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Use smart tax-saving tools to maximise returns
December, 17th 2009

An individual can claim a deduction up to Rs 1 lakh U/S 80C of the Income-Tax Act, 1961 (Act) by incurring a certain expenditure or making specified investments. Few of the popular schemes which are generally availed of by the individuals, inter-alia, include the following:

Expenditure-related deductions

Broadly, the expenditure-related deductions include tuition fees and home loan payments. Tuition fees for full-time education in any Indian university, college, school, educational institution, for any two children is eligible for deduction. However, development fees or donations are not considered.

The principal amount re-paid against a home loan to banks or certain category of employers is also eligible for deduction. Stamp duty, registration fees and other expenses incurred for the purpose of acquisition of such a house property are also eligible for deduction.

It should, however, be noted that the cost of renovation/house repairs after the completion certificate is issued or after the house is occupied, is not eligible for deduction.

Investment-related deductions

Equity Instruments

The most popular one here is the equity-linked savings schemes (ELSS) offered by mutual funds. These have a three-year lock-in period. and individuals who have a risk appetite may consider this option.

Provident Fund (PF)/Public Provident Fund (PPF)

In India, there is no comprehensive social security scheme; therefore, individuals have to rely primarily on their own savings/retirement funds. In this context, PF and PPF are two of the most popular and effective tools to create a pool of funds to meet long-term financial requirement.

Employees contribution towards PF is eligible for deduction. In case of self-employed individuals, in the absence of a PF, a contribution could be 
made to the PPF. It is important to note that in case of PPF, the maximum amount of contribution is restricted to Rs 70,000 per annum under the PPF rules.

Life Insurance Policies (LIP)

There are different kinds of life insurance policies, which include term insurance, money-back, endowment, etc. Term insurance is particularly advisable, wherein by paying a small sum of premium, a large sum could be assured by an individual.

Post Office Schemes

Investment avenues under the post office schemes include National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS) and the Post Office five-year time deposits. Post offices in India have a good coverage and the interest rates do not vary frequently in comparison with banks/other deposits schemes. Therefore, these schemes are also quite popular amongst individual tax payers.


Term deposit with a scheduled bank for a period of five years or more is also eligible for deduction. Fixed deposits with banks have been quite popular, especially in the last year due to substantial increase in term deposit interest rates. Similarly, investments made in bonds issued by the National Bank for Agriculture and Rural Development (Nabard) and debentures issued by specified companies are also eligible for deduction.

To sum-up

Every individual tax payer should consider the various expenditure/investment deductions available under the Act and also have a good mix of various schemes to ensure good reasonable returns and accumulation of funds over a period of time to meet his mid/long-term financial requirements. After all, our age-old mantra of regular savings irrespective of income/expenditure levels helped India and Indians sail through the global economic turmoil.

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