This is the time to file income tax return. This is the time when you are supposed to arrange all key investment-related documents to be able to seek exemption.
It is vital to note that you are eligible to claim an exemption up to a maximum limit of ₹1.5 lakh if you decide to pay income tax under old tax regime.
Under section 80C of Income Tax Act, investors can claim an exemption for contributions they make towards PPF, NPS, SSY and several such schemes including LIC premium, equity linked saving scheme (ELSS), principal payment towards home loan, stamp duty for purchase of property, national saving certificate, ULIP among others.
On the other hand, if you choose the new tax regime then the tax payer is not eligible to claim these exemptions but the tax rate — in that case — falls.
Let us explain what this implies. The tax payers who fall in the slab of ₹5 lakh – ₹7.5 lakh can pay tax at the rate of 10 percent, and not 20, and forego their right of claiming deductions.
Similarly, tax payers who fall in the slab of ₹7.5 lakh to ₹10 lakh choose a lower slab of 15 percent instead of 10 percent by letting go of tax exemptions. Likewise, the tax payers who are in the tax bracket of ₹10 to ₹12.5 lakh can choose a lower tax rate of 20 percent instead of 30 that was applicable in the old regime.
Let us explore different tax exemptions one can avail under 80C:
Public Provident Fund (PPF): The PPF account is one of the most popular long-term saving-cum-investment products, because of safety, high returns (7.1 percent currently) and tax savings. The minimum contribution for PPF account is ₹500 and one must have made the contribution before March 31 to avail exemption this year.
National Pension System: A popular retirement savings scheme offers two accounts: tier I and tier II. There is a mandate to deposit a minimum of ₹1,000 every year in the tier one account of NPS to keep the account operative. If the contribution is not made to the Tier-1 account, then the account stands to get dormant.
Sukanya Samriddhi Yojana (SSY): It is a government savings scheme that can be opened by the parent or guardian of girl child who is 10 years of age or younger. It carries a higher interest rate along with several tax benefits. It is mandatory to make a minimum deposit of ₹250 every financial year to keep the Sukanya Samriddhi Yojana (SSY) account operative.
Equity Linked Saving Scheme: An ELSS is a mutual fund that invests a large part of its corpus in equity and equity-linked financial securities.
They are the only mutual fund schemes that are entitled for tax deductions under section 80C. Investors enjoy tax exemption in these schemes at the time of investing. Hence, these are also known as tax-saving funds.
So, tax payers must remember that an individual can choose either the old tax regime wherein they can avail these tax exemptions. Alternatively, they can choose the new tax regime to pay tax at a lower rates by letting go of these exemptions.