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Tax saving options : 80C,80CCC,80CCD,80D,80U,80E,24

The Income Tax Act, 1960 has provided Section 80C,80CCD, 80CCC, 80CCCE benefit to
save tax by investing upto 1 lakh in different options, each suited to a different need. One can
choose a combination of fixed income, life insurance and market-linked investments
depending on one’s financial goals and investment horizon. If you are saving for your
retirement, you can diversify among ELSS, EPF and PPF investments and avail deduction on
home loan principal payment and children’s annual tuition fees,for those who are retired, they
can choose among SCSS, PO MIS for regular income and safety of capital invested, but with
an overall cap of rupees 1 lakh per annum.

In this article we shall cover the tax saving sections of Income Tax Act, various tax saving
options under Section 80C, Section 80CCC, Section 80CCD, Section 80CCE, Other
deductions available like Medical insurance (Section 80D), Education Loan (Section 80E),
Interest on Housing Loan (Section 24), Disability and Disease (Section 80U). We compare the
various options and also how ,since November 2011, Government has linked interest rates on
small savings to market rates,pegged to the benchmark yield of government bonds.

Income Tax Act :Tax saving sections

Levy of income tax in India is governed by Income Tax Act of 1961 which came into force on
1st Apr 1962. It has 298 Sections and XIV Schedules. These undergo change every year with
additions and deletions brought about by the budget, presented by Finance Minister, which
when passed by the Parliament becomes Finance Act. To encourage long term investments
and savings, tax saving options are included in the Income Tax Act under sections 80C,
80CCC, 80CCD, 80CCE . These section states that qualifying investments, up to a maximum
of Rs.1 Lakh, are deductible from your income.

 Section 80C: savings for deduction under income tax and their limits. 80C became
effective w.e.f. 1st April, 2006 replacing Section 88.
 Section 80CCC: Deductions in respect of contribution to certain Pension Funds
 Section 80CCD: Deduction in respect of contribution to new pension scheme
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  Section 80CCE: Limit of deduction under section. 80C, 80CCC and 80CCD

There are other tax saving options like:

 Medical Insurance and Health Checkups under Section 80D

 Interest on Housing Loan under Section 24
 Education Loan under Section 80E
 Disability and Disease under Section 80U

Tax saving expenses in 80C

Some expenses that qualify for deductions under section 80C.

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay
every month to repay your home loan consists of two components – Principal and Interest.The
principal component of the EMI qualifies for deduction under Sec 80C. Even the interest
component can save you significant income tax – but that would be under Section 24 of the
Income Tax Act. Taxguru FAQ on Housing Loan and Income Tax Benefit covers it in detail.

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty
when you buy a house, and the amount you pay for the registration of the documents of the
house can be claimed as deduction under section 80C in the year of purchase of the house.

Children Education Expense : Tuition fees paid at the time of admission or otherwise to
any school, college, university or other educational institution situated within India for the
purpose of full time education can be claimed under 80C, for maximum of two
children.Payment towards Development fees, Donation and payment of similar nature does
not qualify for deduction u/s 80C. No deduction will be available for tuition fee paid for
studies of self or for studies of spouse.

Tax saving investing options in 80C

The options saving under section 80C are as follows:

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Employee Provident Fund(EPF) & Voluntary Provident Fund (VPF) : Employee
Provident Fund(EPF) is automatically deducted from salary. Both you and your employer
contribute to it. Under the current norms, 12% of the employee’s salary is contributed towards
EPF, which is exempt from income tax. While employer’s contribution is exempt from tax,
your contribution (i.e., employee’s contribution) is counted towards section 80C
investments. Any contribution over and above the 12% limit by the employee towards EPF is
consider as voluntary provident fund (VPF) and the same is also exempt from tax, subject to
the overall 80C limit per annum. EPF, falls under the EEE tax regime wherein the interest
received (on retirement from service or withdrawal after 5 years of service) is tax-free in the
hands of the investor. The interest payable on EPF is determined each year by the Employee
Provident Fund Organisation (EPFO). O

Public Provident Fund (PPF) : PPF offers an interest rate of around 8% (8.8% for FY 2012-
13) compounded annually and mandatory investment tenure of 15 years. Interest is calculated
on the lowest balance between the close of the fifth day and the last day of every month. Only
the amounts which are actually cleared on or before the 5th of the month are eligible for that
month’s interest. Money cannot be withdrawn before the completion of 6 years. It falls under
EEE (exempt-exempt-exempt) tax regime i.e not only the investor can enjoy deduction on the
amount invested in this scheme but the interest received on maturity is also exempt from tax.
The government of India decides the rate of interest for PPF account. The current interest rate
effective from 1 April 2012 is 8.80% p.a(compounded annually).

National Savings Certificate (NSC) : NSC also offers a return of around 8% on half yearly
compounding basis. Interest accrued on NSC is also eligible for Section 80 C benefit. Interest
received on NSC, at the time of maturity, is taxable in the hands of the investor. Earlier only a
6 year National Savings Certificate was available for investors. Since 1 April 2012 two types
of NSCs are on offer:

 NSC VIII Issue : 5 year instrument with current interest rate as 8.6% . Maturity value
of Rs 100 shall be 152.35 after 5 years.

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  NSC IX Issue: 10 year instrument with current interest rate as 8.9%. Maturity value
of Rs 100 shall be 234.35 after 5 years.

The government of India decides the rate of interest for new NSCs. For NSCs bought the
interest rate remains constant for the entire tenure i.e Unlike many other instruments where a
change in the interest rate is applicable to an existing investment(EPF, PPF) here the rate is
locked in at the time of making of the investment

Tax saving Bank Fixed Deposits : These are like regular fixed deposits with interest being
compounded quarterly but with a lock-in period of five years. Investment up to Rs 1 lakh in
these special tax saving bank fixed deposits entails an investor tax deduction under Section
80C. Most public and private banks offer these tax saving FDs such HDFC Bank. The
drawback is taxability of interest income upon maturity.It is important to note that there is no
option for premature withdrawal even with penalty for tax savings FD and the interest is
taxable. The rates you can find at moneycontrol Best Rates for Fixed Income by selecting
Deposits as Bank Deposits and Tax Status as Tax Saving as shown in picture below.

Finding Tax saving Fixed Deposit Rates at MoneyControl

Senior Citizens Saving Schemes (SCSS) : Indian citizens who have attained 60 years of age
or those who have attained at least 55 years of age and have opted for voluntary retirement
scheme are eligible to invest in senior citizens saving scheme. If offers interest rate of 9.3% a
year, payable on quarterly basis. Maximum investment is upto 15 lakh. It has lock in of 5
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years which can be extended by 3 years. While investment in this scheme is eligible for tax
deduction under Section 80C, interest earned shall be taxable in the hands of the investor. Tax
is deducted at Source (TDS) .The government of India decides the rate of interest for SCSS.
Details at IndiaPost’s Senior Citizen Savings Scheme (SCSS) Account and RBI’s Senior
Citizens Savings Scheme, 2004

Equity Linked Saving Schemes (ELSS) : These are Diversified Equity mutual Fund
schemes, which invest in stock market, with lock in of 3 years. The returns are linked to the
performance of equity markets, hence are volatile.If one invests in ELSS by means of SIP
(Systematic Investment Plan)every monthly investment carries a lock in period of 3 years not
the date of first investment. More details at ThinkRupee ELSS You can track performance of
ELSS at MoneyControl Performance Tracker or Valueresearchonline’s ELSS Comparison.

Life Insurance Premium:Any amount that you pay towards life insurance premium for
yourself, your spouse or your children can also be included in Section 80C deduction.If you
are paying premium for more than one insurance policy, all the premiums can be included.
The life insurance policy may be purchased either from LIC or from any other private player
in the insurance industry. An insurance plan will be eligible for tax deduction and the
income will be tax-free only if it covers the policyholder for 10 times the annual
premium. Till 2011, policies were required to offer a cover of five times the annual premium
for tax breaks. Please note that life insurance premium paid by you for your parents (father /
mother / both) or your in-laws is not eligible for deduction under section 80C. Our article Life
Insurance covers different kinds of Life Insurance policies.

Unit Linked Insurance Plans (Ulips): Ulips, or market linked insurance schemes provide
investors the benefit of both life cover and investment in equity and debt market. These are the
insurance plans where a portion of premium is used for insurance, rest is invested in a mutual
fund (equity ,debt) hence returns of these plans are market linked. These plans are complex &
also expensive as they cover charges for insurance(mortality charges), fund
management,Premium Allocation Charges. MoneyControl covers FAQ on ULIP’s HDFC

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ULIP covers it in detail along with comparison with Conventional Plans and Mutual Funds.
MoneyControl ULIP shows NAV’s of ULIPs.

Section 80CCC

Section 80CCC of Income Tax Act deals with the deductions and income in respect of
contributions to certain Pension funds by an individual assessee Payment of premium for
annuity plan of LIC or any other insurer. Deduction is available upto a maximum of Rs.
100,000. Please note that amounts received on surrender (whole/part) of annuity plan,
amounts received as Pension is taxed as income. Note:The limit of deduction under Section
80CCC will be part of the overall limit prescribed under Section 80CCE.

Section 80CCD

The National Pension System (NPS) is a defined contribution based pension system
launched by Government of India with effect from 1 January 2004. Section 80CCD of income
tax act provides deduction under the section 80CCD(1) in respect of contribution made by the
employee, and a deduction under the section 80CCD(2) in respect of contribution made by
the employer to the New Pension System (NPS). Contribution made to the pension scheme
under section 80CCD(2)(employer’s contribution) shall be excluded from the limit of one lakh
rupees provided under section 80CCE. The Finance Act, 2011 amended section 36 so as to
provide that any sum paid by the assessee as an employer by way of contribution towards a
pension National Pension System(NPS) to the extent it does not exceed ten per cent of the
salary of the employee, shall be allowed as deduction in computing the income under the head
“Profits and gains of business or profession”.

Section 80CCE.

The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD
shall not, in any case, exceed Rs. 1,00,000.

Other Tax Saving Deductions

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Medical Insurance and Health Checkups under Section 80D :

 The investment in health or medical insurance of self or family members(spouse and

dependent children) is exempted under Section 80D upto Rs. 20,000 for senior citizens
and upto Rs. 15,000 for others, is available with effect from (w.e.f) Assessment Year
2009-10.
 From FY 2012-13 you can claim deduction upto Rs 5,000 spent on health checkup of
self or family or parents.However, this Rs 5,000 is a part of the overall Rs 15,000((or
20,000 for senior citizen) deduction that you are entitled to under section 80D. So if
you have spent say Rs 8,000 in medical check-up and Rs 11,000 as health insurance
premiums, you can claim only up to Rs 5,000 of medical check-up bill and Rs 10,000
of health insurance premiums under section 80D.
 This relief is in addition to the maximum relief of Rs. 100,000 available for
investments under section 80C, 80CCC and 80CCD.
 Medical insurance can be taken from the General Insurance Corporation of India
or any other insurer pproved by the Insurance Regulatory and Development Authority.

Interest on Housing Loan under Section 24: Deduction on accrued interest upto Rs.
1,50,000 per annum from the total income is available under Section 24 of the Income Tax
Act.

Education Loan under Section 80E : The interest paid on education loan taken for higher
education by a person for himself, his spouse or children is fully tax-deductible under section
80E. The main points of Education Loan are:

 Higher education has been defined to mean full-time studies for any graduate or post-
graduate course in engineering, medicine, management or for post-graduate courses in
applied sciences or pure sciences, including mathematics and statistics. Also, it has
been specifically clarified that architecture will fall under the engineering category.
 The studies can be anywhere in the world and not necessarily in India.
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  The education loan taken can cover not only tuition or college fees alone, but also
other incidental expenses like hostel charges, book costs, etc.
 The deduction is available only for loan taken from financial institutes (ie, Indian
banking companies and other notified institutes like HDFC) and approved charitable
institutes. Thus loans from family, relatives and employers are not covered.
 However the deduction is available only for the first 8 years after the first deduction.
 Loans taken for siblings and other relatives do not qualify

Disability and Disease under Section 80U : You can claim deduction if you or any of your
dependents suffer from a specified ailment or physical disability. The deduction is Rs 50,000
in normal disability case and Rs 1,00,000 in severe disability. Every individual claiming a
deduction under this section shall furnish a copy of the certificate issued by the medical
authority in the form and manner, as may be prescribed. These deductions under section 80U,
80DD and 80 DDB are not subject to actual expenses incurred.

Comparing Tax saving Options

Comparing all the options for tax saving in terms of returns, safety, flexibility, liquidity. Your
choice of tax saving options should be defined by how soon you need the money, your
expectations of returns and the risk you are willing to take. Our article Choosing Tax Saving
options : 80C and Others covers how to choose tax saving options

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Interest Rate on Small Saving Schemes

Government has linked interest rates on small savings to market rates,pegged to the
benchmark yield of government bonds, since November 2011 . The interest rate of small
savings schemes is calculated on the basis of the average yield during the year. For instance,
your PPF balance earns 25 basis points above the 10-year benchmark yield. Though the PPF
rate changes every year, the SCSS and NSCs will have a uniform rate (fixed at time of buying)
till maturity. Government notifies interest rates afresh at the beginning of every financial year.
Rates for 2012 from ET Interest rates on small savings schemes like NSC, PPF hiked by up to
0.5%

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Interest Rates for FY 2012-13

Bond yields have come down in the past one month and are likely to recede even further on
expectations of a rate cut. This could translate into lower rates for small savings schemes, such
as the PPF, NSC and the Senior Citizens’ Saving Scheme (SCSS). The consensus estimate by
Bloomberg is that the 10-year bond yield will fall to around 7.95 per cent by March, and slip
to 7.77 per cent by December 2013, before recovering to about 8.01 per cent in March
2014. dropping to 8.25 per cent, the PPF interest rate could be lower at 8.5 per cent in 2013-
14. It could fall further in the following years.

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OBJECTIVES AND
SCOPE OF THE
PROJECT

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 OBJECTIVES AND SCOPE OF THE PROJECT
OBJECTIVES OF STUDY
{1}To identify different tax saving schemes.
{2}Many a times RDS is already deducted from interest received by individuals from
securities. in order to know the actual amount of interest before the deduction of tax the
knowledge of income from other sources is required.
{3}To know the rules of grossing up of interest on securities.
{4}To know deduction that is allowed in computing taxable income under the head income
from other sources.
{5} To study the tax saving schemes prevailing in India.

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 RESEARCH
METHODOLOGY

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 RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. The advanced learner’s
dictionary of current English lays down the meaning of research as “a careful investigation of
enquiry especially through search for new facts in any branch of knowledge.”
The systematic approach concerning generalization and the formulation of a theory is also
research. The purpose of research is to discover answers to questions through the application
of scientific procedures.

DESCRIPTIVE RESEARCH DESIGN

Descriptive research design studies are those studies, which are concerned with describing the
character of a group.
The researcher makes a plan of the study his research work. That will enable the researcher to
save and resources such a plan of study or blue print or study is called a research design.
Three main purposes of research are to describe, explain, and validate findings. Description
emerges following creative exploration, and serves to organize the findings in order to fit them
with explanations, and then test or validate those explanations
The reason to adopt the descriptive research is due to the type of research question, design,
and data analysis that will be applied to a given topic. Descriptive statistics tell what is, while
inferential statistics try to determine cause and effect. Descriptive research aims at fact finding
& more often is based on surveys .It’s purpose to describe the present state of affairs of the
topic of study. It is more focused than an exploratory study. It provides basic information for
formulating more sophisticated study.

SAMPLING
RESEARCH INSTRUMENT
Questionnaire
“A questionnaire is simply a set of questions designed to generate the data necessary for
accomplishing a research project’s objectives” (Parasuraman, 1991, p.363).
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SAMPLE DESIGN:
POPULATION
 It covers the 100 unit of population.

SAMPLE PROCEDURES
In this study convenient sampling method was adopted.

INTERVEIW SCHEDULE
 The interview schedule has been used to collect the data. Information can be
gathered even when the respondents happen to be literate or illiterate.

TABULATION
 It is the arrangement of classified data in an orderly manner. This involves
creating table for recording the filled in interview schedule. These tables are of
immense help to analysis by using the statistics tools help to analysis by using
the statistical tools.

STATISTICAL TOOLS USED

Simple percentage analysis
 It is simple analysis tool. In this method, based on the opinions of the
respondents, percentage and bar chart is calculated for the respective scales of
each factor.

Formula:
Simple percentage = No of Respondents x 100
Total No of Sample Size

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 LIMITATIONS
 Thus the respondents are not come forward to provide their feedback regarding their
organization than the result is bias.
 In this study the sample size is 70. The result might vary when the sample size values
changes it.
 Researcher fined the difficulty in searching the appropriate advisor and respondent
throughout the city.
 The research was limited to the Bhopal city.

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DATA ANALYSIS AND
INTERPRETATION

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Data Collection Techniques/ Tools

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