Tax Savings with enhanced limit various Sections

How to Save Tax on Salary Income? This question is popping up in the mind of every salaried employee. Since March is fast approaching, HR department has started buzzing employees about the tax savings investment he has made.

Tax Savings investments have to be made before 31^st March to claim the tax benefit and maximize savings. But before rushing to invest, one needs to and plan out his investment keeping in mind the changes made in the Budget 2014 to maximize his tax savings.

Tax Savings does not necessarily means acknowledging various sections of Income Tax Act, few sections along with your salary slip can very well accomplish the peculiar task of tax planning for you. In this article we will discuss the additional tax benefit and marginal reliefs offered by budget 2014.

To start tax planning for the current year, first take a look at the current tax slab rates:

Current Income Tax Slabs

Enhanced limit of Section 80C

Budget 2014 has augmented the limit of section 80C from Rs.1 lakh to Rs.1.5 lakhs. This enhanced limit gives additional tax relief of Rs.15,450 for the person falling in the tax slab of 30%, similarly Rs.10,300 to person falling in the tax bracket of 20% and Rs.5,150 to the person falling in the lowest tax bracket of 10%.

Maximize tax savings from increased limit of section 80C:

Home Loan Benefit

Budget 2014 has also enhanced the limit of deduction for Home Loan Principal u/s 80C and Home Loan Interest u/s 24.

Tax Benefits on Home Loan – Principal Repayment

Principal Repayment of the Home Loan taken from Financial Institutions is eligible for deductions u/s 80C but restricted to the maximum of Rs.1.5 lakhs per annum. Remember this limit of Rs.1.5 lakhs includes all deduction u/s 80C i.e. PPF, Tax Savings Bank FD, NSC, EPF, LIC etc.

Tax Benefits on Home Loan – Interest Component

Threshold limit of deduction of Interest on the home loan u/s 24 is also increased in budget 2014 by Rs.50,000. Now you can get maximum of Rs.2 lakhs deduction on the accrued interest on Home Loan per annum.

Remember section 24 is applicable for self-occupied house only i.e. capping limit of Rs.2 lakh applies when you hold a self-occupied house. In case the house is not self-occupied than you can claim the actual amount of interest paid which can even exceed Rs.2 lakhs.

Contribution towards Provident Funds

Section 80C comprises for various instruments but contributions towards Provident Fund i.e. Employees Provident Fund or Public Provident Fund are best amongst them. Being EEE scheme (Exempt, Exempt, Exempt) these provide best solution for accumulating corpus for retirement. Point to note is that provident fund is a long term investment scheme, so opt this scheme considering it for post-retirement life.

National Savings Certificate (NSC) and Tax Savings Bank FD

Both National Savings Certificate (NSC) and Tax Savings Bank FD offers same rate of interest and same tax treatment. The only things that makes NSC more lucrative than tax savings bank FD is the method of interest calculation. The interest is compounded annually in case of tax savings bank FD while the interest is compounded half-yearly in case of NSC.

Tax Savings Bank FD Vs. NSC

Equity Linked Savings Scheme

ELSS is also enjoys EEE tax treatment as EPF and PPF but it comes with a high degree of risk. Since ELSS is exposed to market the risk involved is similar to any other mutual fund but the quantum is increased due to lock-in period of 3 years.

You can choose any of the four for maximize your tax savings. No need to see any other investment scheme u/s 80C.

Continuation of Section 87A

Last year budget has introduced tax credit system under which person having gross salary up to Rs.5,00,000 can get additional tax rebate of Rs.2,000 from the income tax payable. This year budget did not drop this section and thus letting taxpayer to get benefitted this year also.

Similarly, RGESS (Rajiv Gandhi Equity Savings Scheme) is also present this year which gives tax benefit on the direct investment into the stock market.

Words of Wisdom

In case you have a home loan running which will set-off the additional limit of section 80C then you don't have to look out for any other option but if that's not the case than either choose NSC for short term gain with no risk or ELSS for high return with considerable risk.

However, if you are eyeing on a long-term investment with no risk at all, than PPF is best for you.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. IDFC Tax Advantage (ELSS) Fund

4. ICICI Prudential Long Term Equity Fund

5. Religare Tax Plan

6. Franklin India TaxShield

7. DSP BlackRock Tax Saver Fund

8. Birla Sun Life Tax Relief 96

9. Reliance Tax Saver (ELSS) Fund

10. HDFC TaxSaver

Invest Rs 1,50,000 and Save Tax under Section 80C. Get Good Returns by Investing in ELSS Mutual Funds Online

Invest in Tax Saver Mutual Funds Online

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