 u/s 80D. This deduction includes Rs.25,000 for himself and family and the rest Rs.25,000 for parents. However, if the parents are senior citizens the deduction allowable for them is Rs. 30000. This benefit is available over and above the deductions of Rs. 1.5 lacs under Section 80C.
For example, if an individual with a package of Rs.10 to 15 lacs per annum invests about Rs.7,000 per annum towards a health insurance plan, then he can get a sum assured of Rs.10 lacs. This premium of Rs.7,000 can be treated as a deduction from the taxable income.
There are 4 kinds of health insurance plans that you can choose from. This includes medical insurance plan, hospitalization plan, super top-up plan and critical illness plan.
It is not necessary to start planning for your child after you have one. You can start saving and investing as soon as you get married. As we are already aware, the cost of education is growing much faster than inflation. Fee for higher education is not what it used to be about 15 to 20 years ago. Pursuing a master’s degree from a leading management school now days costs you around 14 to 15 lacs or may be higher.
Hence, to avoid financial crises in future, it is imperative for parents to start saving for our children’s secure future as early as possible.
Along with securing your child’s career and future, these plans save you a substantial amount of tax as well. They not only allow you to claim deductions in the year of investment but also ensure a tax-free return to your child in future.
For example, if an individual buys a child plan as soon as his child is born, and pays approximately Rs.72,000 per annum for 20 years, then his child would get a sum assured of Rs.30 lacs post maturity.
However, both the premium and the sum assured will be tax-free only if the annual premium is less than 10 % of the total sum assured. I the annual premiums exceed 10 % of the sum assured, then the premium only up to that limit will be exempt and the entire sum assure will be taxable under the head ‘income from other sources’.
It is wise to start planning for your retirement as soon as you start earning; because later you start the more you pay towards premiums, which can make it difficult for you to set aside a sufficient corpus for the golden years of your life.
The income tax act states that any amount paid to keep a retirement policy in force is eligible to be claimed as a deduction under section 80C. Therefore, the entire amount paid by you, inclusive of service tax and any other charges if collected by the insurer, can be deducted from your taxable income.
Amount that can comfortably fulfill of your current requirements will not be sufficient meet your requirements when you turn 65; reason being, the rising cost of living and the shooting inflation rate.
Hence, it is imperative for you to save for your peaceful future.
NOTE: Pension plans offered by insurance companies give you similar tax benefits as retirement schemes by mutual fund companies. You can claim a deduction of up to Rs.1 lac from the amount of premium paid towards a pension plan under Section 80CCC of the Income Tax Act. While, one-third of the maturity amount withdrawn will also be tax free.
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