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
The primary tax deductions that every taxpayer 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 options.
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)
You could also claim expenses and outflows, such as your children’s tuition fees and home loan principal repayment. Among these investments, the interest earned on your contribution towards EPF, PPF and SSY accounts is tax-free. You can either invest the entire Rs. 1.5 lakhs in one investment or diversify across multiple options.
Most of the time, those in the highest tax bracket quickly exhaust their 80C limit. That’s 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 loans under Section 80E, here are other tax deductions that you could claim if you belong to the 30% tax bracket.
Section 80D – For Tax Saving
Using this tax-saving option, you can save significantly on the health insurance premium you pay. For the premiums that you might be paying for yourself, your parents, spouse and dependent children, you can claim a maximum deduction of Rs. 25,000 in a financial year.
Moreover, if your parents are below 60 years of age, you get an additional deduction of Rs. 25,000. However, if your parents are above 60 years of age, the maximum deduction you can claim is Rs. 50,000 in a single financial year.
You can maximise tax saving options 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.
Let’s understand this better with 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% tax bracket, you can save tax worth 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) For Tax Saving
Here is another one of significant tax saving option you can try. If you have contributed to the National Pension Scheme (NPS), know that it is also 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, considering that it is one of the best tax saving options for salaried, the deduction will be capped at 10%. However, if you are a self-employed person, the deduction will be at 10% of the total gross income.
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. Being in the 30% tax bracket, the maximum tax that you can save under section 80CCD (1B) is Rs. 15,600.
Section 24 is one of the highly regarded tax-saving options other than 80C. The reason behind this is that presently, for self-occupied homes, you can avail yourself of tax benefits on the principal repaid as well as on the interest amount. If you are planning to invest your money in property, know that you can also save taxes through this method. However, to do so, a ready-to-move-in property could be better than buying an under-construction one, despite the former being a bit more expensive than the latter.
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 a tax deduction under section 24.
Note that for an under-construction property, the principal repaid does not get any tax benefit, and you can avail of tax benefits on the interest paid in five annual instalments after the possession of the property.
Most of the time, people generally pay off their home loans first and then take another loan to complete the renovations of their existing property. If you have done so as well, know that you can claim tax deductions of up to Rs. 30,000 on interest paid on this loan.
Under the 30% tax bracket, the maximum tax you can save under section 24 (for interest deduction of up to Rs. 2 lakhs for a self-occupied house) is Rs. 62,400.
This table will help you understand how much you save.
|Tax Deduction||Tax savings for those in the 30% tax bracket (Rs.)|
|Total tax saved||1,48,200|
Out there, you can find plenty of tax saving schemes other than 80C. All you would have to do is stay a bit more cautious and informed. 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.
Are you yet to exhaust your 80C limit? Consider ELSS mutual funds. If you are confused with the same and need help, Wealthzi.com can help you pick the right ones.