Tax-saving options for those in the 30% tax bracket

If you are in the highest tax bracket, there are investments other than those under Sec. 80C that will help you save taxes

Kavya Balaji   /   September 19, 2020
Tax-saving options

The primary tax deductions that every tax payer claims are those under Section 80C of the Income Tax Act, 1961. Under this section, you can claim deductions of up to Rs. 1.5 lakh and if you are in the 30% tax bracket, you can save up to Rs. 46,800 (including cess) by investing in the approved tax-saving instruments.

Eligible investments in the 80C basket include equity-linked savings schemes (ELSS), life insurance premiums, National Savings Certificate (NSC), Public Provident Fund (PPF), five-year notified tax-saving bank deposits, Senior Citizens’ Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY), and Employees’ Provident Fund (EPF) among others. You could also claim expenses and outflows such as your childrens tuition fees and principal repayment of your home loan. Among these investments, the interest earned on your contribution towards EPF account is tax-free. The interest on your PPF and SSY account is tax-free too. You could invest the entire Rs. 1.5 lakhs in one investment or diversify across more than one.

Most of the times, those who belong to the highest tax bracket easily exhaust their 80C limit. Thats why they need to look beyond 80C to save more taxes. Apart from deductions under section 80DDB for expenses incurred on specified illnesses and tax-saving deductions on interest paid on education loan under Section 80E, here are other tax deductions that you could claim.

Section 80D

Using this, save taxes on the health insurance premium that you pay. For health insurance premiums paid for yourself, your spouse and dependent children, you can claim a maximum deduction of Rs. 25,000 in a financial year. You can claim deduction for the health insurance premium paid for your parents too. If your parents are below 60 years of age you get an additional deduction of Rs. 25,000. However, if your parents are over 60 years of age, then the maximum deduction that you can claim is Rs. 50,000 in a single financial year. You can maximise tax savings under this section if both you and your parents are over the age of 60 years. In that case, you can claim a total deduction of Rs. 1 lakh in a financial year.

Heres an example. If you are below 60 years of age and your parents are senior citizens, you can claim a deduction of Rs. 75,000 (Rs 25,000 + Rs 50,000) in a financial year. If your net taxable income comes under the 30 per cent tax bracket, then you can save tax of Rs. 23,400 (including cess).

You can get a benefit of Rs. 5,000 for preventive health check-ups within the maximum limit of Rs. 25,000 or Rs. 50,000. For instance, if you pay a premium of Rs. 20,000 towards health insurance and undergo a health check-up costing Rs. 5,000, you can claim a total of Rs. 25,000 under Section 80D.

Section 80CCD (1B)

Your contribution towards the National Pension Scheme (NPS) is tax deductible. However, if you claim it under section 80 CCD, the limit will be only up to Rs 1.5 lakhs which will be included with your 80C deductions. Also, the deduction will be capped at 10% of the salary for a salaried individual and at 10% of the gross total income for self-employed.

You can claim an additional deduction of Rs. 50,000 over and above the Rs. 1.5 lakhs for your contribution made to NPS under Section 80CCD (1B). This can be availed whether or not any deduction is claimed under section 80CCD. The maximum tax that you can save under section 80CCD (1B) if you are in the 30% tax bracket is Rs. 15,600.

Section 24

If you want to save taxes, a ready-to-move in property could be better than buying an under-construction one although the latter could be less costly than the former. Why? Because presently, for self-occupied homes, one can avail tax benefits on the principal repaid as well on the interest amount.

You can claim a tax deduction of up to Rs. 1.5 lakhs only under section 80C for the principal amount repaid. However, the interest paid of up to Rs. 2 lakhs per year can be claimed as tax deduction under section 24. Note that for an under-construction property, principal repaid does not get any tax benefit and you can avail tax benefits on the interest paid in five annual instalments after the possession of the property.

Paid off the home loan for your property and still want to claim tax deductions? You can claim tax deduction of up to Rs. 30,000 on interest paid on a loan taken for renovation of an existing property.

The maximum tax that you can save under section 24 (for interest deduction of up to Rs. 2 lakhs for a self-occupied house) if you are under the 30 per cent tax bracket is Rs. 62,400.

This table will help you understand how much you actually save.

Tax DeductionTax savings for those in 30% tax bracket (Rs.)
Section 80C46,800
Section 80D23,400
80CCD (1B)15,600
Section 2462,400
Total tax saved1,48,200

To save more tax, choose investments that come with EEE status. EEE benefit implies exempt- exempt- exempt status on the income earned, principal invested and the maturity amount.

Yet to exhaust your 80C limit? Consider ELSS mutual funds. can help you pick the right ones.

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