Income tax returns (ITR) filing: How to save tax; amazing tips to make your money stay in your wallet

With the end of financial year just around the corner, many of the tax payers would be scurrying to make sure that the tax deductible investment avenues have been completely utilized, so that tax efficiency is achieved. As the investments made are generally with a long term perspective, it is important that informed decisions are made based on the tax benefits available as well as risk appetite, time horizon and liquidity requirements of the investors. Here is a quick look on the tax savings options available under the Income-tax Act:

1.0) Deduction under section 80C (Maximum limit upto Rs.1.5 Lakhs p.a.)

Section 80C provides a wide range of tax savings investment opportunities. Within the basket of Section 80C the investments can be divided into two categories viz; investments with fixed and assured returns which include PPF, NSC, Senior Citizens Savings Scheme, endowment life insurance plans, etc. and investments linked to market which are primarily the equity-asset class. This includes ELSS and ULIP, pension plans and NPS.

2.0) Deduction under section 80CCD

One of the lesser known deduction includes contribution made by the employer under section 80CCD(2) to the notified pension scheme which is not covered within the overall cap of Rs. 150,000 for cumulative deductions under section 80C, 80CCC & 80CCD(1). 

Under Section 80CCD(2), an employee can get deduction in respect of employer's contribution towards his NPS account up to limit of 10% of his salary. This deduction is in addition to the deduction provided under section 80CCD(1), wherein deduction is provided to the taxpayer  for his own contribution to NPS, within the overall limit of Rs. 150,000.

From financial year 2015-16 and onwards, in case the NPS contribution by the taxpayer, he can still avail of the additional deduction of Rs. 50,000 under the newly inserted provision of section 80CCD(1B). Therefore, the total tax benefits that can be claimed for NPS under Section 80CCD (1) and Section 80CCD (1B) equals to Rs. 2 Lakhs for the financial year 2017-18.

3.0) Deductions in respect of donations to certain funds, charitable institutions, etc. (Section 80G): 

The donations made to approved funds and charitable institutions are eligible under section 80G up to 10% of the adjusted total income. The eligible deductions are generally eligible for deduction of 50%. It is a general practice amongst the employers that they do not consider deduction while computing tax on the salary income and issue of Form 16 and the employees need to claim the same in the tax return. Further, the taxpayer should note that no deduction under this section is allowable in case of amount of donation if exceeds Rs 2,000/- unless the amount is paid by any mode other than cash. 

4.0) Deduction in respect of contributions to political parties

One of the interesting deduction, which many people are not aware is that contributions made to registered political parties are also eligible for deduction under the Income Tax Act (section 80GGC). 

5.0) Other Deductions 

6.0) Deduction of interest incurred on housing loan

Interest paid on housing loan is eligible for deduction under section 24(b) of the Income-tax Act. While there is no limit of interest deduction for let out / deemed let out property, the deduction is restricted to Rs. 2,00,000 in case of self-occupied property. This loss would be eligible for set-off against your salary income and other income during the year. However, from financial year 2017-18 the maximum house property loss, which can be set off against the other heads of Income in the same financial year is Rs. 200,000. The balance loss under the head Income from House Property from house property shall be carried forward for set off in the subsequent 8 assessment years under the same head of income.
 
The income tax act provides ample of deductions and tax saving schemes. It is advisable to take maximum advantage of the tax breaks available and optimise your tax outflow. 

(Suresh Surana, Founder, RSM Astute Consulting Group)