Tax Planning Guide1 2017

Your Comprehensive Guide to Tax Planning
Foreword
Dear Reader,
All of us engage in some economic activity and work hard to make a living. But as we engage in an
economic activity, we tend to attract the attention of the Income Tax Department. Thus, it becomes
imperative for us to work a little more harder and smarter to save our taxes (the legal way) too, so
that it can help us make our dreams come true - A dream of buying a better car, bigger house etc.
But, remember in the quest of attaining the same, if you keep your tax planning exercise pending till
the eleventh hour, it would be merely a tax saving exercise leading to sub-optimal gains.
This 2017 edition of the Money Simplified Guide on Tax Planning will give you a perspective on how
you can plan your taxes smartly. As you may know, every penny saved, is a penny earned. Hence you
should take enough care and prudence in the tax planning exercise considering your age, income,
ability to take risk and financial goals, so that your tax planning can complement your investment
planning.
Theres more to tax planning than just investing in tax saving instruments available under Section 80C,
of the Income Tax Act, 1961. There are many other provisions that can provide you tax benefits.
Keeping this philosophy in mind, PersonalFN through this Money Simplified Guide would like to help
you do just that - with a lot of knowledge and expertise poured into this Guide, in a simple and easy to
understand manner.
So, read on, and wish you all VERY HAPPY TAX PLANNING!!
Team Personal FN
1 www.personalfn.com
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Index
Section I: Tax Saving Vs. Tax Planning 04
Section II: 4 Mistakes that individuals make while saving tax 05
Section III: Your small steps (to Tax Planning) can take you leaps 07
Steps to tax planning
Parameters for prudent tax planning
Section IV: How to save tax with Section 80C 14
Tax planning with market-linked instruments
Tax planning the assured return way
Section V: Thinking beyond Section 80C 28
Section VI: How your home loan can help in tax planning 36
Section VII: House Property and taxes 41
Annual Value
Deductions
Section VIII: How to save tax on your salary 45
Section IX: Tax implication of investing in mutual funds 49
Section X: Penalties of non-filing of returns / non-payment of taxes 51
Section XI: Income tax return forms 54
Section XII: Conclusion 56
I - Tax Saving Vs. Tax Planning

All men make mistakes, but only wise men learn from their mistakes.- Sir Winston Churchill.
The above proverb is very much relevant to our daily lives - be it handling finances or even in any
other facets of life.
Moreover the famous author John C. Maxwell has also quoted A man must be big enough to admit
his mistakes, smart enough to profit from them, and strong enough to correct them. But again, this is
conveniently forgotten by many, which often leads to failure to learn from mistakes.
While undertaking their tax planning exercise too, many individuals tend to repeat the same mistake
of waiting till the eleventh hour.
As the financial year draws to a close, we all start feeling the heat and realise that yes, now we have
to invest in order to save tax. But have you ever wondered whether it is the prudent way for tax
planning?
Remember, waiting until the last minute to undertake your tax planning exercise will often drive it
towards mere tax saving rather than tax planning; which in our opinion is a sub-optimal way to
undertake a tax planning exercise.
Unlike tax saving which is generally done through investments in tax saving instruments / products,
under tax planning we take into consideration ones larger financial plan after accounting for ones
age, financial goals, ability to take risk and investment horizon (including nearness to financial goals).
By adapting to such a method of tax planning, you not only ensure long-term wealth creation but
also protection of capital.
Hence, please remember to commence your tax planning exercise well in advance by
complementing it with your overall investment planning exercise.
II - 4 Mistakes to avoid make while saving tax

We recognise the fact that many of you are too busy throughout the year, in your economic activities
intended to make a living. But if you show the same dedication in your tax planning exercise, the same
will enable you to save more through tax planning and fulfil many of your dreams in life. Our
experience reveals the following 4 mistakes that individuals make while saving taxes.
1. Undertaking tax planning at the last moment:
The root of all mistakes in tax planning lies in waiting till the last minute to save taxes, which
eventually leads to mere tax saving, rather than tax planning. And this in return is a sub-optimal way
of saving taxes, caused by the sheer attitude of delay. Your last moment hurry, will often lead you to
forgetting or ignoring the facets of financial planning such as your age, income, ability to take risk and
financial goals (explained further in this guide).
Remember waiting till the eleventh hour, is just going to lead you to a path of sub-optimal tax planning exercise,
which would destroy the essence of holistic tax planning.
2. Unnecessarily buying insurance plans for the purpose of tax saving:
As you near the end of the financial year, many of you might have received telephone calls from
insurance companies and agents pestering you to buy an investment-cum-insurance plan typically
market linked i.e. Unit Linked Insurance Plans (ULIPs) or some kind of Endowment plans. Realising the
need to save your taxes, you mayve even entertained these calls and eventually doled a cheque to
buy one. But have you introspected whether youve done the right thing? Maybe no; either because
of ignorance or in the urgency to save tax.
Remember when you think about insuring yourself, protecting your life against any unforeseen events; ideally
buy a pure term insurance plans, which gives due importance to your human life value. You may note that ULIPs
are investment-cum-insurance plans where, for the premium paid, the insurance cover offered is far less when
compared to pure term life insurance plans. In the latter, for a lesser premium amount you get a bigger life
insurance cover which is precisely what a life insurance plan is intended for.
3. Power of compounding through tax saving mutual funds:
Many individuals rule out the concept of power of compounding to the portfolio despite the fact that
age, income, ability to take risk, along with financial goals may support you to take risk. It is
noteworthy that if you want to meet and / or elevate your standard of living going forward, you need
to beat the rate of inflation. And thus, the role of equity as an asset class cannot be ignored in ones
tax saving portfolio too. While some do consider equity oriented tax saving mutual funds in their tax
saving portfolio, the ideal composition (depending on the risk appetite) is not maintained, which leads
the tax saving portfolio to give sub-optimal returns.
It is noteworthy that being risk averse is well appreciated by us. But if your age, income, ability to take risk and
financial goals, permit you to take equity exposure, one should not ignore the same.
4. Failing to optimize all available options for tax saving:
For many, tax planning starts as well as ends with Section 80C of Income-tax Act, 1961- which
enunciates investment instruments for tax saving. But investing only in these investment instruments
would not lead to optimal reduction of your tax liability. There are many other options available other
than Section 80C which you should look into. Thinking beyond 80C may help you save more for your
other financial goals.
To bring to your notice, our Income Tax Act, 1961 also considers the humane side of our life and also gives
deductions for contributions you make on such developments. So, in case if you pay your medical insurance
premium, incur expenditure on the medical treatment of a dependant handicapped, donate to specified funds
for specified causes, take a loan for pursuing higher education or if you are an individual suffering from
specified diseases; then all these expenses can help you effectively plan your tax obligations, optimally
reducing your tax liability. Moreover, taking into account the urge to buy your dream home by taking a home
loan can also extend tax saving benefits to you.
III - Your small steps can take you forward
There is an old Chinese proverb that says, It is better to take many small steps in the right direction
than to make a great leap forward only to stumble backward, which in our opinion applies even to
your tax planning exercise.
Remember, it is vital for you to step-by-step ascertain where you stand, in terms of your Gross Total
Income and Net Taxable Income, so that you effectively undertake your tax planning exercise which in
turn would deliver you the objective of long-term wealth creation along with capital protection.
In the past if you have taken your tax planning decisions at the last moment, there is a need to change
and invest regularly. Adopt these prudent steps while doing your tax planning.
Step 1: Compute the Gross Total Income
The process of tax planning begins with computation of your Gross Total Income (GTI). This step
enables you to ascertain the total income earned by you during a financial year, from various under-
mentioned sources of income, and helps you to judge where you stand.
Income from salary
Income from house property
Profits and gains from business & profession
Capital gains (short term and long term) and
Income from other sources.
Hence, GTI is the total income earned by an individual before availing any deductions under the
Income Tax Act, 1961. And it is vital to know the same, in order for you to undertake your tax planning
effectively, so that you can plan within the sources of income (by using the relevant provisions of the
Income Tax Act applicable to the aforementioned sources of income), as well as by availing deductions
to GTI.
Now, one may ask how do I undertake this activity if Im a novice?
Well, the answer is pretty simple! You can either get it done at the company you work for (many
organisations do offer this facility), ask your CA / tax consultant to do it, or use the convenience of the
new and updated tax portals that have emerged in the more recent times. But, along with all this
please do not forget to do your self-study to carry out an effective tax planning exercise. One must
note that it is vital to know at least those provisions of the Income Tax Act, which directly have an
impact on your personal finances.
Step 2: Compute the Net Taxable Income
After having done with computation of GTI by using the relevant provisions of the Income Tax Act for
each source of income, the next step is to compute your Net Taxable Income (NTI).
Under NTI from the GTI, the various deductions under chapter VIA which allow for deduction under
Section 80 of the Income Tax Act, should be accounted for (i.e. subtracted from your GTI), which
would thus reduce your taxable income. The following deductions enable you to reduce tax liability, as
it covers Sections for:
Investing in tax saving instruments (under the popular Section 80C and RGESS - Rajiv Gandhi
Equity Savings Scheme)
Premium payment for your medical insurance
Expenditure on handicapped dependent
Interest paid on loan taken for higher education
Donations
Rent paid for residential accommodation
Expenditure incurred on specified diseases suffered by you
and many more!
Remember, if you use the respective provisions effectively to do tax planning, it will enable you to
achieve the long-term objective of wealth creation.
Step 3: Calculate the tax payable
After having effectively saved tax in the prudent way mentioned above, the next step is to compute
your tax liability based on the present income tax slabs.
The income tax rates for Individuals and HUFs for FY 2016-17 are as follows:
Net Taxable Income (in Rs) Rate

Upto Rs 2,50,000 [For individuals (including NRIs / PIOs and HUFs)
Upto Rs 3,00,000 (for Resident Senior Citizens 60 years and above but
below 80) Nil
Upto Rs 5,00,000 (for Resident Super Senior Citizens aged 80 and
above)
#
Rs 2,50,001 to Rs 5,00,000 10%
##
Rs 5,00,001 to Rs 10,00,000 20%
Above Rs 10,00,000 30%
Source: Finance Act 2016, Personal FN Research)
#
For Resident Senior Citizens of 60 years of age and above but below 80 years of age, the slab is
between Rs.300,001 to Rs 5,00,000 taxable @ 10%.
##
For Resident Super Senior Citizens aged above 80 years, the second slab is between Rs 500,001 to Rs
10,00,000 taxable @ 20%.
Also, note that an additional surcharge @ 15% would be levied if your total income in the financial
year exceeds Rs 1 crore. This one-time surcharge will be in addition to the total 3% education cess
that is paid on the total income-tax.
Union Budget 2013-14 had introduced a new Section 87A which allows a Tax Credit or Special Rebate
of Rs 2,000 to individuals whos NTI is below Rs 5 lakhs. This rebate was increased in union budget
2016-17 to Rs 5,000, thus giving a relief to the extent of your tax liability or Rs 5,000 whichever is less.
So if your tax liability is say Rs 1,500, you will get a tax credit of only Rs 1,500 under Section 87A and
no tax will be payable.
Now let us see how you can compute your income tax liability:
Say if your gross taxable income is Rs 11 Lakh in the current financial year, and you invest Rs 50,000 in
RGESS and Rs 1,00,000 in ELSS; your tax liability will be computed as under:
Computation of Tax Liability (2016-17)

Tax
Gross Total Income (A) 11,00,000
Rate
Investments done in FY 2015-16
RGESS 50,000
ELSS 100,000
Eligible for deduction u/s. 80C (B) 1,00,000
Eligible for deduction u/s. 80CCG (C) 25,000
Net Taxable Income (in Rs) = (A) (B) (C) 9,75,000
Upto 2,50,000 Nil -
Rs 2,50,001 to Rs 500,000 10% 25,000
Rs 500,001 to Rs 10,00,000 20% 95000
Rs 10,00,001 & above 30% -
Tax payable (in Rs) 1,20,000
Education Cess 3% 3,600
Total Tax Liability (in Rs) 1,23,600
This is for illustrative purpose only
(Source: Personal FN Research)
Parameters for prudent tax planning:

A prudent exercise of tax planning also extends to appropriate investment planning, which also takes
into account your ideal asset allocation by considering the under-mentioned factors. Hence, after you
have utilised the tax provisions within each head / source of income for effective reduction in GTI, you
must also consider the following parameters as these will enable you to optimally reduce your tax
liability.
Age
Your age and the tenure of your investment play a vital role in your asset allocation. The younger
you are more risk you can take and vice-a-versa. Hence, for prudent tax planning too, if you are
young, you should allocate more towards market-linked tax saving instruments such as Equity
Linked Saving Schemes (ELSS), Rajiv Gandhi Equity Savings Scheme (RGESS), Unit Linked Insurance
Plans (ULIPs) and National Pension System (NPS); as at a young age the willingness to take risk is
generally high. One may also consider taking a home loan at a younger age, as the number of
years of repayment is more along with your willingness to take risk being high.
Another noteworthy point is that the earlier you start with your investments, the greater is the
tenure you get while investing in an investment avenue, which can enable you to make more
aggressive investments and create wealth over the long-term to meet your financial goals.
Lets understand this much better with the help of an illustration.
An early bird gets a bigger pie

Particulars Suresh Mahesh Rajesh
Present age (years) 25 30 35
Retirement age (years) 60 60 60
Investment tenure (years) 35 30 25
Monthly investment (Rs) 7,000 7,000 7,000
Assumed Returns per 10% 10% 10%

annum
Sum accumulated (Rs) 2,65,76,466 1,58,23,415 92,87,834

Note: The names and returns mentioned above are an assumption and used for illustration purpose only
The above table reveals that, if Suresh starts at age 25, and invests Rs 7,000 per month in an ELSS /
Tax saving mutual fund scheme through SIPs (Systematic Investment Plans) until retirement (age
60). His corpus at retirement will be approximately Rs 2.65 crore at an assumed rate of return of
10% p.a. If Mahesh starts at age 30, a mere 5 years after Suresh, and invests the same amount in
ELSS (through SIPs) until retirement (also at age 60). His corpus will build up to approximately Rs
1.58 crore at same assumed rate of return, note the difference between the 2 corpuses here. And
lastly, we have Rajesh, the late bloomer of the lot. If he begins investing at age 35, the same
amount every month in an ELSS as Suresh and Mahesh, and invests up to his retirement (also at
age 60); his corpus will be, in comparison, a meagre Rs 92 lakh.
The following graph clearly indicates the gap between the accumulated corpuses for similar level
of investment per month and assumed rate of return.
The chart depicted is for illustrative purpose only.

Income
Similarly, if income is high, willingness to take risk is also high. This can work in your favour, as you
have sufficient annual GTI which allows you to park more money towards market-linked tax saving
investment instruments, which have potential of generating higher returns and creating a good
corpus for your financial goal(s).
A higher GTI can also make your eligible for an increased home loan, which too can help to
optimally reduce your tax liability. Now, one may say that if I have a high income, - why do I need
a home loan. I can straight away go ahead and buy the property! Sure, you can; but the Income
Tax Act provides you the tax benefit for repayment of principal amount along with the interest on
loan taken, which you will miss.
Also, considering that you are financially strong, you can also donate some of your money
towards a noble cause, as doing so will make you eligible for a tax benefit (under section 80G of
the Income Tax Act which is discussed ahead in this guide).
Similarly, if your income is not high enough or if you do not want to put your money at risk; you
can invest in tax saving instruments that provide you assured returns. These instruments can be
Public Provident Fund (PPF), National Savings Certificates (NSCs), 5 Yr Bank Fixed Deposits, 5 Yr
Post Office Time Deposits and Senior Citizen Savings Scheme (provided you are a senior citizen).
Financial goals
The financial goals, which one sets in life, also influence the tax planning exercise. So, say for
example your goal is retiring from work 5 years from now, then your tax saving investment
portfolio will also be less skewed towards market-linked tax saving instruments, as you are quite
near to your goal and your regular income would stop.
Likewise if you are many years away from your financial goal, you should ideally allocate maximum
allocation to market linked tax saving instruments and less towards those tax saving instruments
which provide you low assured returns.
Risk appetite
Your willingness to take risk, which is a function of your age, income, expenses, nearness to goal,
will be an important determinant while doing your tax planning exercise. So, if your willingness to
take risk is high (aggressive), you can skew your tax saving investment portfolio more towards
market-linked instruments. Similarly, if your willingness to take risk is relatively low (conservative),
your tax saving investment portfolio can be skewed towards instruments which offer you assured
returns, and if you are a moderate risk taker you can take a mix of around 60:40 into market-
linked tax saving instruments and assured return tax saving instruments respectively.
We reckon the fact that a prudent tax planning exercise can be time consuming and complex.
But please note the fact that its an annual activity which every tax payer has to go through and
if you start early and plan properly, the task becomes easier.
Remember, delay will only ensure that you invest at the last moment but not in line with the
parameters discussed above. If you are hard pressed for time, consider hiring a competent tax
consultant along with an investment advisor.
IV - How to save tax with Section 80C

Section 80C of the Income Tax Act enables an individual or a Hindu Undivided Family (HUF) to
effectively invest in tax saving instruments, in order to optimally reduce their tax liability. This is
seen as one of the most sought after sections when it comes to tax planning.
In order to leave more money in the hands of the salaried class, hit by rising prices, the deduction
limit under this Section is currently at Rs 1.50 lakh p.a.
The Section offers you host of popular investment instruments mentioned hereunder which
qualify you for a deduction from your Gross Total Income (GTI):
Life Insurance Premium
Public Provident Fund (PPF)
Employees Provident Fund (EPF)
Sukanya Samriddhi Yojana
National Saving Certificate (NSC) , including accrued interest
5-Year fixed deposits with banks, Post Office, HUDCO and NHB
Senior Citizens Savings Scheme (SCSS)
National Pension System (NPS)
Unit-Linked Insurance Plans (ULIPs)
Equity Linked Savings Schemes (ELSS)
Pension Plans
Tuition fees paid for childrens education (maximum 2 children)
Principal repayment on Housing Loan
Hence, if you invest in any or all of the aforementioned instruments; you would qualify for deduction
under this section subject to the maximum of Rs 1.50 lakh p.a. But we think rather than just merely
investing in any of the above tax saving instruments, you can also use these tax saving instruments for
prudent tax planning.
Now you may ask how?
Well, its simple! In the aforementioned list you can classify the tax saving instruments into those
offering variable returns (i.e. market-linked instruments) and those offering fixed returns (i.e. assured
return instruments). By doing so you would be able to ascertain which investment instrument suits
you best (taking into account the factors mentioned above) and would extend your tax planning
exercise to investment planning too.
Lets discuss in detail the classification into market-linked tax saving instruments and assured return
tax saving instruments.
Tax Planning with market-linked instruments:
If you are young, income is high, and therefore your willingness to take risk is high along with your
financial goals being far away, then this category would be suitable for you. Under this category, you
can invest in the capital markets, which will give you variable returns. Following are the market-linked
tax saving instruments that are available for investment under Section 80C.
1. Equity Linked Savings Schemes (ELSS):
These are mutual fund schemes, which are diversified equity funds providing tax saving benefits
popularly known as Equity Linked Savings Scheme or ELSS.
A distinguishing feature about ELSS is that they are subject to a compulsory lock-in period of three
years, but the minimum application amount in most of them is as little as Rs 500, with no upper limit.
In ELSS, you can make either lump sum investments or investments through a Systematic Investment
Plan (SIP). In case of the latter, each instalment has a 3-year lock-in period.
And if you ask, who can invest in ELSS? Individuals and HUFs can invest in ELSS. It is noteworthy that,
in the long-term if you intend to create wealth, then this tax saving funds has potential to give you
luring inflation-adjusted returns.
You may say but there is risk involved. Well, no doubt about that; but in order to even out the
shocks of volatility in the equity markets you can adopt the SIP route of investing here which will
provide you the advantage of compounding along with rupee-cost averaging.
SIPs in ELSS can help you tackle volatility and may help you gradually create wealth in the long run.
While considering an ELSS mutual fund for your market-linked tax-saving portfolio, give importance to
those ELSS mutual funds that have completed at least 3 years of track record and select schemes from
mutual fund houses which follow strong investment systems and processes. Dont get lured just by
returns clocked because theres more to evaluating a mutual fund scheme than just returns.
Moreover, past performance does not guarantee that the fund will continue to fare in the same
manner in the future. Hence look for a fund with a consistent performance track record besides
qualitative aspects like fund house pedigree, investment process, quality of fund management team,
among others.
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Want to know the best tax saving funds for your investment portfolio? Click here
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Deduction: The maximum tax benefit which an Individual or HUF can enjoy under Section 80C is Rs
1.50 lakh p.a. Moreover, if you make any long term gains at the time of exit, any time after the end of
the lock-in period; as per current tax laws, you will not have to pay any Long Term Capital Gains
(LTCG) Tax.
2. Pension Funds:
Pension funds (or retirement funds) offered by mutual funds can not only be used for tax planning,
but are also an effective instrument to plan for a peaceful retired life. Most pension funds are hybrid
in nature. At the vesting age, you can opt for regular pension by systematically redeeming the units.
They are okay if you want to kill two birds in one shot, namely tax planning and retirement planning.
Some schemes may not help in maximising wealth as a dominant portion of the assets is skewed
towards debt. Also, debt-oriented schemes arent very tax efficient due to liability of LTCG tax. You
may consider schemes offering a Wealth Creation plan, which invest over 65% of the portfolio in
equity.
Deduction: The amount invested in pension funds qualifies for deduction under Section 80C, subject
to a maximum limit of Rs 1.50 lakh p.a.
3. Unit-Linked Insurance Plans (ULIPs):
These are typically insurance-cum-investment plans that enable you to invest in equity and / or debt
instruments depending on what suits you as per your age, income, risk profile and financial goals. All
you simply need to do is, select the allocation option as provided by the insurance company offering
such a plan. Generally they are classified as aggressive (which invests in equity), moderate or
balanced (which invests in debt as well as equity) and conservative (which invests purely in debt
instruments).
Hence, apart from the insurance cover (which is usually 10 times your annual premium) offered under
these plans, the returns which you would get are completely market-linked as your premium amount
(after accounting for allocation and other charges) is invested in equity and debt securities.
And in order for you to track such plans, the NAV is declared on a regular basis. These policies have a
minimum 5-year lock-in period, and also have a minimum premium paying term of 5 years. The
overall term of the policy would vary from product to product.
In case of any eventuality, the beneficiaries would be paid the sum assured or fund value, whichever is
higher.
But a noteworthy point is, while some well selected ULIPs may add value to your portfolio in the long-
term; your insurance and investment needs should be dealt separately, thus enabling you to have an
optimum insurance coverage and the right investment instruments for long-term wealth creation.
Deduction: The premium which you pay for your ULIP would be eligible for tax benefit, subject to the
maximum eligible amount of Rs 1.50 lakh p.a. as available under Section 80C. Moreover, at maturity
the amount which you or your beneficiary would receive is tax free (exempt) as per the provisions of
Section 10(10D) of the Income Tax Act, subject to conditions specified.
4. National Pension System (NPS):
National Pension System which was earlier available only for Government employees was later, on
May 1, 2009, also introduced for people in the unorganised (private) sector, as need for deeper
participation in the pension contribution (through this product) was felt.
For NPS, if you (eligibility age: from 18 years to 60 years) belong to the unorganised sector (i.e. private
sector); the contributions done by you towards the scheme would be voluntary, and you can invest in
any of the two under-mentioned accounts:
Tier-I Account:
This account is a mandatory account and the minimum investment amount is Rs 500 per
contribution and Rs 6,000 per year, plus you are required to make minimum 1 contribution in a
year. If you dont contribute the minimum required, the account will be frozen. And to unfreeze
the account, you need to contribute the total of minimum contribution for the period of freeze,
the minimum contribution for the year in which the account is reactivated and a penalty of Rs
100. Under this account, premature withdrawals are actually not permitted before attainment of
60 years; but can be allowed only in the form of repayable advance and only if youve completed
15 years. Such withdrawals are permissible only in case of critical illness and emergency. The
objective of this account is to build a retirement corpus and buy a life annuity. You can operate
this account anywhere in the country, irrespective of your employer and job location.
Tier-II Account:
This account is a voluntary savings account. To have Tier-II account, you first need to have a Tier-I
account. For opening the tier-II account you will have to make a minimum contribution of Rs
1,000. Minimum 1 contribution in a year is required, subject to a minimum contribution of Rs
250. However, if you open an account in the last quarter of the financial year, you will have to
contribute only once in that financial year. You are required to maintain a minimum balance of Rs
2,000 at the end of the financial year. In case you dont maintain the minimum balance in this
account and do not comply with the number of contributions in a year, a penalty of Rs 100 will be
levied. However from the Tier-II account youre permitted to without any limits. So, its flexible in
a sense. Since this account does not have a lock-in period for funds to be invested, it isnt
available for a tax benefit i.e. the money invested isnt eligible for a tax benefit. Even if you hold
both the above accounts under NPS, only the Tier-I account will be eligible for tax benefits.
While investing money in NPS, you have two investment choices i.e. Active or Auto choice.
Under the Active choice asset class, your money will be invested in various asset classes termed as
ECG viz. E (Equity), C (Credit risk bearing fixed income instruments other than Government Securities)
and G (Central Government and State Government bonds); where you will have an option to decide
your asset allocation into these asset classes.
In case of Auto Choice, which is the lifecycle fund, money will be invested automatically based on the
age profile of the subscriber. And if you signify the choice while investing, the auto choice will be the
default option.
Recently, to attract more investments from the private sector, PFRDA proposed to offer a couple of
additional investment options. The new investment options are called: 'Aggressive Life Cycle
Fund' and 'Conservative Life Cycle Fund'. In the former, you can invest up to 75% in equities; while in
the latter 25% will be parked in equities. The purpose of introducing these additional investment
options was to attract young investors, who can afford to take the risk and on the other hand for the
risk-averse investors.
But remember, the return on your investment is not guaranteed as it is market-linked. At the age of
60 years, you can exit the scheme; but you are required to invest a minimum 40% of the fund value to
purchase a life annuity. And the remaining 60% of the money can be withdrawn in lump sum or in a
phased manner upto your age of 70 years. As per current tax laws, 40% of the money withdrawn on
maturity is taxable. At the time of death of the subscriber, the entire accumulated corpus (i.e. 100%)
would be paid to the nominee or legal heir. There will not be any purchase of annuity and the entire
proceeds received will be tax free in the hands of the nominee/legal heir as per the Union Budget of
2016-17.
Deduction: Those who are salaried employees may claim deduction under Section 80CCD(1) upto Rs
1.5 lakh for their own contributions towards NPS account (As per Section 80CCE, the aggregate
amount of deduction under Sections 80C, 80CCC and 80CCD(1) cannot exceed Rs 1.5 Lakh). In addition
to this, a deduction can be claimed under Section 80CCD(2) if there is any contribution made by the
employer but only upto 10% of their salary (for this purpose, salary construes as Basic Salary plus
Dearness Allowance). It is noteworthy that the deduction under Section 80CCD(2) can be claimed over
and above the permissible deductions under Section 80C.
So if an Individual contributes alone from his income towards NPS, it will be considered within the
limits of Rs 1. 5 lakh p.a. under Section 80CCE (As per Section 80CCE, the aggregate amount of
deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1.5 Lakh).
It is only if the employer contributes to employee for NPS Section 80 CCD(2) is applicable.
So to avail this extra tax exemption limit, the employees need to convince their employers to start
contributing to NPS.
However, those who are self-employed can avail deduction under Section 80CCD(1) upto 10% of their
gross total income (which is comprised of income computed under different heads before reducing it
by all other deductions available under Section 80). In addition to deductions under Section 80CCD(1),
self-employed people are also entitled to deductions under Section 80C for other instruments eligible
therein.
In the Union Budget 2015-16 Government inserted a new sub section 80CCD(1B) in section 80CCD
which provides additional deduction of Rs 50,000 for contribution made by Individual assesse under
the NPS (On this additional contribution, the celling of Rs 1.5 lakh under section 80CCE is not
applicable).
Non-Resident Indians (NRIs) also can now actively participate in NPS.
Tax planning the assured return way:
In case your risk appetite for equity is low owing to its volatility, you may invest in tax saving
instruments which offer assured returns. Here are the tax-saving instruments available under this
category:
1. Non-Unit Linked Life Insurance Plans:
Life Insurance plans can be broadly classified as pure term life insurance plans and investment-
cum-life insurance plans.
Pure term life insurance plans are authentic indemnification plans, as they cater to the need of only
protection and not investment. Hence such plans offer a high life insurance coverage at low
premiums. Generally the term insurance plans offer a policy term of 10, 15, 20, 25 or 30 years.
Investment-cum-life insurance plans on the other hand, as the name suggest, offer you an investment
option along with insurance option. But here, your insurance coverage is far lesser than the one
provided under pure term insurance plans. You pay a high premium, which gets invested, but
insurance coverage on the other hand is meagre. Such insurance plans are offered in various forms
such as, endowment plans, money-back plans, pension plans etc.
We think that while you are considering your insurance needs, you should ideally look at only pure
term life insurance plans, thus keeping your insurance needs separate from investment needs.
Deduction: Over here too, the premium which you pay for such non-unit linked life insurance plans
would be eligible for tax benefit, subject to the maximum eligible amount of Rs 1.50 lakh p.a. under
Section 80C. Moreover, a positive point is that at maturity the amount, which you or your beneficiary
would receive, is exempt (tax free) as per the provisions of Section 10(10D) of the Income Tax Act
subject to the conditions specified.
2. Public Provident Fund (PPF):
The PPF scheme is a statutory scheme of the Central Government of India.
In order to invest in PPF, you are required to open a PPF account (which is irrespective of your age) at
your nearest post office or public sector (nationalized) bank providing this facility. You can open the
account in your name, and also in the name of your wife as well as children. If you do not wish to
open a separate account in the name of your wife as well as children, you can nominate them; but
joint application is not permissible.
The account so opened will have an expiry term of 15 years from the end of the year in which the
initial investment (subscription) to the account is made. You can invest in the account ranging from a
minimum of Rs 500 to a maximum of Rs 1,50,000 in a financial year in order to enjoy the tax saving
benefit under Section 80C, and the amount to the credit of your account will be entitled to a tax-free
interest which is 8.0% p.a (compounded annually) revised every quarter based on previous 3-month
G-sec yield. The interest rate for every quarter is decided on the 15th of the preceding month.
The interest to the account will be calculated on the lowest balance to the credit of the account
between the close of the 5th day and the end of the month, and will be credited to the account on 31st
of March, each year.
Your annual deposit in the PPF account should at least be Rs 500, and you have the convenience of
depositing in either lump sum or in instalments not exceeding 12 such instalments. However, a
noteworthy point is that it is not necessary to deposit every month and the amount too can be any
amount in multiples of Rs 5, subject to the minimum (Rs 500) and maximum (Rs 1,50,000) amount.
As regards withdrawal from the account is concerned, it is permitted any time after the completion of
6 years from the end of the year in which initial investment (subscription) to the account is made.
However, your withdrawal will be restricted to 50% of the amount which stood to the credit of your
account at the end of the 4th year immediately preceding the year of withdrawal or at the end of the
preceding year, whichever is lower. And in case if your term of 15 year is over, you can withdraw the
entire amount together with the interest accrued till the last day of the month, preceding the month
in which application for withdrawal is made.
After your term of 15 years is over, if you wish to renew your account, you can do so for a period of
another 5 years at the rate of interest prevailing then, without having the compulsion of putting any
further deposits in case of extension. The withdrawal in case of extended accounts is permissible once
in every financial year. But the total withdrawal should not exceed 60% of the balance accumulated to
the account at the commencement of the extension period (of 5 years).
In case you wish to invest in the name of HUF, you cannot do so. The Government has discouraged
HUFs from taking advantage of a scheme, whose objective is to create retirement nest egg for
resident individuals. Earlier an HUF could open a PPF account and save tax on the deduction, which
has been stopped with effect from May 2005. However, existing PPF accounts of HUFs will continue to
operate normally until maturity, but cannot be extended beyond maturity, and no new HUF PPF
accounts can be opened.
It is noteworthy that if you are risk averse, then this investment avenue is worthy for tax planning.
Moreover, it also offers you an appealing tax-free return of around 8% p.a. (compounded annually).
Deduction: The contributions, which you make to the accounts mentioned above, are eligible for tax
benefit but subject to the maximum eligible amount of Rs 1.50 lakh p.a. as per Section 80C.
3. National Savings Certificate (NSC):
The NSC is also a scheme floated by the Government of India, and one can invest in the same through
his / her nearest post office, as the scheme is available only with India Post. The certificates can be
made in your own name, jointly by two adults, or even by a minor (through the guardian), and has a
tenure of 5 years. Earlier, a 10 year NSC was also available but vide a notification by the Minister of
Finance on December 1, 2015, the postal department has stopped issuing certificates for this tenure.
The minimum amount which you can invest is Rs 100, with no maximum limit to the same. NSC
maturing in 5 years offers interest @ 8.0% p.a. compounded annually; but here too, the interest rate
is reset every quarter based on previous 3-month G-sec yield. The interest income accrues annually
and is reinvested further in the scheme till maturity or until the date of premature withdrawals.
Premature withdrawals are permitted only in specific circumstances such as death of the holder.
Deduction: Your investment in NSC is eligible for a deduction of upto Rs 1.50 lakh p.a. under Section
80C. Furthermore, the accrued interest which is deemed to be reinvested in a financial year qualifies
for deduction under Section 80C in the respective financial year. However, the interest income is
chargeable to tax in the year in which it accrues. But in case if you have no other income apart from
interest income, then in order to avoid Tax Deduction at Source (TDS), you can submit a declaration in
Form 15-G (for general or non-senior citizens) or Form 15-H (for senior citizens) as applicable.
4. Bank Deposits and Post Office Time Deposits:
The 5-Yr tax saving bank fixed deposits available with your bank is also eligible for a deduction under
Section 80C and comes with a lock in period of 5 years. The minimum amount that you can invest is Rs
100 with an upper limit of Rs 1.50 lakh in a financial year. The interest rates offered by banks under 5-
Yr tax saving fixed deposits are currently in the range of 7.25% p.a. to 8.00% p.a.
However, the interest earned here would be subject to tax deduction at source, making it detrimental
for your tax planning, but again you can submit a declaration in Form 15-G (for general or non-senior
citizens) or Form 15-H (for senior citizens) as applicable for not deducting tax at source.
Similarly 5 Year Post Office Time Deposits (POTDs) also offer you a tax benefit under Section 80C. You
can open the account either in single name, or jointly, or even in the name of a minor (through a
guardian) who has attained the age of 10.
The minimum investment amount is Rs 200, and there isnt any upper limit. However, similar to other
tax saving instruments, the investment amount over Rs 1.50 lakh will not be eligible for any tax
benefit.
A 5-Yr POTD earns a return of 7.8% p.a. (compounded quarterly) but paid annually. Hence, say if you
deposit an amount of Rs 10,000, the interest income, which you will fetch, would approximately be Rs
803 p.a. As regards premature withdrawals are concerned, they are permitted only after 1 year from
the date of deposit and interest on such deposits shall be calculated at the rate, which shall be 1% less
than the rate specified for a period of 5-Year deposit.
Deduction: Your investment in both these schemes is eligible for a deduction of upto Rs 1.50 lakh p.a.
under Section 80C. But as mentioned above, the interest earned on your investments will be taxable.
5. Senior Citizens Savings Scheme (SCSS):
Well, the SCSS is an effort made by the Government of India for the empowerment and financial
security of senior citizens. So, in case if you are age 60 years and above, you are eligible to invest in
this scheme. Moreover, if you have attained 55 years of age and have retired under a voluntary
retirement scheme; then too you are eligible to enjoy the benefits of this scheme.
In order to avail the benefits of this scheme, you are required to open a SCSS account (either in a
single name, or jointly along with your spouse) at your nearest post office or any nationalised bank.
You can do a onetime deposit under this scheme subject to the minimum investment amount of Rs
1,000 and a maximum of Rs 15 lakh. The maturity period provided for this scheme is 5 years while
interest is payable on a quarterly basis (i.e. on March 31, June 30, September 30 and December 31)
every year from the date of deposit. Currently the SCSS offer an interest @ 8.50% p.a compounded
quarterly and is reset every quarter based on previous 3-month G-sec yield. After maturity, you can
extend the SCSS account for a period of 3 years but within 1 year from the maturity by giving
application in prescribed format.
Premature withdrawals are permitted only after one year from the date of opening the account. If you
withdraw between 1 and 2 years, 1.5% of the initial amount invested will be deducted. And in case if
you withdraw after 2 years, 1.0% of the balance amount is deducted. In case of accounts which are
extended after maturity, the accounts can be closed any time after expiry of one year of extension
without any deduction.
Deduction: Your investments upto Rs 1.50 lakh in SCSS are entitled for a deduction under Section 80C.
However, the interest earned by you would be subject to tax deduction at source. But in case if you
have no other income apart from interest income, then in order to avoid Tax Deduction at Source
(TDS), you can submit a declaration in Form 15-G (for general or non-senior citizens) or Form 15-H (for
senior citizens) as applicable.
6. Sukanya Samriddhi Scheme (SSS):
Launched in January 2015, the Sukanya Samriddhi Scheme allows you to save and invest for your
daughters education and marriage. The parents or a legal guardian can open an account in the name
of the girl child from her birth to 10 years.
You can open an account for a maximum of two girl children. Standard KYC documents apply. You can
invest a minimum of Rs 1,000 and a maximum of Rs 1,50,000 in one financial year. Investments are
entitled for a deduction under Section 80C, within the overall limit of Rs 1.50 lakh. Interest on the
Scheme has been revised downwards to 8.5% (w.e.f. 1-10-2016). At present, theres a spread of 75
bps from the G-Sec yield.
Deposits in an account can be made till completion of 14 years, from the date of opening of the
account. The account shall mature on completion of 21 years from the date of opening of the account,
provided that where the marriage of the account holder takes place before completion of such period
of 21 years, the operation of the account shall not be permitted beyond the date of her marriage.
When the child turns 18, you can withdraw 50% of the balance lying in the account as at the end of
previous financial year for the purpose of higher education or marriage. SSS is a good investment
option. However, along with SSS, you must also invest in other investment instruments depending
upon your risk appetite and time horizon.
Options Galore - Snapshot of Section 80C

Min Max Premature Current Tax on
Schemes Interest Rate Tenure Investment Withdrawal returns
Tax planning with market-linked instruments

Varies from scheme Dividend &
Term: Ongoing; Withdrawal
Equity Linked Savings Market-Linked to scheme. Can range Capital gains
Lock-in-period: 3 allowed post
Scheme (ELSS) Returns from Rs 500 - No are tax free
years lock-in
upper Limit
Capital gains
post lock-in are
tax free
Term: 10 - 20
+
Unit Linked Insurance Plans Market-Linked years; Premium varies from
Yes maturity
(ULIPs) Returns Lock-in-period: 5 scheme to scheme
amount would
years
be tax-free
(exempt) as per
Section 10(10D)
Rs 500 per month or Capital gains
National Pension System Market-Linked
30-35 years Rs 6,000 per annum, Yes taxed on
(NPS) Returns
no upper limit withdrawal
Tax planning the "assured return" way
8.0% p.a.# Interest income
Public Provident Fund (compounded 15 years^ Rs 500 - Rs 1. 5 lakh Yes* is tax free
annually)
8.50% p.a.
Interest income
Sukanya Samriddhi Scheme (compounded 21 years Rs 1,000 - Rs 1. 5 lakh Yes*
is tax free
annually)
8.0% for 5 yr deposit#
Rs 100 - No upper
National Savings Certificate ( compounded 5 years No
Limit
annually)
Bank Deposits 7.25% - 8.00% 5 years No upper Limit No Interest

accrued
5-Yr: 7.8%; is taxed every
(compounded Rs 200 - No upper year as per
Post Office Time Deposit 5 years Yes*
quarterly & paid Limit ones income-
annually) tax slab
8.5% p.a.
Senior Citizens Savings (compounded
5 years Rs 1,000 - Rs 15 lakh Yes*
Schemes quarterly payable
quarterly)
Premium depends Redemption
Sum Assured Only Varies from
Non-ULIP Insurance Plans 5-40 years upon the insurance amount is tax
(i.e. Insurance Cover) policy to policy
cover free
All information is as of November 25, 2016
* Partial withdrawals allowed subject to conditions; ^can be extended in tranches of 5 years; #Interest rates would be re-set every quarter.
7. Tuition fees paid for childrens education (maximum 2 children):
The tuition fees that you pay to any university, college, school or other educational institution
situated within India for your childrens education is also eligible for deduction under Section 80C.
However the fees paid towards any coaching centre or private tuition may not be eligible. Also you
need to note that this deduction is available only to individual assessee and not for HUF, and is limited
to Rs 1.50 lakh for a maximum of 2 children. If someone has four children, then the husband and wife
both can enjoy a separate limit of two children each, so they can separately claim deduction (up to Rs
1.50 lakh) for 2 children each, subject to the amount they have actually paid.
8. Principal repayment on Housing Loan:
You always wanted to have your dream home and now you have been able to get it with the help of a
housing loan from a bank or a financial institution. But after you have got your home through this
loan, you have the obligation to repay the principal amount of the loan on time. The repayment of
principal amount, makes you eligible to claim a deduction upto a sum of Rs 1.50 lakh under Section
80C; and that benefit is available with you irrespective whether you stay in the same property (Self
Occupied Property - SOP), or have let it out on rent (Let Out Property LOP). You can also claim tax
benefit on the interest you pay on your housing loan, but under a separate section (Section 24 which
is covered in detail at the later stage in the guide)
In case you have taken a second home loan for another property, then the principal amount repaid
(up to Rs 1.50 lakh) for the home loan taken only on your self-occupied property qualifies for
deduction under Section 80C. You cannot claim deduction for the principal repayment made against
the home loan on the other property.
V - Thinking beyond Section 80C
Well, most people think that tax planning ends with Section 80C; but please note that theres more to
tax planning than just investment instruments specified under Section 80C. Our Income Tax Act, 1961
also considers the humane side of our life and also gives deduction for such expenditure. So, in case if
you pay your medical insurance premium, incur expenditure on the medical treatment of a
dependant handicapped, donate to specified funds for specified causes, contribute in monetary
form to political parties or electoral trusts, take a loan for pursuing higher education, or if you are an
individual suffering from specified diseases; then all this too can help you effectively plan your tax
obligations, thereby optimally reduce your tax liability.
So, lets understand how each of the above expenses for a cause or an investment, can help you
effectively in tax planning. Herein below is the list of some major ones.
1. Premium paid for medical insurance (Section 80D):
The premium paid by Individual or HUF on medical insurance policy (commonly referred to as a
Mediclaim policy) to cover your spouse and you, dependent children and parents against any
unexpected medical expenses, qualifies for a deduction under Section 80D. Even HUFs can avail a tax
benefit under this Section, by paying premium for the benefit of any member of the HUF.
The Union Budget 2015-16 has increased the maximum amount allowed annually as a deduction
(from your GTI) to Rs 25,000 (from Rs 15,000 earlier), in case you are non-senior citizen paying self,
spouse and dependent children. For senior citizens too, the maximum deduction has been increased
to Rs 30,000 (from Rs 25,000 earlier).
So, if you pay medical insurance premium for your parents (irrespective of whether they are
dependent on you or not), you can claim an additional deduction of upto Rs 30,000 in case parents
are senior citizens or Rs 25,000 in other cases under this section. So, for example, if you pay a
premium of Rs 15,000 for yourself and Rs 20,000 for your parents, you will be eligible for a total
deduction of Rs 35,000 only, assuming your parents are not senior citizens.
However, while paying the premium you need to ensure that the payment is made in any mode other
than cash.
Within the limit of Rs 25,000 (and Rs 30,000 in case of senior citizens), the deduction of Rs 5,000 is
allowed for your expenses towards preventive health check-ups. This means if you are paying a
premium of less than Rs 10,000; you may avail this benefit and save tax.
If you are super senior citizens, who may not be covered by health insurance, the Union Budget 2015-
16 has allowed a deduction of Rs 30,000 towards expenditure incurred on your medical treatment.
2. Maintenance including medical treatment of a handicapped dependent (Section 80DD):
If you have incurred any expenditure in the form of medical treatment (including nursing), training
and rehabilitation for a handicapped dependent suffering from disability, then the expenditure so
incurred by you qualifies for deduction under Section 80DD of the Income Tax Act. Similarly, if you
have deposited a sum of money under any scheme framed in this behalf by LIC (Life Insurance
Corporation of India) or any other insurer or administrator or a specified company (approved by the
Board), for maintenance of the dependent being a person with disability; also qualifies for a
deduction under Section 80DD.
The quantum of deduction here depends upon the severity of the disability suffered by the
dependent. Hence, if the dependent is suffering from 40% of any disability [Specified under
section 2(i) of the Person with Disability (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1955], then you would be entitle to a deduction of a fixed sum of Rs 75,000 p.a.
from your GTI irrespective of the expenditure incurred or amount deposited (Earlier this limit was Rs
50,000, which was increased by Rs 25,000 in the Union Budget 2015-16). Similarly, if the dependent
is suffering from severe disability (i.e. 80% of any disability), then you claim a higher deduction of
fixed sum of Rs 1.25 lakh, from your GTI irrespective of the expenditure incurred or amount deposited
(This limit was earlier Rs 1 lakh, which was increased by Rs 25,000 in the Union Budget 2015-16).
It is noteworthy that over here, the term dependent means a person with disability and in case of
individuals it is spouse, children, parents, brothers and sisters; while in case of HUF means a member
of the HUF. Moreover, in order to claim the deduction you need to submit a medical certificate issued
by a medical authority along with your return of income. Also, if you are claiming a deduction in your
tax returns for such an expenditure incurred or amount deposited, your dependent cannot claim a
deduction under Section 80U in case hes (handicapped dependent) filing his tax returns separately.
3. Expenditure incurred on your medical treatment (Section 80DDB):
If you have incurred expenditure on your medical treatment of specified diseases (mentioned below)
or for your dependents, then too the expenditure so incurred, makes you eligible for deduction
under Section 80DDB of the Income Tax Act.
Specified disabilities:
Neurological Diseases (where the disability level has been certified as 40% or more).
Parkinsons Disease
Malignant Cancers
Acquired Immune Deficiency Syndrome (AIDS)
Chronic Renal failure
Hemophilia
Thalassaemia
The deduction from your GTI, which you are entitled to, is Rs 40,000 or the amount actually paid,
whichever is lower. And if you are a senior citizen, then you are eligible for a deduction of Rs 60,000
or the amount actually paid, whichever is lower. But those with age 80 and above, classified as super
senior citizens, are eligible for deduction of Rs 80,000 by the virtue of benevolence extended in one of
the previous Union Budget.
It is noteworthy that over here the term dependent means wholly or mainly dependent spouse,
children, parents, brothers and sisters in case of individuals, while in case of HUF the members of the
family. Also, in order to claim a deduction under this section, you are required to submit a medical
certificate / prescription from a specialist doctor (neurologist, oncologist, urologist, haematologist,
immunologist, or any other specialist).
4. Repayment of loan taken for pursuing higher education (Section 80E):
While pursuing a personal goal of enrolling for higher education in order to be competitive enough
to meet your financial goals; the Income Tax Act offers you deduction (from your GTI) on the interest
paid, when you take a loan to fulfil such dreams.
You can even take an education loan for your spouse or childrens education or for any person (minor)
for whom you are the legal guardian. But that makes you eligible for deduction under Section 80E of
the Income Tax Act, to the extent of the interest paid on such a loan taken. It is noteworthy that HUFs
are not allowed to claim deduction under section 80E in respect of interest paid on loan taken for
higher education.
The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. So,
to simplify it further, the deduction is available from the year in which you start paying the interest on
the loan, and the seven immediately succeeding financial years or until the interest is paid in full,
whichever is earlier.
Here the term higher education means full-time studies for any graduate or post-graduate course in
engineering (including technology / architecture), medicine, management or for post-graduate
courses in applied science or pure science including mathematics and statistics. But from the Finance
Act of 2011 its scope is extended to cover all fields of studies (including vocational studies) pursued
after passing the Senior Secondary Examination or its equivalent from any school, board or university
recognised by the Central or the State Government or local authority or any other authority
authorised by the Central or the State Government or local authority to do so. However, no deduction
is available for part-time courses.
It is vital to note that deduction can be claimed only if the loan has been taken from a bank, approved
financial institution or an approved charitable institution.
5. Donations to certain funds and charitable institutions (Section 80G):
As mentioned earlier that our Income Tax Act considers the humane side of our life, and so if on
humanitarian grounds you donate to certain specified funds, charitable institutions, approved
educational institutions etc., the donation amount qualifies for deduction under this Section.
The deductions allowed can be 50% or 100% of the donation, subject to the limits stated under the
provision of this Section. For example, donations to National Defence Fund set up by the Central
Government are allowed 100% deduction, while for Prime Minister Drought Relief Fund are allowed
at 50%. If you make donations to any of the host of notified funds and / or charitable institutions, you
are eligible for deduction under Section 80G.
Funds / Charitable Institutions Amount Deductible

National Defence Fund 100%
Prime Ministers National Relief Fund 100%
Prime Ministers Armenia Earthquake Relief Fund 100%
Africa (Public Contributions India) Fund 100%
National Foundation for Communal Harmony 100%
Approved university / educational institution 100%
Chief Ministers Earthquake Relief Fund 100%
Swachch Bharat Kosh 100%
Clean Ganga Fund (for resident individuals only) 100%
National Fund for Control of Drug Abuse 100%
National Childrens Fund 100%
Jawaharlal Nehru Memorial Fund 50%
Prime Ministers Drought Relief Fund 50%
Indira Gandhi Memorial Trust 50%
Rajiv Gandhi Foundation 50%
Note: This is not an exhaustive list and there are other funds and charitable institutions that are eligible for deduction under Section 80G.
In order to claim deduction under this section, you are required to attach a proof of payment along
with your return of income.
6. Rent paid in respect to property occupied for residential use (Section 80GG):
If you are a self-employed or a salaried individual who is not in receipt of any House Rent Allowance
(HRA), and is paying a rent for an accommodation (irrespective of whether furnished or unfurnished)
occupied for residential use, then you can claim a deduction under this section.
But as a pre-condition for availing deduction under this section,
- You must pay rent for the house you live in, and should not get HRA for even a part of the year
- You should not own and occupy any other house anywhere
- You or your spouse or your minor child (which includes step child and adopted child) or Hindu
Undivided Family (if you are part of one) must not own any residential accommodation in the
city you reside or work in.
And the deduction which will be available to you under this section is the least of:
25% of your total income or,
Rs 5,000 per month or,
Rent paid in excess of 10% of your total income
To claim deduction under section 80GG, you need to file a declaration in Form No. 10BA
7. Contributions made to any political parties or electoral trust (Section 80GGC):
Say, if you are an ardent follower of any political party or electoral trust as you appreciate the work
done by them, and therefore decide to make a monetary contribution to the party or electoral trust;
the amount so contributed would be eligible for a deduction under this section.
8. Specified disability(s) (Section 80U):
As said earlier, that our Income Tax Act, 1961 considers the humane side of life. So if you as an
individual resident in India is suffering from any specified disability i.e. if you are suffering 40% or
more than 40% of any of the below specified diseases, then you would be eligible for deduction under
this section.
Specified disabilities:
Blindness
Low vision
Leprosy-cured
Hearing impairment
Locomotor disability
Mental retardation
Mental illness
The deduction available under this section is flat (i.e. fixed) Rs 75,000, immaterial of the expenditure
incurred. But if the disability is severe in nature (i.e. 80% or above), one is entitled to flat (i.e. fixed)
deduction of Rs 1.25 lakh.
9. Rajiv Gandhi Equity Savings Scheme (RGESS) (Section 80CCG):
Rajiv Gandhi Equity Savings Scheme (or RGESS) was introduced in the Finance Act, 2012. The
deduction for investment in RGESS is available only to a new retail investor who complies with the
conditions that his/ her gross total income for the financial year (in which the investment is made
under RGESS) is less than Rs 12 lakh.
Under this Section new retail investors is defined as any resident Individual who has not opened a
demat account. The maximum investment permissible for claiming deduction under RGESS is Rs
50,000 and the new retail investor would get a 50% deduction of the amount invested from the
taxable income for that year u/s 80CCG. Investments are to be made directly in eligible listed equity or
Follow-on Public Offers (FPOs) of such listed equity, or into units of mutual funds and ETFs.
The total lock-in period for investments under the RGESS would be divided into fixed lock-in period
and flexible lock-in period. The initial period of lock-in shall be known as Fixed Lock-in Period, which
shall commence from the date of purchase of such securities in the relevant financial year and end on
the 31st day of March of the year immediately following the relevant financial year.
The new retail investors are not be permitted to sell, pledge or hypothecate any eligible security
during this fixed lock-in period. The period of two years beginning immediately after the end of the
fixed lock-in period is called the flexible lock-in period. Upon completion of the fixed lock-in period,
new retail investors would be allowed to trade in the eligible securities.
However, investors would be required to maintain their level of investment during the next two years
(i.e. the flexible lock-in period) at the amount for which they have claimed income tax benefit or at
the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in
each of these 2 years. Such investment value shall exclude the value of investment which is under the
fixed lock-in period. It is noteworthy that only individuals can avail tax deduction under section
80CCG. HUFs and others are not eligible for any tax deduction under section 80CCG.
10. Deduction for interest on savings bank account (Section 80TTA):
This Section allows individuals and HUF to avail a deduction for interest earned on a savings account
(with a bank, co-operative society and post office) to the extent actual interest or Rs 10,000,
whichever is lower. Thus, the interest income earned from a saving account over Rs 10,000 will be
subject to tax as per your tax slab. The benefit of this section cannot be applied on interest earned on
a term deposits (also known as fixed deposits).
Options Galore - Snapshot of deduction under other 80s

Section Quick Description of Deduction
Key investment instruments eligible for deduction under this Section include Equity Linked Savings Scheme
(ELSS), Public Provident Fund (PPF), EPF (Employee Provident Fund), NSC (National Saving Certificate), Senior
80C*
Citizen Savings Scheme (SCSS), 5-year tax saving bank fixed deposits, 5-year Post Office Time Deposit (POTD) ,
premium paid for life insurance plans, housing loan principal repayment, etc.
80CCC* Contribution to Pension Fund of Life Insurance Corporation or any other insurer referred in section 10(23AAB).
Contribution to Pension Scheme (National Pension Scheme) notified by Central Government. Additional
80CCD* deduction of up to Rs.50,000 is allowed for contribution towards NPS which is over and above the limit of Rs
1.5 lakh under section 80 CCD(1B).
80CCG Rajiv Gandhi Equity Savings Scheme (RGESS)
80D Premium paid for medical insurance
80DD Maintenance including medical treatment of a handicapped dependent who is a person with disability
80DDB Expenditure incurred in respect of medical treatment
80E Interest on loan taken for pursuing higher education
80G Donations to certain funds and charitable institutions
80GG Rent paid in respect of property occupied for residential use
80GGA Certain donations for scientific research or rural development
80GGC Contribution made to any political parties or electoral trust
80TTA Deduction in respect of interest earned on savings bank deposits
80U Person suffering from specified disability(s)
*The deduction limit is upto Rs.1.5 lakh aggregated across section 80C, 80CCC, 80CCD
Note: The list is not exhaustive, but only indicative
VI How your home loan can help in tax planning
While all of us have a dream of buying a dream home or constructing or reconstructing or repairing
our homes, its also important to consider the tax angle when we decide to do any of these activities.
For some of us, the amount of wealth we have created allows buying or constructing or reconstructing
or repairing or renewing homes from our own funds - i.e. without opting for a home loan; but again
doing so precludes you to avail of the tax benefits, which are attached if one takes a loan for such
activities.
Just to reiterate, please dont rule out the financial planning aspect of number of years left with you
for repayment of your home loan.
Yes, our Income Tax Act, 1961 too considers our desire to buy or construct or reconstruct or repair or
renew our dream home and gets a little benevolent, if one avails of a loan to fulfil these desires for
ones dream home. The Act encourages you to buy, to do the aforementioned activities (for your
home) with a loan, as it provides you with tax benefits (that come along with it). Both, repayment of
principal amount and payment of interest are eligible for tax benefit.
As we know that the repayment of principal amount, makes you eligible to claim a deduction upto a
sum of Rs 1.50 lakh under Section 80C; and that benefit is available irrespective whether you stay in
the same property (Self Occupied Property - SOP), or have let it out on rent (Let Out Property - LOP).
In union budget 2016, the Government reintroduced Section 80EE (which was initially introduced
effective 2013-14 and was applicable for only 2 assessment years, 2014-15 and 2015-16) for first time
home buyer to avail an additional tax benefit of Rs 50,000, after satisfying certain conditions which
are:
- Value of the property is Rs 50 lakh or less
- Loan taken for this house is Rs 35 lakh or less
- Loan has been sanctioned by a financial institution or a housing finance company
- Loan has been sanctioned between 01-04-2016 and 31-03-2017
- As on the date of the sanction of the loan no other house is owned by you
But the additional tax benefit exemption can be availed after first exhausting limit under Section 24(b)
for the interest portion.
The payment of interest amount (for the loan amount availed) is available for deduction under Section
24(b). In the first full budget of the Modi-led-NDA Government announced in July 2014, the deduction
limit on interest payment of a home loan on a self-occupied property was increased from Rs 1.50 lakh
to Rs 2.00 lakh. If you as first time home buyer a satisfy conditions as mentioned above for Section
80EE, the maximum sum you can avail for interest deduction under Section 24(b) is Rs 2.00 lakh for
SOP, plus an additional tax benefit of Rs 50,000 under Section 80EE. But if the house purchased on a
loan does not satisfy the conditions mentioned to enjoy additional tax benefit under Section 80EE,
you cant claim the additional benefit under Section 80EE.
In case of let out the property on rent (LOP), the actual interest payable is eligible for deduction under
Section 24(b), thereby not being subject to any maximum limit. This applies even in the case where
you have two home loans for two different properties, where one is self-occupied and the other is let
out on rent.
Similarly, if you have taken a loan for the purpose of reconstructing, repairing or renewing the
property, the amount of deduction under Section 24(b) you are eligible for will be restricted to Rs
30,000, irrespective whether you want to stay in it or let it out on rent.
Lets understand with an example how a home loan taken for buying your dream home to stay in it
(SOP) can reduce the total tax payable by you.
Lets assume you earn Rs 6.5 lakh p.a. by way of salary and have taken a home loan of Rs 40 lakh on
01-02-2016 for buying your dream home and you have decided to stay in it. The home loan is for
tenure of 20 years and the rate of interest is 9.0% p.a., the Equated Monthly Installments (EMI) you
need to pay is Rs 35,989.
Tax savings on account of home loan
Gross Annual Salary (Rs) 6,50,000
Loan Amount (Rs) 40,00,000
Tenure (yrs.) 20
Rate of Interest p.a.( % ) 9.0
EMI (Rs) 35,989
Annual Interest Paid (Rs) 3,56,960
Principal paid in the 1st year (Rs) 74,908
Contributions towards tax-efficient

instruments (Rs) 1,50,000
Tax paid without availing home loan benefits

(Rs) 25,750*
Tax paid after availing home loan benefits

(Rs) 5,150*
Tax Savings (Rs) 20,600*

(*tax calculated after giving effect for education cess)
The above table clearly shows the benefit of availing a housing loan if you are contemplating buying a
house. The total tax payable on your income without a home loan works out to Rs 25,750; while after
availing a home loan works out to Rs 5,150, thereby saving you a tax outgo of Rs 20,600.
Maximise your tax benefits
Now, lets delve deeper into the benefits available. Say, your interest amount in the first year is Rs
3.57 lakh which is much more than the maximum amount (of Rs 2.00 lakh) allowed as a deduction.
Your principal repayment amount of Rs 74,908 is within the Rs 1.50 lakh limit allowed under Section
80C. But, it takes away almost half of the amount eligible under Section 80C and leaves you with - Rs
75,092- to claim towards other tax saving instruments such as PPF, NSC, Life Insurance, ELSS, POTDs.
Now consider, you have invested in the following manner under Section 80C.
Particulars Amt. ( Rs)

Principal Repayment 74,908
Life Insurance 50,000
PPF 60,000
EPF 20,000
NSC 20,000
Total 224,908
Claim deductions
under Section 80 C 150,000
Contributed but can't
claim tax benefit 74,908
The amount eligible is more than what you can claim. Yes, you have an option of not investing in PPF,
POTDs or NSC but these are assured return schemes. And as said earlier your portfolio should always
comprise of a mix of assured return and market-linked return instruments, in a composition which is
in accordance to your financial goals and willingness to take risk. Hence, ignoring these investment
avenues may not be prudent from financial planning perspective.
So, now the next question is how do you claim maximum available deductions to minimise your tax
liability? The answer lies in taking a joint home loan. A joint home loan can be taken with your spouse
or relative.
Lets understand with an example how a joint home loan with your spouse can help reduce your tax
liability.
Assume your spouse and you decide to take a joint home loan of the same amount as mentioned
above and share the loan in ratio of 50:50.
Particulars You Your Spouse

Gross Salary (Rs) 650,000 650,000
Home Loan Amount (Rs) 4,000,000
Tenure (yrs) 20
Rate of Interest p.a. 9.0%
EMI (Rs) 35,989
Annual Interest Paid (Rs) 178,480 178,480
Principal paid in the 1st year (Rs) 37,454 37,454
Life Insurance (Rs) 50,000 50,000
Other contributions towards tax-efficient instruments (Rs) 1,00,000 1,00,000
Total amount contributed under section 80C & 24(b) (Rs) 3,65,934 3,65,934
Amount which cannot be claimed to reduce tax liability (Rs) 37,454 37,454
Tax Paid when: (Rs)
1. No home loan benefit availed 25,750 25,750
2. Single home loan benefit availed 5,150 25,750
3. Joint home loan benefit availed 7,367 7,367
Total Household Tax Savings (Single Home Loan) (Rs) 20,600
Total Household Tax Savings (Joint Home Loan) (Rs) 36,767

Note:* calculations are done assuming that home loan and the EMI paid by the assessee and the spouse are in the ratio 50:50
Now since your spouse is a co-owner and has contributed towards repayment of the loan she too
would be eligible for the tax benefit (for both principal and interest component).
So, as indicated in the table above, if the principal and interest amount is shared equally between
your spouse and you, the contribution per person comes to Rs 37,454 for principal repayment and Rs
1.78 lakh for interest payment. The principal amount is now half of what was earlier which allows you
to claim deductions towards other contributions. At the same time it reduces the tax liability to a
significant extent and leads to a household saving of upto Rs 36,767. As compared to a Single home
loan, a Joint home loan leads to an additional household saving of Rs 16,167.
From the tax planning point of view, it is vital to ensure that the higher earning member pays higher
portion of the home loan EMI. This is because the tax benefit accrues in proportion to your
contribution towards loan repayment.
So, remember if you plan to buy a house, it makes sense to include your spouse as a co-owner;
especially if your spouses income is taxable. This will result in higher tax saving in addition to boosting
your loan eligibility.
VII - House Property and taxes
After showing benevolent side by providing you with the tax benefit, for availing a home loan (to buy
or construct or reconstruct or repair or renew), the Income Tax Act then eyes the house property*
owned by you for taxing the same. And this applies especially when you have an income from let out
property, or in case where you have more than one property which arent let out on rent, but which
are vacant (known as Deemed to be Let Out Property DLOP).
*Owning a farm house, which forms a part of your agriculture income, is not brought under the tax net.
Now you may ask How can the income tax authority tax me, if I have not let out my property on
rent?
Well, thats because annual value of your property after providing for deduction available under
Section 24(b) is taxed under the head Income from House Property. A noteworthy point is, term
house property includes building(s) or land appurtenant (i.e. attached) thereto as well.
And now the next question which may be popping on your mind is What is annual value of the
property and which deductions are available?
Annual Value:
To understand that better let us take a case where you have let out the property (LOP) and then
DLOP.
Let Out Property (LOP)
In cases where you are enjoying a regular income from the property in the form of rent, then the
annual value of your property would be calculated by adopting the following steps:
a) Find out the reasonable expected rent of the property (which is municipal rent or fair rent,
whichever is higher)
b) Consider the rent actually received / receivable*
c) Take whichever is higher from a) and b)
d) Calculate loss due to vacancy (i.e. in case if the property is vacant for period(s) during the
financial year)
e) The difference between step c) and step d), will be your annual value which is here
referred to as the Gross Annual Value (GAV)
Now when we go one step further and minus the municipal taxes paid by you (on the property) from
step e) youll arrive at the Net Annual Value of your property. But to avail the deduction for
municipal taxes; they have to be paid by the landlord only.
*Note: Rent earned by you from the property is calculated after subtracting any unrealised rent from the tenant (i.e. in
case if he defaults to pay)
Deemed to be Let Out Property (DLOP)
In case you own more than one house, and the other house(s) apart from the one where you are
staying is vacant throughout the month, then the other house property(s) would be considered as a
Deemed to be Let Out Property(s) - DLOPs. Moreover, you would be liable to pay tax on such
property(s) after having calculated the Gross Annual Value (GAV), which will be calculated in the same
way as for LOP. But the only difference being that, here rent would be the standard rent calculated as
per the municipal laws.
Thereafter, if you as the landlord are paying any municipal taxes towards these properties, then those
would be subtracted to obtain the Net Annual Value (NAV).
Remember, over here in case you have multiple DLOPs, you have an option to consider one of
property as a SOP and the rest would be considered as DLOPs under the present Income Tax law. So,
say you have 4 such DLOPs then you should ideally select the property with the highest GAV as a SOP
property, as the remaining properties available with you will have a lower GAV. Having said that, it
would prudent to weigh the pros and cons by undertaking a comparative analysis to optimize your tax
planning exercise.
Self-Occupied Property
You need not worry here if you are occupying the property throughout the financial year for your stay
(i.e. residential use) as the NAV of the property will be considered as Nil.
However, if you are occupying the property for some part of the year and the rest of the year you
have earned an income by letting it out, then proportionately for the rest of the year when the
property was let out, the calculation of annual value would be applicable as that of LOP.
Deductions:
After having calculated the Net Annual Value (NAV) as seen above, you are eligible to claim
deductions under Section 24, which further reduces your taxability under this head of income. You
broadly get the following deductions:
Standard Deduction [Section 24(a)]
Owning a home and maintaining the same costs you money. But irrespective of the fact whether you
have incurred any expenditure or not to do so, you will be eligible to claim a flat deduction of 30%
calculated on the NAV of the property. And this deduction is of specific use if ones property is LOP
and / or DLOP. In case if the property is SOP, you are not eligible to claim any deduction as the NAV of
your SOP is Nil.
Interest on borrowed capital [Section 24(b)]
As reiterated above (in the home loan section), if one wisely takes a home loan for buying a house
property then the interest so paid on the borrowed capital will make you eligible for deduction under
Section 24(b), irrespective whether the house property is SOP, LOP or DLOP.
In case of SOP the income from house property will be negative income, (if interest is paid on capital
borrowed by you to buy or construct or reconstruct or renew or repair the house), which will enable
you to reduce your overall Gross Total Income (GTI). In case of other properties i.e., LOP and DLOP
the income from house property will be positive, but would be reduced to the extent of standard
deduction and interest paid.
The quantum of deduction depends upon the purpose for which you take a loan i.e. purchase,
construction, reconstruction, repair or renewals, and also the type of property i.e. SOP, LOP or
DLOP.
Hence, in case you have taken a loan for the purpose of purchase or acquisition of the house which is
an SOP, then you will be eligible for a maximum deduction of a sum of Rs 2.00 lakh. But if the loan is
taken for the purpose of repair, renewal, or reconstruction, then the eligible deduction is restricted
to Rs 30,000.
Now if the property is LOP or DLOP, you do not have any maximum restriction for claiming interest
so it can be above the otherwise limit of Rs 2.00 lakh, irrespective of the usage i.e. whether for the
purpose of purchase, construction, reconstruction, repair or renewals.
Remember, while everyone buys house property(s), it is important to avail the benefits under the
Income Tax Act, wisely as this would enable in optimally saving your tax liability, and of course enjoy
the fruits of your investment made too and / or enjoy the comfort of your dream house.
VIII How to save tax on your salary
While many of you in employment take enormous efforts to earn a salary, it is also equally important
in our opinion that you restructure your salary well, in order to save tax on your hard earned salary.
And mind you, if you do so youll have a greater Net Take Home (NTH) pay, which will allow you to
streamline your finances well and also, help you buy physical assets such as your dream house and a
dream car.
It is important that one looks at the various components of salary in order to avail tax benefits on the
same. The vital component of salary, where restructuring may be required is as under:
Basic Salary:
While this is the base of your head of income income from salary, it is important that you have
your basic salary set right. This is because the basic salary constitutes 30% 40% of your Cost-to-
Company (CTC). So, having a very high basic component may lead to having a high tax liability in
absolute Indian rupee terms. On the other hand, if you reduce your basic salary considerably, you
would lose out on the other benefits such as Leave Travel Allowance (LTA), House Rent Allowance
(HRA) and superannuation benefits associated with your basic.
House Rent Allowance (HRA):
If you are paying rent for an accommodation, and if your organisation extends you HRA benefits, then
this is another vital component which can help you to reduce your tax liability. But it should be noted
that you cannot pay rent for the house which you own and if you are residing in it.
Hence, now on the other hand if you are staying in a rented house and you are the one paying the
rent, then HRA exemption [under Section 10(13A)] can be availed for the period during which you
occupy the rented house during the financial year.
However in order to obtain an exemption, you are required to submit appropriate and adequate proof
of payment of rent for the entire period for which you want to claim exemption. But, if you as an
employee are getting an HRA of less than Rs 3,000 per month, you are not required to provide a rent
receipt to your employer.
Also you need to note an important change in HRA rules introduced in FY 2013-14. As per the circular
issued by the Central Board of Direct Taxes (CBDT) in October 2013, if you are paying an annual rent of
more than Rs 1.00 Lakh or Rs 8,333 per month, then you will have to report the Permanent Account
Number (PAN) of your landlord to the employer (Earlier you had to furnish a copy of the PAN card of
your landlord only if your annual rent exceeded Rs 1.80 lakh, or Rs 15,000 per month). If your landlord
does not have a PAN then you need to file a declaration to this effect from your landlord along with
the name and address of the landlord.
The maximum exemption which you can enjoy for HRA is as under:
In Chennai/ Delhi/ Kolkata/ Mumbai In other cities

Least of: Least of:
Actual HRA Actual HRA
Rent paid in excess of 10% of salary* Rent paid in excess of 10% of salary*
50% of salary* 40% of salary*
*Salary for this purpose includes basic salary + dearness allowance (if in terms of service)
Here a noteworthy point is, if your rent is very high and if you are not fully covered by the HRA limit,
then it would be wise to pick a company leased accommodation (if the company in which you work in
offers so), as this company leased accommodation would constitute to be the perk value and would
be taxed @ 15% of your gross income. Sure, the perk value is taxable but it still works out to be more
effective for tax planning, than opting for a HRA that doesnt fully cover your rent.
Leave Travel Concession (LTC):
While you may be fond of opting for a leave and travel with your family for a holiday, dont forget to
assess what tax benefits are extended to you for doing so. The Income Tax Act provides you tax
concession if you have actually incurred expenditure on your travel fare anywhere in India, either
alone or along with your family members (i.e. your spouse, children, parents, brothers and sisters who
are mainly or wholly dependent on you). But such exemption is limited to the extent of actual
expenses incurred i.e. you can claim exemption on the LTC amount OR the actual amount incurred,
whichever is lower.
Also the exemption extended to you under the Act is for two journeys performed in a block of four
calendar years. And the current block of four calendar years is from 2014 to 2017 (i.e. from January 1,
2014 to December 31, 2017); the next block will be from 2018 to 2021 (i.e. from January 1, 2018 to
December 31, 2021).
As per the present Income Tax Rule, the exemption would be available to you in the following
manner:
Particulars Amount exempt

Amount of "economy class" airfare of the national carrier by the
Where the journey is performed by air shortest route to the place of destination or amount actually
spent, whichever is less.
Amount of air-conditioned first class rail fare by the shortest
Where the journey is performed by rail route to the place of destination or amount actually spent,
whichever is less.
Where the places of origin of journey and destination are connected
Air-conditioned first class rail fare by the shortest route to the
by rail and journey is performed by any mode of transport other
place of destination or amount actually spent, whichever is less.
than air.
Where the place of origin of journey and destination (or part
thereof) are not connected by rail
First class or deluxe class fare by the shortest route or the
> Where a recognised public transport exists
amount spent, whichever is less.
Air-conditioned first class rail fare by the shortest route (as if
> Where no recognised public transport system exists the journey is performed by rail) or the amount actually spent,
whichever is less.
In case you do not avail of a LTC or if you travel just once in the four calendar year of the block period
(2014-2017), then you will be allowed to carry-over the concession to the first calendar year (2018) of
the next block 2018-2021, but for only one journey. In addition to this, you will be eligible to travel
two more times in the next block.
It is vital that you utilise your leaves wisely and travel to any of your loved holiday destination in India,
as this will not only de-stress you, but also help you in reducing your tax liability. After you have
returned from your journey, please do not tear your travel tickets / boarding pass (for air travel) as
you need to submit them to your employer so that your tax liability can be reduced.
Education and Hostel allowance:
If you are married with kids, and if your employer is providing with education allowance, then do not
refrain from availing it, as this can again help you in reduction of your tax liability. The exemption
extended to you under the Income Tax Act is Rs 100 per month for a maximum of two children (i.e. in
other words Rs 2,400 p.a. totally). Similarly, if your children are staying in a hostel then a maximum of
Rs 300 per month per child but subject to a maximum of two children will be available to you as an
exemption (i.e. Rs 7,200 per annum).
Meal Allowance through Food Coupons / Food Cards:
While you may be tempted to increase your NTH (in the cash form) you should not ignore to avail the
food coupon / food card benefit, if your employer provides one. This is because, effective utilization of
the same will enable you to effectively reduce your tax liability along with getting the feeling of being
pampered by your employer.
The exemption amount which you can enjoy is Rs 50 per meal available only in respect of meals
during office hours. However, the exemption is also available in case your employer provides you food
vouchers / cards of value of which can be used at eating joints. The exemption limit in this case is
restricted to Rs 2,500 per month for a food voucher / card value. So remember, if your employer is
providing you food coupon / card dont refrain from availing the same for a maximum voucher value
of Rs 2,500 every month.
Medical reimbursement:
During the year if you and / or your family members have visited a doctor or bought medicines from a
chemist, all the expenditure incurred by you and / or your family members during the year for medical
purpose too would help you in reducing your tax liability.
As per the Income Tax Act, the maximum amount of deduction available with you is Rs 15,000 for
every financial year, and to claim the same you are required to submit, to your employer, the medical
bills for the financial year stating the amount in total which you intend to claim.
Similarly, it is noteworthy that if your medical insurance premium is paid by the employer or
reimbursed, then that too will not be subject to tax. Also if your employer is providing medical facility
in hospital or clinic owned by him, local authority, Central Government or State Government, medical
expenditure incurred under such a hospital too would not be subject to any tax.
So, next time when you get your pay cheques in hand please evaluate the aforementioned points, and
assess whether every component in your salary is structured well and to do so you can certainly talk
to your Human Resource (HR) department, as they too may help you on this.
IX - Tax implication of investing in mutual funds
As discussed earlier in this guide, if you make any long term gains at the time of exit (any time after
the end of the lock-in period) from your ELSS holdings, you would not be liable to pay Long Term
Capital Gains Tax (LTCG).
When it comes to tax implications for other mutual fund holdings, it established upon whether you
hold equity oriented funds or non-equity oriented funds. Equity oriented funds are those in which
65% of the investible corpus in invested in Indian equities, while non-equity funds are those which
invest less than 65% in Indian equities these include debt funds (such as income funds, liquid funds,
gilt funds, floating rate funds, Fixed Maturity Plans (FMPs), Monthly income Plans, (MIPs), Gold ETFs
and so on.
How are gains / dividends from mutual fund holdings taxed?

Tax implication Equity oriented funds Non-equity oriented funds
In case of other Non-Residents:
For listed securities- 20 percent**

(with indexation)
For unlisted securities - 10
Long Term Capital Gain (LTCG)* Nil percent**(without indexation),
In case of Residents:
10%** without indexation
20%** with indexation
(whichever is beneficial, should be
opted)
Short Term Capital Gain (STCG)* 15%** Gains are added to total income and
taxed as per ones tax slab
Fund house pays DDT but dividends
Tax implication of dividends received Nil received are tax free in the hands of
the investor
*In case of Equity oriented funds, the holding period over 1 year is Long Term for LTCG tax, while equal to or less than 1 year is Short Term for STCG
tax.
** Plus surcharge and education cess as may be applicable.
As can be seen in the table above, for equity oriented funds, while the tax implication for long term
capital gains (LTCG) and dividends for individuals are nil, Short Term Capital Gains (STCG) are taxed at
15%.
For non-equity oriented funds, long term capital gains are taxed at 20% with indexation. Indexation
lets an individual adjust the purchase price of the mutual fund units by taking into account inflation,
thus enabling you to reduce your tax outgo. Short term capital gains for non-equity oriented funds are
added to the total income and taxed as per ones tax slab, which means that if you come in the 30%
tax bracket, your short term capital gains arising from the sale of mutual fund units will be taxed at
30%. In case of dividends, the fund house pays Dividend Distribution Tax (DDT), and thus they are tax
free in the hands of the investor.
Therefore, it is important to consider the tax implications before investing or redeeming your money
from mutual funds.
X- Penalties for non-filing of returns / non-payment

of taxes
Missing the deadline for filing I-T returns can give you sleepless nights. Here are some vital points
which talk about the consequences that you as an individual assesse might face if you dont file your
returns and / or pay your taxes on time
What if you missed your tax filing deadline:
If you dont file your I-T returns by the due date, you can still do so before the end of the assessment
year, without paying any penalties. As per Section 139(4) of the Income-Tax Act, 1961, one is allowed
to file his / her I-T returns until 1 year of the completion of the relevant assessment year or before the
completion of the assessment, whichever is earlier.
For the financial year 2016-17, the relevant assessment year is 2017-18. So if you miss filing your
income tax return by the due date i.e. July 31 2017, you can still file your I-T returns before the end of
assessment year i.e. at the latest by March 31, 2018. However, if the returns arent filed before March
31, 2018 a penalty of Rs 5,000 may be levied subject to the decision of the Assessing Office (who holds
the right to waive off this penalty).
What if you havent paid your tax due on time:
If you havent paid your tax due on time, then a penal interest of 1% per month (simple interest) will
be levied on the amount of tax due or balance tax payable from the due date to the actual date of
filling of your returns. However, if you are lucky enough to have no tax payable, you wont be liable to
pay any interest even if you file your return after due date but before the end of relevant assessment
year.
Did you miss paying your advance tax:
If the amount of tax that you are liable to pay exceeds Rs 10,000, then advance tax needs to be paid in
3 instalments.
- The first due date is September 15, where you are required to pay at least 30% of the tax payable
as advance tax.
- The second due date is December 15, where at least 60% needs to be paid.
- And the third instalment, is on March 15, where 100% of the tax payable needs to be paid.
If you defer any of these payments, then a simple interest of 1% per month would be levied as
penalty.
Lose the rights of make any amendments:
Did you miss some key information or forgot to claim a significant tax saving benefit while filing your
return? Well, there is always a chance of such human error while filing an I-T return. If you dont file
your I-T returns before the due date, you would not be allowed to make any changes later in case of
any errors while filing returns. But if you have filed your returns by the aforementioned deadline, you
enjoy the right to correct any errors and make changes in your tax form any number of times before
March 31 or till the time your returns are assessed, whichever is earlier.
Lose your chance of carrying forward losses:
You may have a capital gain loss in your investment portfolio. Income tax act allows you to carry
forward losses to adjust against future gains.
If you havent filed your returns on or before the due date, you are disallowed from carrying forward
losses. But if the returns are filed by the due date, carry forward of losses for the next 8 years is
allowed to adjust it with gains that you may make in the future.
Besides, not filing your I-T return on time bring along other peril such as:
- Risk of prosecution under the relevant provisions of the Income Tax Act, 1961 which may also lead
to imprisonment from 6 months to 7 years plus the fine
- Impediments in obtaining bank loan or even a credit card (as I-T returns often validate your credit
worthiness before financial institutions)
- Impediments in your visa application approval, if you have plans to travel abroad
- Problems in registration of immovable property
Hence, make sure that you file your I-T returns and pay your taxes before the due date. Filing I-T
returns apart from being viewed as a legal responsibility, should also be considered as a moral
responsibility. It earns you the dignity of consciously contributing to the development of the nation.
This apart, your I-T returns validate your credit worthiness before financial institutions and make it
possible for you to access many financial benefits such as bank credits etc.
Even if you arent earning income which comes under the tax bracket; it is always advantageous to file
your returns. But while you do so, make sure the correct form is filed.
XI - Income tax return forms
The Central Board of Direct Taxes (CBDT) announced a few changes in the Income Tax Return (ITR)
forms, as a measure to keep black money in check. It was a move for the welfare of the nation as a
whole. However, many across industries found the forms to be quite cumbersome due to the
exhaustive disclosure norms. Hence, the Government introduced some further changes in these ITR
forms. So, please take note of the forms to be filed
Applicable in case you have the following Not applicable in case you have the following
Form Number
incomes incomes
Income from salary Income from capital gains

Income from other sources Profits and gains from business and profession
ITR 1 [For individuals having
income from salaries, one Exempt income Lottery winnings
house property, other Own only 1 house property Income from horse races
sources (interest etc.)]
Agricultural income up to Rs 5000 Foreign asset
Pension income Foreign income
Income from salary Profits and gains from business and profession
Income from capital gains
Income from other sources
ITR 2 (For Individuals and Lottery winnings
HUFs not having Income
from Business or Income from horse races
Professions) Own more than 1 house property
Agricultural income more than Rs 5000
Foreign asset
Foreign income
Own more than 1 house property Income from capital gains

ITR 2A (For Individuals and
HUFs not having Income Profits and gains from business and profession
from Business or
Profession and Capital Gains Agricultural income more than Rs 5000 Any claim or relief u/s 90, 90A, or 91
and who do not hold
foreign assets) Foreign asset
Foreign income
Presumptive business income Lottery winnings
ITR 4S (For individuals or Income from salary Income from horse races
HUFs who have Income from other sources Income from capital gains
presumptive business Own only 1 house property Foreign asset
income) Agricultural income up to Rs 5000 Foreign income
Other changes applicable are:
Foreign Travel: Now onwards, those making foreign trips will need to furnish only the passport
number in ITR-2 and ITR-2A
Bank account details: Going forward, the bank-wise closing balance in all accounts will not be
required to be disclosed. Moreover, you wont have to give disclosures for dormant accounts that
have not been in operation during the previous 3 years. Only the following details will be required
to be disclosed:
- Account numbers for all the accounts (current and savings) held at any time during the
previous year for which income is being reported; and
- IFSC Codes
Disclosure of assets held by foreign nationals: Foreign nationals who had acquired assets when
they were non-residents wont be required to disclose them, as long as no income is being earned
from them in the previous year
Moreover, CBDT has made it mandatory for all individuals with a taxable income of over Rs 5 lakh
to file their I-T returns online.
Remember that if you have an Aadhaar card and have fed the same while filing your I-T returns, then
the process of filing return online would be hassle-free and even obtaining refunds may not be
delayed. This would do away with the risk in sending verification forms physically to the CPC in
Bengaluru, where forms may not reach on time or even getting lost in transit.
Nevertheless, even if you do not have an Aadhaar card, go ahead and file your I-T return on time and
make sure you make all necessary disclosures.
XII - Conclusion
In this guide we have seen that your extra step towards the tax planning way would enable you to
wisely reduce your tax liability. Remember waiting till the eleventh hour to do your tax planning
exercise, is not going to help in a big way. It would just lead to tax saving and not tax planning. Just
to reiterate, while you have host of tax-saving investment options available under Section 80C,
following an asset allocation model (for your tax planning exercise), in accordance to your age, ability
to take risk and investment horizon is going to make your tax saving portfolio look more prudent. In
other words, tax planning as an exercise is not just limited to filing returns and paying taxes. It is a
process whereby your larger financial plan needs to be taken into consideration after accounting for
the above mentioned factors.
Also, one needs to look beyond the ambit of Section 80C, as you may exhaust the limit of Rs 1.50 lakh
and still find it insufficient to reduce your tax liability. So, you should access the other deductions
available under Section 80 and the exemptions too, to save tax legitimately.
Moreover, while you are working hard with an organisation; remember to effectively know and
structure each component of your salary income in order to effectively save more tax, which in a way
will help you in buying all the comforts and luxuries in life.
While you must take help of your tax consultant while filing your returns and seek his/ her opinion, a
self-study approach on your tax planning exercise is also necessary as one should be well versed with
at least those tax provisions which affect you directly. And with that note we wish you all Happy Tax
Planning!!
General Disclaimer: This communication is for general information purposes only and should not be construed as a
prospectus, offer document, offer or solicitation for an investment or investment advice.
3 Tax Saving Mutual Funds For 2017
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In this report, you will find THREE mutual funds that will not only help you save up to Rs 46,350 in
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Contact us
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Mumbai
101, Raheja Chambers ,
213, Free Press Journal Marg,
Nariman Point,
Mumbai - 400 021.
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Your Comprehensive Guide to Tax Planning

Section II: 4 Mistakes that individuals make while saving tax 05

Steps to tax planning

Parameters for prudent tax planning

Section IV: How to save tax with Section 80C 14

Tax planning with market-linked instruments

Tax planning the assured return way

Section V: Thinking beyond Section 80C 28

Section VII: House Property and taxes 41

Section VIII: How to save tax on your salary 45

Section IX: Tax implication of investing in mutual funds 49

Section X: Penalties of non-filing of returns / non-payment of taxes 51

Section XI: Income tax return forms 54

Section XII: Conclusion 56

I - Tax Saving Vs. Tax Planning

II - 4 Mistakes to avoid make while saving tax

1. Undertaking tax planning at the last moment:

2. Unnecessarily buying insurance plans for the purpose of tax saving:

3. Power of compounding through tax saving mutual funds:

4. Failing to optimize all available options for tax saving:

III - Your small steps can take you forward

Step 1: Compute the Gross Total Income

Income from salary

Income from house property

Profits and gains from business & profession

Capital gains (short term and long term) and

Income from other sources.

Now, one may ask how do I undertake this activity if Im a novice?

Step 2: Compute the Net Taxable Income

Premium payment for your medical insurance

Expenditure on handicapped dependent

Interest paid on loan taken for higher education

Rent paid for residential accommodation

Expenditure incurred on specified diseases suffered by you

and many more!

Step 3: Calculate the tax payable

Net Taxable Income (in Rs) Rate

Computation of Tax Liability (2016-17)

Parameters for prudent tax planning:

An early bird gets a bigger pie

Retirement age (years) 60 60 60

Investment tenure (years) 35 30 25

Monthly investment (Rs) 7,000 7,000 7,000

Assumed Returns per 10% 10% 10%

Sum accumulated (Rs) 2,65,76,466 1,58,23,415 92,87,834

(Source: Personal FN Research)

The chart depicted is for illustrative purpose only.

IV - How to save tax with Section 80C

Life Insurance Premium

Public Provident Fund (PPF)

Employees Provident Fund (EPF)

Sukanya Samriddhi Yojana

National Saving Certificate (NSC) , including accrued interest

Senior Citizens Savings Scheme (SCSS)

National Pension System (NPS)

Unit-Linked Insurance Plans (ULIPs)

Equity Linked Savings Schemes (ELSS)

Tuition fees paid for childrens education (maximum 2 children)

Principal repayment on Housing Loan

Now you may ask how?

Tax Planning with market-linked instruments:

1. Equity Linked Savings Schemes (ELSS):

3. Unit-Linked Insurance Plans (ULIPs):

4. National Pension System (NPS):