With the current financial year going to close soon, there is little time left for investment and tax planning. Individuals, particularly the salaried class people, have already started calling their insurance agents and are doing rounds to the nearby post offices and banks.
After all, they have to go home with a thicker pay packet. But what about the senior citizens and women? After all, they too fall under the tax net. Says Ashish Kapur, CEO, Invest Shoppe, Women and senior citizens have already been given relief in terms of higher tax exemptions in income slabs. Thus, as against the limit of Rs 2 lakh for other individuals, a woman can enjoy tax-free income up to Rs 2.35 lakh and senior citizens up to Rs 2.85 lakh after making savings worth Rs 1 lakh under section 80C of the Income Tax Act.
To make this clearer, we will have to first take a look at the general provisions that are applicable to all individuals. Under section 80C, which has been introduced from the financial year 2005-06, a deduction of up to Rs 1,00,000 is allowed from taxable income in respect of investments made in some specified schemes (the specified schemes are the same which were there in section 88 but without any sectoral caps, except in PPF), which include LIC premiums, contributions to EPF/GPF, PPF (maximum Rs 70,000 in a year), NSC, ULIP, pepayment of housing loan (principal), ELSS, tuition fees, infrastructure bonds, and interest accrued in respect of NSC VIII issue.
There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest up to Rs 1,00,000 in any one or more of the specified instruments. Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax.
Also, because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in the 30% tax stab can save income tax up to Rs 30,600 (or Rs 33,660 if annual income exceeds Rs 10,00,000) by investing Rs 1,00,000 in the specified schemes u/s 80C.
Besides, one can claim deduction under section 80 CCC(1) which allows a deduction of up to Rs 10,000 in respect of contribution to pension scheme of LIC or any other insurance company. However, the aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD cant exceed Rs 1,00,000. Moreover, under section 80D, a deduction up to Rs 10,000 (Rs 15,000 in case of senior citizens) is allowed in respect of premium paid by cheque towards a health insurance policy.
Accordingly, a person who is under/in 30% tax bracket can save income tax up to Rs 3,060 (or Rs 3,366 if annual income exceeds Rs 10,00,000). The biggest advantage section 24(b), under which interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs 1,50,000 with some conditions to be fulfilled.
However, there are some special provisions for senior citizens which include deductions for expenses incurred on self or certain dependants on the medical treatment of specified diseases, subject to fulfilling certain prescribed conditions, whereby actual expenditure is deductible subject to a cap of Rs 60,000, which is only Rs 40,000 for non-senior citizens (section 80DDB).
It should be noted here that the earlier provision of tax rebates for senior citizens and women have been scraped (Section 88B, 88C ). Thus, the special incentives given to senior citizens (aged 65 years and above) and women (below 65 years of age) are mainly in the form of favourable tax slabs with larger tax-free income range. At present income up to Rs 1 lakh is exempt from tax in case of individuals while it is Rs 1.35 lakh in case of women and Rs 1.85 lakh in case of senior citizens. Thus, with the section 80C benefits, a woman can enjoy tax-free income up to Rs 2.35 lakh and senior citizens up to Rs 2.85 lakh.
However, the rule which everyone, including women and retired people, should follow is that they should choose those tax saving options which best suits their profile. For example, a young person should normally invest more in ELSS and life insurance plans while an elderly person should invest more in fixed deposits, advises Kapur.
Vikas Vasal, director, personal finance, KPMG, also suggests that senior citizens may invest in specified government securities, bank deposits (for five years), NSCs, and post office schemes, while women can try their hands at LIC policies, PPF and equity-linked savings schemes, among others.