With the tax season fast approaching, I thought I’d do a post with the tax rates for the current year, and the investing options that can avail you tax deductions. These don’t include things like loss from house property, or disability deductions, but are deductions that can be claimed under Section 80C or 80CCF when you invest a certain amount in some tax saving instruments.
First, let’s take a look at the tax slab for the current year:
Income Tax Slab:
| Income | Tax Rate |
| Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (senior citizens older than 65) |
0% |
| 1,60,000 – 5,00,000 | 10% |
| 5,00,000 – 8,00,000 | 20% |
| More than 8,00,000 | 30% |
Education Cess: 3% of income tax & surcharge if the taxable income is more than 160,000.
The cess is levied on the tax itself, so whatever is your final tax liability – take 3% of that and add to your tax to arrive at the tax due.
Tax Saving Schemes
The table that follows lists out tax saving schemes that entitle you to a reduction on your taxable income.
What this means is that if you have a taxable salary of Rs. 9,00,000 and invest Rs. 1,00,000 in any of these tax saving schemes then your taxable salary gets reduced by 1,00,000, and you pay tax as if you only earned Rs. 8,00,000 in the year.
The maximum investment column in this table indicates that the tax benefit ceases to exist for an amount in excess of what’s indicated there. So, if you invest more than 70,000 in PPF – you will still be entitled to tax benefit on only Rs. 70,000.
Also, note that the combination of these options will give you a maximum tax benefit of Rs. 1,00,000, so if you have already bought insurance worth Rs. 1,00,000 investing another Rs. 1,00,000 for ELSS will not get you additional tax saving.
The only exception to this is the 80CCF Infrastructure Bonds, which reduce your taxable income by Rs. 20,000 over and above the Rs. 1,00,000 saved by the other options.
Regular readers know it all too well, but it’s my duty to remind you that I’m not a tax expert, and in fact hire someone else for my own taxes, so you need to keep that in mind while looking at this list, and consider it nothing more than a starting point.
| S.No. | Name | Maximum Investment | Notes |
| 1 | Life Insurance Premium Paid | 1,00,000 | Policy should either be in your name, spouse’s name or children’s name |
| 2 | Contribution to Public Provident Fund | 70,000 | You can’t add the employer’s contribution to PF under this head. |
| 3 | Investment in NSC (National Savings Certificate) | 1,00,000 | Post office scheme with guaranteed returns. |
| 4 | Contribution to ULIPs | 1,00,000 | Do your due diligence before getting into these. |
| 5 | Contribution to ELSS Mutual Funds | 1,00,000 | Link to a post on ELSS here. |
| 6 | Contribution made to notified pension funds | 1,00,000 | UTI Pension fund is one example of this |
| 7 | Amount spent on children’s education | 1,00,000 | For tuition fee only, and a maximum of 2 children |
| 8 | Annual Repayment of Housing Loan | 1,00,000 | There are a lot of conditions in this that I’m not fully familiar with, so you need to consult an expert before banking on this. |
| 9 | Tax Saving Fixed Deposits | 1,00,000 | Term of 5 years (Full post here) |
| 10 | Premium Paid Towards Jeevan Suraksha | 1,00,000 | Pension plan with annuity for life. |
| 11 | Section 80CCF Infrastructure Bonds | 20,000 | This is over and above the 1,00,000 mentioned above. (Full post here) |
After writing this post I also created a detailed graphic that makes these tax saving schemes easy to understand, and also includes the details on home loan and education repayment which are not present here. You can view the 80C tax saving infographic here.
Update: Premium Paid towards Jeevan Suraksha does not come under Section 80C benefits as listed in this post, but is covered under Section 80CCC.
Thanks to R P Sarathy, and Nilesh Gupta for pointing out the error, and my sincere apologies for my mistake.
@Arun
Dude, agreed with your point. But I have not considered the reinvestment for FDs as well. Just considered the 5 yr maturity amount of each FD without reinvesting.
Considering the reinvestment part, at the end of 16 years, all LIC premium investments will give u a consolidated return of 11.2 lac after deducting applicable taxes on interest whereas same investments in FD will give you 14.5 lac.
I don’t comprehend LIC completely as it also gives you a good life cover along with returns. But if somebody wants to invest for the purpose of returns, FD is always a better choice 🙂
Thank you so much for kindly sharing knowledge. A Good heart is hard to find – Quote from a song.
Let us suppose I invested 70,000 in my current year (2011-12) but did not claim tax rebate for this investment in this year. Can I claim this amount and show it as investment in my next year(2012-2013) under PPF Investments ?
Thank u!
@ Gaurav
I would like to tweak your maths on Jeevan Surabhi .The 30% which you get at the end of 4 years (around 1 lac) if put for a 10 years FD will fetch you 2.55 lacs on maturity.So at the end of 14 years (4 years+ 10 years FD) you would get 3.55 lacs.You still have two more years for Jeevan Surabhi to mature.So this 3.55 lacs if put in FD for two years will yield to 4 lac 30 thousand.So at the end of 16 years you will get 6,04,000 from your LIC maturity + 4,30,000 from your FD=10,34,000 . The 30 % and 40 % which you get at the end of 8th and 12th year may also be invested wisely to fetch you good returns.
Hi,
I have done some maths for investing in a LIC scheme against a tax saver FD and found that tax saver FD gives better returns if both are considered under investment. Banks are offering interest rates upto 9.5% towards FD while LIC is giving a mere 8% overall return and that too over a minimum period of 15 years. Please suggest which is a better option to invest looking at my maths.
The maths done by me-
I took a case where if I apply for a 15 year money back policy (106-Jeevan Surabhi) sum assured 4lac, I need to pay somewhere around 42k as annual premium for 12 years and I will get 30%, 30% and 40% cash back at the end of 4, 8 and 12 years resp. Accrued bonus will be paid at the end of 15 years equal to 2,04,000 (based on last year bonus which was 3.4% of sum assured for entire term) totaling my return to 6,04,000. Now, if the same annual premium amount if invested in FD each year @ 9.5% gives me a return of around 7.5lac at the end of 16 years (12 FDs each @ 9.5% and amount equal to the annual premium of LIC).
In general, it is a good idea to keep investment and insurance separate and I have compared a few insurance plans here as well and doesn’t look like they are very attractive as far as returns are concerned.
Hi,
Please tell me the procedure of making gold gift to my spouse to reduce tax. is there any limit for glod gifts? whether jewel to be purchased under my name or my spouse name? i have invested Rs 72,000 in LIC. what are the other ways to reduce my tax. my annual income is 9 lakhs.
No idea about that I’m afraid.
Hi everyone
I am a new comer in Corporate industry.and have a very blurred idea about tax savings & money instruments.
Q1. Where all can I invest my monthly salary of 30,000 for good returns keeping in mind the short term and long term requirements as well?
Q2.Amongst these,which all can help in my tax savings for the current years and the next year as well ?
Or do i need to invest in some long term instrument apart from the above ones in order to save my tax ?
hi every one i want to invest for 30000 and i need to choose tax saving plans
Question 1: which one would be better if iam looking to invest for short period
Question2: which one would be better if iam looking to invest for long period
Note: Iam not intrested in Insurance plans.
given the highest returns iam ready to invest in higher amounts and variable period of time .
and the intrest earned should be tax free
Thanks for your suggestions.
Only the income from PPF is tax free, rest of them are all taxable, so that’s your only option (given your conditions).
Hi,
I have put 5-year Fixed Deposit [2011-2016] of Rs-100000 /- in nationalized bank for my tax exemption during the year 2011-2012.
Do I use the same 5-year FD for my tax exemption in the following year 2012-2013 and continuously up to year 2016?
Please reply
Thanks
Jegadeesh
I am little confused in Saving calculation. My query is
How much in total a women can save?? Its only One lac irrespective of PPF & LIC’s or can save upto One Lac in LIC + upon 70000 in PPF & the availed benifit would be One lac seventy thousand
*** If my salary is 400000.00 p/a then how much i can save & how much tax I need to pay??
why cant i claim 80c for my parents lic..?
Yes, you can claim deduction on the investment under Section 80C. You may log on to http://www.indiapost.gov.in/netscape/Banking.html to clarify your doubts.
Hi
I have another Q, I was surfing through the internet and came across Time Deposit of Post office, the time duration for the deposit are 1yr, 2yr, 3yr, 4yr and 5yr. but I am not sure weather we can claim tax benefit for 1,2,3 and 4 yrs deposit under 80c.
Any idea?
I’m not aware of this option.
Hi
I am an MBA student and will be joining an MNC in Jun 2012. I have the following questions –
1)Can I do advance investment declaration in Jun so that less tax is deducted(because normally we always do a declaration in March) when I start receiving the salary
2)In case, I would not be allowed to do advance investment declaration, will HRA, Conveyance etc be automatically deducted from my gross salary to arrive at the taxable income during TDS.
Please reply.
1. Most companies I know of ask their employees about what their tax planning is at the beginning of the year and based on that they deduct the TDS and credit their salary. So, if your employer does this then you should state that at the time of declaration and then get tax deducted accordingly.
2. I guess that’s not applicable since you should be able to declare tax investments before hand.
hi manshu and others !!!
i have recently started my professional career. it was august,2011 since when i started my earnings. i need to submit my tax savings documents to my company by 20th of dec for the FY2011-2012.i first thought of investing in ULIPs and ELSS.now that these are being exempted from the DTC which probably comes into action for next FY , im in a state of doubts and confusion.whether to go with these for FY 2011-2012.moreover these two schemes have a lock in of a min of 5 yrs.having many other investments to do other than the tax savings, i need to keep myself in adequate with liquid cash( for after an year or two). suggest me for the present year’s tax savings to be applied ( keeping in mind that i earn around 40k per month and mostly looking for monthly investment schemes with PPF already under consideration).
hell lot of doubts thrown out being a fresher…hope that will not trouble u a lot as i see the way u respond to people is absolutely amazing…:P thanks in advance and my best wishes for your further journey through this forum into your future …regards
So, you fall under the 10% tax slab right?
Personally, if I fell under that tax slab and felt that I would need cash shortly then I would much rather pay tax than invest in any instrument to save it. You can invest in other instruments that don’t have a lock in and avoid the lock in since you feel you will need cash.
thanku soo much manshu .after a hell lot of discussion with my friends even i was in a same mood. but was waiting for some pro assistance.thats it for now then.this seems to be the final thing i should do…that don’t go for locked in policies :P.thanks once again..will keep following this forum.a very good ‘ financial planning GYAN’ center…:)
I’m no pro but based on what you said, paying a bit in taxes and keeping money free seem to make sense. I’m happy to hear that you found this forum useful – thanks!
Short-term capital loss/intraday loss can only be set-off against short-term capital gains during a financial year. In other words income from capital gains gets reduced to the extent of short term capital loss thus resulting in a lower gross total income.
Hi Manshu,
I want to know how much amount is allowed on tution fees and in which section
Thanks
Regards
1 lakh under 80C Sanjeev.
Hi Manshu,
My salary comes under the tax bracket of 10%.
I started investing in shares since this April and made losses(Including options and intraday).
Can I avail a tax exemption in this case.
If so, how can i avail that.
Please guide me in this.
Thanks,
Krishna.
No, as Juanita explained, you can’t.
Hi ,
what are the proof need to be submitted for 80C- Deposit in Post Office Savings Scheme ??