Tax Planning Guide 2019

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Your Comprehensive Guide to Tax Planning
Foreword
Dear Reader,
All of us engage in some economic activity and work hard to make a living. But as weengage in eco-
nomic activity, we tend to attract the attention of the Income Tax Department. Thus, it becomes
imperative for us to work a little harder and smarter to save our taxes (the legal way), so that it can
help us make our dreams come true - A dream of buying a better car, bigger house etc.
But, remember in the quest of attaining the same, if you keep your tax planning exercise pending
till the eleventh hour, it would be merely a “tax saving” exercise leading to sub-optimal gains.
This 2019edition of the Money Simplified Guide on Tax Planning will give you a perspective on how
you can plan your taxes smartly. As you may know, every penny saved, is a penny earned. Hence,-
you should take enough care and prudence in the tax planning exercise considering your age,
income, ability to take risk and financial goals, so that your tax planning can complement your
investment planning.
There’s more to tax planning than just investing in tax saving instruments available under Section 80C,
of the Income Tax Act, 1961. There are many other provisions that can provide you tax benefits.
Keeping this philosophy in mind, PersonalFN through this Money Simplified Guide would like to
help you do just that – with a lot of knowledge and expertise poured into this Guide, represented
in a simple and easy to understand manner.
So, read on, and wish you all VERY HAPPY TAX PLANNING!!
TeamPersonalFN
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*This does not constitute investment advice. Returns mentioned herein are in no way a guarantee
or promise of future returns. Mutual Fund Investments are subject to market risks, read all scheme
related documents carefully.*
INDEX
I - TAX SAVING VS. TAX PLANNING 3
II - 4 MISTAKES TO AVOID WHILE SAVING TAX 4
III - YOUR SMALL STEPS CAN TAKE YOU FORWARD 6
IV - HOW TO SAVE TAX WITH SECTION 80C 12
V - THINKING BEYOND SECTION 80C 25
VI – HOW YOUR HOME LOAN CAN HELP IN

TAX PLANNING 32
VII - HOUSE PROPERTY AND TAXES 36
VIII – HOW TO SAVE TAX ON YOUR SALARY 39
IX - TAX IMPLICATION OF INVESTING IN MUTUAL FUNDS 43
X- PENALTIES FOR NON-FILING OF RETURNS

/NON-PAYMENT OF TAXES 46
XI - INCOME TAX RETURN FORMS 48
XII - CONCLUSION 50
3 TAX SAVING MUTUAL FUNDS FOR 2018 51
CONTACT US 52
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Tax Planning Guide
I - Tax Saving Vs. Tax Planning
“All men make mistakes, but only wise men learn from their mistakes.”
- Sir Winston Churchill.
The above proverb is very much relevant to our daily lives - be it handling finances or even in any
other facets of life.
Moreover, the famous author John C. Maxwell has also quoted “A man must be big enough to
admit his mistakes, smart enough to profit from them, and strong enough to correct them.”Again,
many conveniently forget this, which often leads to failure to learn from mistakes.
While undertaking their tax planning exercise too, many individuals tend to repeat the same
mistake of waiting until the eleventhhour.
As the financial year ends, we all start feeling the heat and realise that yes, now we have to invest
in order to save tax. But, have you ever wondered whether it is the prudent way for tax planning?
Remember, waiting until the last minute to undertake your tax planning exercise will often drive it
towards mere “tax saving,” rather than “tax planning”; which in our opinion is a sub-optimal way
to undertake a tax planning exercise.
Unlike “tax saving” which is generally done through investments in tax saving instruments /
products, under “tax planning” we take into consideration one’s larger financial plan after
accounting for one’s age, financial goals, ability to take risk and investment horizon (including
nearness to financial goals). By adapting to such a method of “tax planning”, you not only ensure
long-term wealth creation but also protection of capital.
Hence, please remember to commence your “tax planning” exercise well in advance by
complementing it with your overall investment planning exercise.
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II - 4 Mistakes to avoid
while saving tax
We recognise the fact that many of you are too busy throughout the year, in your economic activities
intended to make a living. But, if you show the same dedication in your tax planning exercise, the
same will enable you to save more through tax planning and fulfil many of your dreams in life. Our
experience reveals the following 4 mistakes that individuals make while saving taxes.
1. Undertaking tax planning at the last moment:

The root of all mistakes in taxplanning lies in waiting till the last minute to save taxes, which
eventually leads to mere tax saving, rather than tax planning. And this in return is a sub-optimal way
of saving taxes, caused by the sheer attitude of delay. Your last moment hurry, will often lead you
to forgetting or ignoring the facets of financial planning such as your age, income, ability to take risk
and financial goals (explained further in this guide).
Remember waiting till the eleventh hour, is just going to lead you to a path of sub-optimal tax planning
exercise, which would destroy the essence of holistic tax planning.
2. Unnecessarily buying insurance plans for the purpose of tax

saving:
As you near the end of the financial year, many of you might have received telephone calls from
insurance companies and agents pestering you to buy an investment-cum-insurance plan – typically
market linked i.e. Unit Linked Insurance Plans (ULIPs) or some kind of Endowment plans. Realising
the need to save your taxes, you may’ve even entertained these calls and eventually doled a cheque
to buy one. But, have you introspected whether you’ve done the right thing? Maybe no; either
because of unawareness or in the urgency to save tax.
Remember when you think about insuring yourself, protecting your life against any unforeseen events;
ideally buy a pure term insurance plans, which gives due importance to your human life value. You may note
that ULIPs are investment-cum-insurance plans where, for the premium paid, the insurance cover offered
is far less when compared to pure term life insurance plans. In the latter, for a lesser premium amount you
get a bigger life insurance cover – which is precisely what a life insurance plan is intended for.
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3. Power of compounding through tax saving mutual funds:
Many individuals rule out the concept of power of compounding to the portfoliodespite the fact
that age, income, ability to take risk, along with financial goals may support you to take risk. It is
noteworthy that if you want to meet and / or elevate your standard of living going forward, you
need to beat the rate of inflation. And thus, the role of equity as an asset class cannot be ignored
in one’s tax saving portfolio too. While some do consider –equity oriented tax saving mutual funds
in their tax saving portfolio, the ideal composition (depending on the risk appetite) is not
maintained, which leads the tax saving portfolio to give sub-optimal returns.
It is noteworthy that being risk averse is well appreciated by us. But if your age, income, ability to take risk
and financial goals, permit you to take equity exposure, one should not ignore the same.
4. Failing to optimise all available options for tax saving:
For many, tax planning starts as well as ends with Section 80C of Income-tax Act, 1961- which
enunciates investment instruments for tax saving. But investing only in these investment instru-
ments would not lead to optimal reduction of your tax liability. There are many other options avai-
lable other than Section 80C, which you should look into. Thinking beyond 80C may help you save
more for your other financial goals.
To bring to your notice, our Income Tax Act, 1961 also considers the humane side of our life and also gives
deductions for contributions you make on such developments. So, in case if you pay your medical insurance
premium, incur expenditure on the medical treatment of a “dependant” handicapped, donate to specified
funds for specified causes, take a loan for pursuing higher education or if you are an individual suffering from
“specified” diseases; then all these expenses can help you effectively plan your tax obligations, optimally
reducing your tax liability. Moreover, taking into account the urge to buy your dream home by taking a home
loan can also extend tax saving benefits to you.
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III - Your small steps can

take you forward
There is an old Chinese proverb that says, “It is better to take many small steps in the right
direction than to make a great leap forward only to stumble backward”, which in our opinion
applies even to your “tax planning” exercise.
Remember, it is vital for you to step-by-step ascertain where you stand, in terms of your Gross
Total Income and Net Taxable Income, so that you effectively undertake your tax planning exercise
which in turn would deliver you the objective of long-term wealth creation along with capital
protection. In the past, if you have taken your tax planning decisions at the last moment, there is a
need to change and invest regularly. Adopt these prudent steps while doing your tax planning.
Step 1: Compute the Gross Total Income

The process of tax planning begins with computation of your Gross Total Income (GTI). This step
enables you to ascertain the total income earned by you during a financial year, from various
under-mentioned sources of income, and helps you to judge where you stand.
• Income from salary

• Income from house property
• Profits and gains from business & profession
• Capital gains (short term and long term) and
• Income from other sources.
Hence, GTI is the total income earned by an individual before availing any deductions under the
Income Tax Act, 1961. And it is vital to know the same, in order for you to undertake your tax
planning effectively, so that you can plan within the sources of income (by using the relevant
provisions of the Income Tax Act applicable to the aforementioned sources of income), as well as
by availing deductions to GTI.
Now, one may ask – “how do I undertake this activity if I’m a novice?”
Well, the answer is pretty simple! You can either get it done at the company you work for (many
organisations do offer this facility), ask your CA / tax consultant to do it, or use the convenience of
the new and updated tax portals that have emerged in the more recent times. But, along with all
this please do not forget to do your self-study to carry out an effective tax planning exercise. One
must note that it is vital to know at least those provisions of the Income Tax Act, which directly
have an impact on your personal finances.
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Step 2: Compute the Net Taxable Income

After having done with computation of GTI by using the relevant provisions of the Income Tax Act
for each source of income, the next step is to compute your Net Taxable Income (NTI).
Under NTI from the GTI, the various deductions under chapter VIA which allow for deduction
under Section 80 of the Income Tax Act, should be accounted for (i.e. subtracted from your GTI),
which would thus reduce your taxable income. The following deductions enable you to reduce tax
liability, as it covers Sections for:
• Investing in tax saving instruments (under the popular Section 80C)

• Premium payment for your medical insurance
• Expenditure on handicapped dependent
• Interest paid on loan taken for higher education
• Donations
• Rent paid for residential accommodation
• Expenditure incurred on specified diseases suffered by you
…and many more!
Remember, if you use the respective provisions effectively to do tax planning, it will enable you to
achieve the long-term objective of wealth creation.
Step 3: Calculate the tax payable

After having effectively saved tax in the prudent way mentioned above, the next step is to compute
your tax liability based on the present income tax slabs.
The income tax rates for Individual tax payers and HUFs for FY 2018-2019 are as follows:
Net Taxable Income (in Rs) Rate*

Up toRs 2,50,000 [For individuals (including NRIs / PIOs and HUFs)
Upto Rs 3,00,000 (for Resident Senior Citizens 60 years and above but
below 80) Nil
Upto Rs 5,00,000 (for Resident SuperSenior Citizens aged 80 and
above)
#
Rs 2,50,001 to Rs5,00,000 5%
##
Rs 5,00,001 to Rs 10,00,000 20%
Above Rs 10,00,000 30%
(Source: Finance Act 2018, Personal FN Research)
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#For Resident Senior Citizens of 60 years of age and above but below 80 years of age, the slab is
between Rs.300,001 to Rs 5,00,000 taxable @ 5%.
##For Resident Super Senior Citizens aged above 80 years, the second slab is between Rs 500,001
to Rs 10,00,000 taxable @ 20%.
*Additional surcharge @10% will be levied, if the total income in the financial year exceeds Rs50
lakh up to Rs1 crore.A surcharge @ 15% would be levied if your total income in the financial year
exceeds Rs 1 crore. This one-time surcharge will be in addition to the total 4% education cess
(renamed as health and education cess) that is paid on the total income-tax.
Union Budget 2013-14 had introduced a new Section 87A which allows a Tax Credit or Special
Rebate of Rs 2,000 to individuals who’s NTI (Net Taxable Income) is below Rs 5 lakhs. This
rebatewas increased in union budget 2016-17 to Rs 5,000. For the FY 2017-18, the eligible income
has been reduced to Rs 3.5 lakh from Rs 5 lakh and the maximum rebate is Rs 2,500. There is no
change in the regulations of Section 87A for the FY 2018-19, i.e. the eligible income stands at Rs
3.5 Lakhs and the maximum rebate that can be claimed is Rs 2,500.
So if your tax liability is say Rs 1,500, you will get a tax credit of only Rs 1,500 under Section 87A
and no tax will be payable. This rebate is applied to the total tax before adding the Education Cess
(4%).
Now let us see how you can compute your income tax liability:
Say if your grosstaxable income is Rs 11 Lakh in the current financial year, and you invest Rs
1,50,000 in ELSS; your tax liability will be computed as under:
Computation of Tax Liability (AY2019-20)

Tax
Gross Total Income (A) 11,00,000
Rate
Investments done in FY 2016-17
ELSS 1,50,000
Eligible for deduction u/s. 80C (B) 1,50,000
Net Taxable Income (in Rs) = (A) – (B) 9,50,000
Upto 2,50,000 Nil -
Rs 2,50,001 to Rs 500,000 5% 12,500
Rs 500,001 to Rs 10,00,000 20% 90,000
Rs 10,00,001 & above 30% -
Tax payable (in Rs) 1,02,500
Education Cess 4% 4,100
Total Tax Liability (in Rs)*
1,06,600
8 Includes 4% health and education cess
This is for illustrative purpose only
(Source: Personal FN Research)
Tax Slabs For Calculating Tax

Income (In Rs) Tax Liability (In Rs)
Upto 2,50,000 Nil
Between 2,50,001 – 5,00,000 5% of income in excess of 2,50,000
Between 5,00,001 – 10,00,000 12,500 + 20% of income in excess of 5,00,000
1,12,500 + 30% of income in excess of
Above 10,00,000
10,00,000
Source: Finance Act 2018, Personal FN Research)
Parameters for “prudent tax planning”:

A prudent exercise of tax planning also extends to appropriate investment planning, which also
takes into account your ideal asset allocation by considering the under-mentioned factors. Hence,
after you have utilised the tax provisions within each head / source of income for effective
reduction in GTI, you must also consider the following parameters as these will enable you to
optimally reduce your tax liability.
• Age
Your age and the tenure of your investment plays a vital role in your asset allocation. The younger
you are, the more risk you can take and vice-a-versa. Hence, for prudent tax planning too, if you
are young, you should allocate more towards market-linked tax saving instruments such as Equity
Linked Saving Schemes (ELSS), Unit Linked Insurance Plans (ULIPs) and National Pension System
(NPS); as at a young age the willingness to take risk is generally high. One may also consider taking
a home loan at a younger age, as the number of years of repayment is more along with your
willingness to take risk being high.
Another noteworthy point is that the earlier you start with your investments, the greater is the
tenure you get while investing in an investment avenue, which can enable you to make more
aggressive investments and create wealth over the long-term to meet your financial goals.
Let’s understand this much better with the help of an illustration.

An early bird gets a bigger pie
Particulars Suresh Mahesh Rajesh

Present age (years) 25 30 35
Retirement age (years) 60 60 60
Investment tenure (years) 35 30 25
Monthly investment (Rs) 7,000 7,000 7,000
Assumed Returns per annum 10% 10% 10%

Sum accumulated (Rs) 2,67,97,937 1,59,55,277 93,65,232
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Note: The names and returns mentioned above are an assumption and used for illustration purpose only
The table reveals that, if Suresh starts at age 25, and invests Rs 7,000 per month in an ELSS / Tax
saving mutual fund scheme through SIPs (Systematic Investment Plans)until retirement (age 60).
His corpus at retirement will be approximately Rs2.67 crore at an assumed rate of return of 10%
p.a. If Mahesh starts at age 30, a mere 5 years after Suresh, and invests the same amount in ELSS
(through SIPs) until retirement (also at age 60). His corpus will build up to approximately Rs 1.59
crore at same assumed rate of return, note the difference between the twocorpuses here. And
lastly, we have Rajesh, the late bloomer of the lot. If he begins investing at age 35, the same
amount every month in an ELSS as Suresh and Mahesh, and invests up to his retirement (also at
age 60);his corpus will be, in comparison, a meagre Rs 93 lakh.
The following graph clearly indicates the gap between the accumulated corpuses for similar level
of investment per month and assumed rate of return.
3.00
Suresh
Amount Invested
2.50
Amount Accumulate
2.00
(Rs in Crore)
Mahesh
1.50
Rajesh
1.00
0.50
0.00
25 30 35
Age
Thechart depicted is for illustrative purpose only. (Source: Personal FN Research)
• Income
Similarly, if income is high, the willingness to take risks is also high. This can work in your favour,
as you have sufficient annual GTI which allows you to park more money towards market-linked
tax saving investment instruments, which have the potential of generating higher returns and crea-
ting a good corpus for your financial goal(s).
A higher GTI can also make your eligiblefor an increased home loan, which too can help to optima-
lly reduce your tax liability. Now, one may say that if I have a high income, - why do I need a home
loan. I can straight away go ahead and buy the property! Sure, you can; but the Income Tax Act
provides you the tax benefit for repayment of principal amount along with the interest on loan
taken, which you will miss. Also, considering that you are financially strong, you can also donate
some of your money towards a noble cause, as doing so will make you eligible for a tax benefit
(under section 80G of the Income Tax Act – which is discussed later on in this guide).
Similarly, if your income is not high enough or if you do not want to put your money at risk; you can
invest in tax saving instruments that provide you assured returns. These instruments can be Public
Provident Fund (PPF), National Savings Certificates (NSCs), 5 Year Bank Fixed Deposits, 5 Year
10 Post Office Time Deposits and Senior Citizen Savings Scheme (provided you are a senior citizen).
• Financial goals
The financial goals, which one sets in life, also influence the tax planning exercise. So, say for exam-
ple your goal is retiring from work 5 years from now, then your tax saving investment portfolio will
also be less skewed towards market-linked tax saving instruments, as you are quite near to your
goal and your regular income would stop.
Likewise if you are many years away from your financial goal, you should ideally allocate maximum
allocation to market linked tax saving instruments and less towards those tax saving instruments
which provide you low assured returns.
• Risk appetite
Your willingness to take risk, which is a function of your age, income, expenses, nearness to goal,
will be an important determinant while doing your tax planning exercise. So, if your willingness to
take risk is high (aggressive), you can skew your tax saving investment portfolio more towards
market-linked instruments. Similarly, if your willingness to take risk is relatively low (conservative),
your tax saving investment portfolio can be skewed towards instruments which offer you assured
returns, and if you are a moderate risk taker you can take a mix of around 60:40 into market-linked
tax saving instruments and assured return tax saving instruments respectively.
We understand the fact that a “prudent tax planning” exercise can be time consuming and
complex. But please note the fact that it’s an annual activity which every tax payer has to go
through – and if you start early and plan properly, the task becomes easier.
Remember, delay will only ensure that you invest at the last moment but not in line with the
parameters discussed above. If you are hard pressed for time, consider hiring a competent tax
consultant along with an investment advisor.
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IV - How to save tax

with Section 80C
Section 80C of the Income Tax Act enables an individual or a Hindu Undivided Family (HUF) to
effectively invest in tax saving instruments, in order to optimally reduce their tax liability. This is
seen as one of the most sought after sections when it comes to tax planning.
In order to leave more money in the hands of the salaried class, hit by rising prices, the deduction
limit under this Section is currently at Rs 1.50 lakh p.a.
The Section offers you host of popular investment instruments mentioned hereunder which
qualify you for a deduction from your Gross Total Income (GTI):
• Life Insurance Premium

• Public Provident Fund (PPF)
• Employees’ Provident Fund (EPF)
• SukanyaSamriddhiYojana
• National Saving Certificate (NSC) , including accrued interest
• 5-Year fixed deposits with banks, Post Office, HUDCO and NHB
• Senior Citizens Savings Scheme (SCSS)
• National Pension System (NPS)
• Unit-Linked Insurance Plans (ULIPs)
• Equity Linked Savings Schemes (ELSS)
• Pension Plans
• Tuition fees paid for children’s education (maximum 2 children)
• Principal repayment on Housing Loan
Hence, if you invest in any or all of the aforementioned instruments; you would qualify for
deduction under this section subject to the maximum of Rs1.50 lakh p.a. But we think rather than
just merely investing in any of the above tax saving instruments, you can also use these tax saving
instruments for prudent tax planning.
Now you may ask “how”?
Well, it’s simple! In the aforementioned list you can classify the tax saving instruments into those
offering variable returns (i.e. market-linked instruments) and those offering fixed returns (i.e.
assured return instruments). By doing so you would be able to ascertain which investment
instrument suits you best (taking into account the factors mentioned above) and would extend
your tax planning exercise to investment planning too.
Let’s discuss in detail the classification into market-linked tax saving instruments and assured
12 return tax saving instruments.
Tax Planning with market-linked instruments:

If you are young, income is high, and therefore your willingness to take risk is high along with your
financial goals being far away, then this category would be suitable for you. Under this category, you
can invest in the capital markets, which will give you variable returns. Following are the
market-linked tax saving instruments that are available for investment under Section 80C.
1. Equity Linked Savings Schemes (ELSS):

These are mutual fund schemes, which are diversified equity funds providing tax saving benefits
popularly known as Equity Linked Savings Scheme or ELSS.
A distinguishing feature about ELSSis that they are subject to a compulsory lock-in period of three
years, but the minimum application amount in most of them is as little as Rs 500, with no upper
limit. In ELSS, you can make either lump sum investments or investments through aSystematic
Investment Plan (SIP). In case of the latter, each instalment has a 3-year lock-in period.
And if you ask, who can invest in ELSS? Individuals and HUFscan invest in ELSS. It is noteworthy
that, in the long-term if you intend to create wealth, then this tax saving funds has potential togive
you luring inflation-adjusted returns.
You may say – “but there is risk involved”. Well, no doubt about that; but in order to even out the
shocks of volatility in the equity markets you can adopt the SIP route of investing here which will
provide you the advantage of “compounding” along with “rupee-cost averaging”.
SIPs in ELSS can help you tackle volatility and may help you gradually create wealth in the long run.
While considering an ELSS mutual fund for your market-linked tax-saving portfolio, give
importance to those ELSS mutual funds that have completed at least 3 years of track record and
select schemes from mutual fund houses which follow strong investment systems and processes.
Don’t get lured just by returns clockedbecause there’s more to evaluating a mutual fund scheme
than just returns. Moreover, past performance does not guarantee that the fund will continue to
fare in the same manner in the future. Hence look for a fund with a consistent performance track
record besides qualitative aspects like fund house pedigree, investment process, quality of fund
management team, among others.
Want to know the best tax saving funds for your investment portfolio? Click here
Deduction: The maximum tax benefit which an Individual or HUF can enjoy under Section 80C is
Rs 1.50 lakh p.a.
With the re-introduction of long term capital gains tax (LTCG) on equities in the budget, ELSS
funds are no longer tax exempt and therefore any long term capital gain arising from sale of ELSS
funds after 3 years (compulsory lock-in) will be taxed at 10%, over and above the limit of Rs 1
Lakh, without indexation benefit.
Want to know the mistakes to avoid when investing in ELSSs, click here.
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2. Pension Funds:
Pension funds (or retirement funds) offered by mutual funds can not only be used for tax planning,
but are also an effective instrument to plan for a peaceful retired life.
Most pension funds are hybrid in nature. At the vesting age, you can opt for regular pension
bysystematically redeemingthe units. They are suited if you want to kill two birds in one shot,
namely tax planning and retirement planning.
Some schemesmay not help in maximising wealth as a dominant portion of the assets is skewed
towards debt. Also, debt-oriented schemes aren’t very tax efficient due to LTCG tax liability. You
may consider schemes offering a “Wealth Creation” plan, which invest over 65% of the portfolio
in equity. But keep in mind that an equity oriented pension plan will be considered as an equity fund
and any long term capital gain will be taxed at 10% over Rs 1 Lakh, with no indexation benefit.
Deduction: The amount invested inpension funds qualifies for deduction under Section 80C,
subject to a maximum limit of Rs 1.50 lakh p.a.
3.Unit-Linked Insurance Plans (ULIPs):

These are typically insurance-cum-investment plans that enable you to invest in equity and / or
debt instruments depending on what suits you as per your age, income, risk profile and financial
goals. All you simply need to do is, select the allocation option as provided by the insurance
company offering such a plan. Generally they are classified as “aggressive” (which invests in equity),
“moderate or balanced” (which invests in debt as well as equity) and “conservative” (which invests
purely in debt instruments).
Hence, apart from the insurance cover (which is usually 10 times your annual premium) offered
under these plans, the returns which you would get are completely market-linked as your
premium amount (after accounting for allocation and other charges) is invested in equity and debt
securities.
And in order for you to track such plans, the NAV is declared on a regular basis. These policies have
a minimum 5-year lock-in period, and also have a minimum premium paying term of 5 years. The
overall term of the policy would vary from product to product.
In case of any eventuality, the beneficiaries would be paid the sum assured or fund value, whichever
is higher. But a noteworthy point is, while some well selected ULIPs may add value to your
portfolio in the long-term; your insurance and investment needs should be dealt separately, thus
enabling you to have an optimum insurance coverage and the right investment instruments for
long-term wealth creation.
Deduction: The premium which you pay for your ULIP would be eligible for tax benefit, subject to
the maximum eligible amount of Rs1.50 lakh p.a. as available under Section 80C.
Moreover, at maturity the amount which you or your beneficiary would receive is tax-free
(exempt) as per the provisions of Section 10(10D) of the Income Tax Act, subject to conditions
14 specified.
4. National Pension System (NPS):

National Pension System, launched in 2004, was earlier available only for Government employees,
but from May 1, 2009,the scheme was also introduced for people in the unorganised (private)
sector, as a need for deeper participation in the pension contribution (through this product) was
felt.
For NPS, if you (eligibility age: from 18 years to 60 years) belong to the unorganised sector (i.e.
private sector); the contributions done by you towards the scheme would be voluntary, and you
can invest in any of the two under-mentioned accounts:
• Tier-I Account:
This account is a mandatory account and the minimum investment amount is Rs 500 per
contribution and Rs 1,000 per year, plusyou are required to make minimum 1contribution
in a year. If you don’t contribute the minimum required, the account will be frozen. And
to unfreeze the account, you need to contribute the total of minimum contribution for
the freeze period and a penalty of Rs 100.
In a tier-I account, partial withdrawals can commence after 3 years from date of account
creation (with effect from 10th August 2017), reduced from 10 years earlier. In addition
to this, the withdrawal amount should not exceed 25% of the contributions.
Under this account, there are restrictions on the withdrawals i.e. before attaining the age
of 60 years, only 20% of the contribution can be withdrawn, while an annuity has to be
compulsorily purchased with the remaining 80% corpus. After attaining the age of 60
years, 60% of the contribution can be withdrawn while an annuity has to be compulsorily
purchased with the remaining 40% corpus.
Withdrawals are allowed only against specific reasons such as child’s higher education,
marriage of children, purchase or reconstruction of residential property and for
treatment of critical illnesses.
The objective of this account is to build a retirement corpus and subsequently buy a life
annuity. You can operate this account anywhere in the country, irrespective of your
employer and job location.
• Tier-II Account:
This account is a voluntary savings account. To have Tier-II account, you first need to have
a Tier-I account.
For opening the tier-II account you will have to make a minimum contribution of Rs
1,000. From the Tier-II account you’re permitted to withdraw as and when you wish to.
So, it operates like your saving bank account and is flexible in a sense. However, since this
account does not have a lock-in period for funds to be invested, it is unavailable for a tax
benefit.Even if you hold both the above accounts under NPS, only the Tier-I account will 15
be eligible for tax benefits.
While investing money in NPS, you have two investment choices i.e. “Active” or “Auto” choice.
Asset Class E - Equity

Market Instruments
Active Choice
Auto Choice
Asset Class C - Other than Lifecycle Fund
Government Secutrities
Asset Class G -
Government Secutrities
Under the “Active” choice asset class, your money will be invested in various asset classes termed
as ECG viz. E (Equity), C (Credit risk bearing fixed income instruments other than Government
Securities) and G (Central Government and State Government bonds); where you will have an
option to decide your asset allocation into these asset classes.
In case of Auto Choice, which is the lifecycle fund, money will be invested automatically based on
the age profile of the subscriber. And if don’t you signify the choice while investing, the auto choice
will be the default option.
Recently, to attract more investments from the private sector, PFRDA proposed to offer a couple
of additional investment options. The new investment options are called: 'Aggressive Life Cycle
Fund' and 'Conservative Life Cycle Fund'.In the former, you can invest up to 75% in equities; while
in the latter25% will be parked in equities. The purpose of introducing these additional investment
optionswas to attract young investors, who can afford to take the risk and on the other hand
forthe risk-averse investors.
Exit option for NPS:
At the age of 60, you can exit NPS. However, you are required to invest a minimum 40% of the
fund value to purchase a life annuity. And the remaining 60% of the money can be withdrawn in
lump sum or in a phased manner upto your age of 70 years. As per current tax laws, 60% of the
amount (lump sum withdrawal) won’t attract any tax i.e. will be tax-free. The remaining 40%
amount, which has to be mandatorily utilised to purchase an annuity, will also be exempt from tax.
To summarise, all NPS proceeds will be completely tax – free.

For exit from NPS before the age of 60, compulsory annuity of minimum 80% of fund value need
to be purchased. The remaining 20% of the money can be withdrawn. But if the corpus is less than
Rs 1 lakh, complete withdrawal is permitted.
16
At the time of death of the subscriber, the entire accumulated corpus (i.e. 100%) will be paid to
the nominee or legal heir. There will not be any purchase of annuity and the entire proceeds
received will be tax free in the hands of the nominee/legal heir.
Deduction:Those who are salaried employees may claim deduction under Section 80CCD(1)up
toRs1.5 lakh for their own contributions towards NPS account (As per Section 80CCE, the
aggregate amount of deduction under Sections 80C,80CCC and 80CCD(1) cannot exceedRs1.5
Lakh).
In addition to this, a deduction can be claimed under Section 80CCD(2) if there is any contribution
made by the employer but only up to 10% of their salary (Basic Salary +Dearness Allowance). It
is noteworthy that the deduction under Section 80CCD(2) can be claimed over and above the
permissible deductions under Section 80C.
If an Individual contributes from his income alone towards NPS, it will be considered within the
limits of Rs 1. 5 lakh p.a. under Section 80CCE (As per Section 80CCE, the aggregate amount of
deduction under Section 80C,80CCC and 80CCD(1) cannot exceed Rs1.5 Lakh).
It is only if the employer contributes to employee for NPS – Section 80 CCD(2) is applicable.
So, to avail this extra tax exemption limit, the employees need to convince their employers to start
contributing to NPS.
Those who are self-employed can avail deduction under Section 80CCD(1) upto 20% of their
gross total income (which is comprised of income computed under different heads before
reducing it by all other deductions available under Section 80). In addition to deductions under
Section 80CCD(1), self-employed people are also entitled to deductions under Section 80C for
other instruments eligible therein.
In the Union Budget 2015-16 Government inserted a new sub section 80CCD(1B) in section
80CCD which provides additional deduction of Rs50,000 for contribution made by Individual
assessee under the NPS(On this additional contribution, the celling of Rs1.5 lakh under section
80CCE is not applicable).
Non-Resident Indians (NRIs) also can actively participate in NPS.
17
Tax planning the “assured return” way:

In case your risk appetite for market-linked instruments is low owing to their volatility, you may
invest in tax saving instruments which offer assured returns. Here are the tax-saving instruments
available under this category:
1. Non-Unit Linked Life Insurance Plans:

Life Insurance plans can be broadly classified as “pure term life insurance plans” and
“investment-cum-life insurance plans”.
Pure term life insurance plans are authentic indemnification plans, as they cater to the need of only
protection (the death benefit) and not investment(maturity benefits). Hence, such plans offer a
higher coverage at low premiums. Generally, the term insurance plans offer a policy term of 10,
15, 20, 25 or 30 years.
Investment-cum-life insurance plans on the other hand, as the name suggests, offer you an
investment (maturity benefit)option along with insurance option(the death benefit). But here, your
insurance coverage is far lesser than the one provided under pure term insurance plans. You pay a
high premium, which gets invested, but insurance coverage on the other hand is meagre. Such
insurance plans are offered in various forms such as, endowment plans, money-back plans, pension
plans etc.
We think that while you are considering your insurance needs, you should ideally look at only pure term
life insurance plans, thus keeping your insurance needs separate from investment needs.
Deduction: Over here too, the premium that you pay for such non-unit linked life insurance plans
would be eligible for tax benefit, subject to the maximum eligible amount of Rs1.50 lakh p.a. under
Section 80C.
Moreover, a positive point is that at maturity the amount, which you or your beneficiary would
receive, is exempt (tax-free) as per the provisions of Section 10(10D) of the Income Tax Act
subject to the conditions specified.
2. Public Provident Fund (PPF):

The Public Provident Fund (PPF) is one of the most popular investment in India today. PPF is a
scheme of the Central Government, framed under the PPF Act of 1968. Briefly, PPF is a
Government-backed, long-term small savings scheme which was initiated to provide retirement
security to self-employed individuals and workers in the unorganized sector.
So if you are keen on a safe corpus, earning a decent tax-free rate of return, enjoying tax benefit;
then PPF is for you. The contributions made to the PPF account, will earn a tax-free interest and
the maturity proceeds are exempt from income-tax. But while you invest, have a long-term
investment horizon; it can help you in retirement planning.
18
The main features of a PPF account are:
Eligibility Applicant needs to be a Resident Indian
No age is specified
Entry Age
(Minor is allowed through guar dian)
Interest rate 8% p.a. compounded annually*
15 financial years (plus the first year of

investment)
Tenure
On completion of 15 years, the account
can be extended in a block of 5 years
Minimum
Rs 500 p.a.
Investment
Rs 1,50,000 p.a.
Maximum
Investment (A maximum of 12 deposits allowed in a
financial year)
Up to Rs 1,50,000 under Section

Tax Benefit 80C;Interest earned is exempt from tax
and so are the maturity proceeds
Any Post Office and some authorized

Can be opened at
branches of Banks
Hindu Undivided Family (HUF);

Who cannot invest Non-resident Indians (NRIs);and
Person of Foreign Origin
Cash / Crossed Cheque / Demand Draft /
Mode of Payment Pay Order / Online Transfer in favour of
the Accounts Officer
Nomination Nomination facility is ava ilable
*The interest rate is currently 8% p.a. as on December 2018. This is subject to change.
19
Keep in mind, you need to be disciplined to make the most of your PPF investment, and also meet
your liquidity needs elsewhere; because under this investment avenue your money is blocked for
a good 15 years.
You can open the account in your name, and also in the name of your wife as well as children. If
you do not wish to open a separate account in the name of your wife as well as children, you can
nominate them; but joint application is not permissible.
The8% interest p.a. currently (quarter ended Dec 2018),(compounded annually) is tax-free, and
revised every quarter based on previous 3-month G-sec yield. The interest rate for every quarter
is decided on the 15th of the preceding month.
The interest to the account will be calculated on the lowest balance to the credit of the account
between the close of the 5th day and the end of the month, and will be credited to the account on
31st of March, each year.
Your annual deposit in the PPF account should at least be Rs 500, and you have the convenience
of depositing in either lump sum or in instalments not exceeding 12 such instalments. However, a
noteworthy point is that it is not necessary to deposit every month and the amount too can be any
amount in multiples of Rs 5, subject to the minimum (Rs 500) and maximum (Rs 1,50,000) amount.
As regards withdrawal from the account is concerned, it is permitted any time after the
completion of 6 years from the end of the year in which initial investment (subscription) to the
account is made. However, your withdrawal will be restricted to 50% of the amount which stood
to the credit of your account at the end of the 4th year immediately preceding the year of
withdrawal or at the end of the preceding year, whichever is lower. And in case if your term of 15
year is over, you can withdraw the entire amount together with the interest accrued till the last
day of the month, preceding the month in which application for withdrawal is made.
After your term of 15 years is over, if you wish to renew your account, you can do so for a period
of another 5 years at the rate of interest prevailing then, without having the compulsion of putting
any further deposits in case of extension. The withdrawal in case of extended accounts is
permissible once in every financial year. But the total withdrawal should not exceed 60% of the
balance accumulated to the account at the commencement of the extension period (of 5 years).
PPF offers loans against the account which can also help you during occasions such as a wedding
in the family, higher education of your children, etc. Above all, it gives you a peace of mind as your
money is safe.
In case you wish to invest in the name of HUF, you cannot do so. The Government has discouraged
HUFs from taking advantage of a scheme, whose objective is to create retirement nest egg for
resident individuals. Earlier an ‘HUF’ could open a PPF account and save tax on the deduction,
which has been stopped with effect from May 2005. However, existing PPF accounts of HUFs will
continue to operate normally until maturity, but cannot be extended beyond maturity, and no new
HUF PPF accounts can be opened.
Deduction: The contributions, which you make to the accounts mentioned above, are eligible for
20 tax benefit but subject to the maximum eligible amount ofRs 1.50 lakh p.a. as per Section 80C.
3. National Savings Certificate (NSC):
The NSC is also a scheme floated by the Government of India, and one can invest in the same
through his / her nearest post office, as the scheme is available only with India Post. The
certificates can be made in your own name, jointly by two adults, or even by a minor (through the
guardian), and has a tenure of 5 years. Earlier, a 10 year NSC was also available but vide a
notification by the Minister of Finance on December 1, 2015, the postal department has stopped
issuing certificates for this tenure.
The minimum amount that you can invest is Rs 100, with no maximum limit to the same. The
5-year NSC currently offers an8% rate of interest compounded annually; but here too, the
interest rate is reset every quarter based on previous 3-month G-sec yield. The interest income
accrues annually and is reinvested further in the scheme till maturity oruntil the date of premature
withdrawals. Premature withdrawals are permitted only in specific circumstances such as death of
the holder or with the court order.
Deduction: Yourinvestment in NSC is eligible for a deduction of upto Rs 1.50 lakh p.a. under
Section 80C. Furthermore, the accrued interest that is deemed to be reinvested in a financial year
qualifies for deduction under Section 80C in the respective financial year.
However, the interest income is chargeable to tax in the year in which it accrues. But, in case if
you have no other income apart from interest income, then in order to avoid Tax Deduction at
Source (TDS), you can submit a declaration in Form 15-G (for general or non-senior citizens) or
Form 15-H (for senior citizens) as applicable.
4. Bank Deposits and Post Office Time Deposits:
The 5-Yr tax saving bank fixed deposits available with your bank is also eligible for a deduction
under Section 80C and comes with a lock in period of 5 years. The minimum amount that you can
invest is Rs 100 with an upper limit of Rs 1.50 lakh in a financial year. The interest rates offered by
banks under 5-Yr tax saving fixed deposits are currently in the range of 6.50% p.a. to 8.25% p.a.
However, the interest earned here would be subject to tax deduction at source, making it
detrimental for your tax planning, but again you can submit a declaration in Form 15-G (for general
or non-senior citizens) or Form 15-H (for senior citizens) as applicable for not deducting tax at
source.
Similarly 5 Year Post Office Time Deposits (POTDs) also offer you a tax benefit under Section
80C. You can open the account either in single name, or jointly, or even in the name of a minor
(through a guardian) who has attained the age of 10. The minimum investment amount is Rs 200,
and there isn’t any upper limit. However, similar to other tax saving instruments, the investment
amount over Rs 1.50 lakh will not be eligible for any tax benefit. A 5-Yr POTD earns a return of
7.8% p.a. (compounded quarterly) but paid annually. As regards premature withdrawals are
concerned, they are permitted only after 1 year from the date of deposit and interest on such
deposits shall be calculated at the rate, which shall be 1% less than the rate specified for a period
of 5-Year deposit.
Deduction: Yourinvestment in both these schemes is eligible for a deduction of upto Rs 1.50 lakh
p.a. under Section 80C. Remember though, the interest earned on your investments will be 21
taxable.
5. Senior Citizens Savings Scheme (SCSS):
Well, the SCSS is an effort made by the Government of India for the empowerment and financial
security of senior citizens. So, in case if you are age 60 years and above, you are eligible to invest
in this scheme. Moreover, if you have attained 55 years of age and have retired under a voluntary
retirement scheme; then too you are eligible to enjoy the benefits of this scheme.
In order to avail the benefits of this scheme, you are required to open a SCSS account (either in a
single name, or jointly along with your spouse) at your nearest post office or any nationalised
bank. You can do a onetime deposit under this scheme subject to the minimum investment
amount of Rs1,000 and a maximum of Rs 15 lakh. The maturity period provided for this scheme
is 5 years while interest is payable on a quarterly basis (i.e. on March 31, June 30, September 30
and December 31) every year from the date of deposit.
Currently the SCSS offer an interest @ 8.70% p.a compounded quarterly (for the quarter ended
31st December 2018) and is reset every quarter based on previous 3-month G-sec yield.
After maturity, you can extend the SCSS account for a period of 3 years but within 1 year from
the maturity by giving application in prescribed format. In case of accounts which are extended
after maturity, the accountscan be closed any time after the expiry of 1 year of extension without
any deduction. Premature withdrawals are permitted only after one year from the date of ope-
ning the account. If you withdraw between 1 and 2 years, 1.5% of the initial amount invested will
be deducted. And in case if you withdraw after 2 years, 1.0% of the balance amount is deducted.
Deduction: Your investments upto Rs 1.50 lakh in SCSS are entitled for a deduction under Section
80C.
However, the interest earned by you would be subject to tax deduction at source. But in case if
you have no other income apart from interest income, then in order to avoid Tax Deduction at
Source (TDS), you can submit a declaration in Form 15-G (for general or non-senior citizens) or
Form 15-H (for senior citizens) as applicable.
6. Sukanya Samriddhi Scheme (SSS):
Launched in January 2015, the Sukanya Samriddhi Scheme allows you to save and invest for your
daughter’s education and marriage. As parents or a legal guardian, you can open an account in the
name of the girl child from her birth upto her age of 10. After she is 18 years, she can even operate
the account herself.
You can open an account for a maximum of two girl childrenfollowing the KYC norms. Standard
KYC documents apply. Currently, the rate of interest for SukanyaSamriddhi (SSA) is 8.5%
compounded annually (for the quarter ended 31st December 2018). Like other small saving
schemes, this interest rate is reset every quarter based on previous three month G-sec yield.
You can invest a minimum of Rs250 and a maximum of Rs 1,50,000 in one financial year. Deposits
in an account can be made till completion of 14 years, from the date of opening of the account.
50% of the balance lying in the account as at the end of previous financial year can be withdrawn,
22 when the girl child turns 18 for the purpose of education or marriage.
The account shall mature on completion of 21 years from the date of opening of the account,
provided that where the marriage of the account holder takes place before completion of such
period of 21 years, the operation of the account shall not be permitted beyond the date of her
marriage.
SSS is a good investment option. However, along with SSS, you must also invest in other
investment instruments depending upon your risk appetite and time horizon.
Deduction: Investments/deposits in SSS are eligible for a deduction under Section 80C of the
Income-Tax Act, subject to maximum of Rs 1.5 lakh p.a.
Options Galore - Snapshot of Section 80C
Min – Max Premature Current Tax on

Schemes Interest Rate Tenure returns
Investment Withdrawal
Tax planning with market-linked instruments
Varies from scheme Dividend
Term: Ongoing;
Equity Linked Savings Market-Linked to scheme. Can range &Capital gains
Lock-in-period: 3 No
Scheme (ELSS) Returns fromRs 500 - No tax applicable
years
upper Limit
Capital gains
post lock-in are
tax free
Term: 10 - 20
+
Unit Linked Insurance Plans Market-Linked years; Premium varies from
Yes* maturity
(ULIPs) Returns Lock-in-period: 5 scheme to scheme
amount would
years
be tax-free
(exempt) as per
Sec on 10(10D)
Tax free
Rs500 per month or
Na onal Pension System Market-Linked withdrawals
30-35 years Rs1,000 per annum, Yes*
(NPS) Returns and annuity is
no upper limit
also tax exempt
Tax planning the "assured return" way
Interest income
8% p.a.#
and maturity
Public Provident Fund (compounded 15 years^ Rs 500 - Rs 1. 5 lakh Yes*
amount is tax
annually)
free
Interest income
8.50% p.a.
and maturity
Sukanya Samriddhi Scheme (compounded 21 years Rs 1,000 - Rs 1. 5 lakh Yes*
amount is tax
annually)
free
8% for 5 Yr deposit#
Rs100 - No upper
Na onal Savings Cer ficate ( compounded 5 years No
Limit
annually)
Bank Deposits 6.50% - 8.25% 5 years No upper Limit No Interest

accrued
5-Yr: 7.8%; is taxed every
(compounded Rs 200 - No upper year as per
Post Office Time Deposit 5 years Yes*
quarterly & paid Limit one’s income-
annually) tax slab
8.7% p.a.
Senior Ci zens Savings (compounded
5 years Rs 1,000 - Rs 15 lakh Yes*
Schemes quarterly payable
quarterly)
maturity
Premium depends amount would
Sum Assured Only Varies from
Non-ULIP Insurance Plans 5-40 years upon the insurance be tax-free
(i.e. Insurance Cover) policy to policy
cover (exempt) as per
Sec on 10(10D)
All information is as of December 31, 2018

* Partial withdrawals allowed subject to conditions; ^can be extended in tranches
23
of 5 years; #Interest rates would be re-set every quarter.
7. Tuition fees paid for children’s education (maximum 2 children):
The tuition fees that you pay to any university, college, school or other educational institution
situated within India for your children’s education is also eligible for deduction under Section 80C.
However, the fees paid towards any coaching centre or private tuition may not be eligible.
Also you need to note that this deduction is available only to individual assessee and not for HUF,
and is limited to Rs 1.50 lakh fora maximum of twochildren. If someone has four children, then the
husband and wife both can enjoy a separate limit of two children each, so they can separately claim
deduction (up toRs 1.50 lakh) for 2 children each, subject to the amount they have actually paid.
8. Principal repayment on Housing Loan:
You always wanted to have your dream home and now you have been able to get it with the help
of a housing loan from a bank or a financial institution.
But after you have availed of a home loan, you have the obligation to repay the principal amount
of the loan on time. The “repayment of principal amount”, makes you eligible to claim a deduction
upto a sum of Rs 1.50 lakh under Section 80C; and that benefit is available with you irrespective
whether you stay in the same property (Self Occupied Property - SOP), or have let it out on rent
(Let Out Property LOP).
You can also claim tax benefit on the interest you pay on your housing loan, but under a separate
section (Section 24 which is covered in detail at the later stage in the guide)
In case you have taken a second home loan for another property, then the principal amount repaid
(up to Rs 1.50 lakh) for the home loan taken only on your self-occupied property qualifies for
deduction under Section 80C. You cannot claim deduction for the principal repayment made
against the home loan on the other property.
24
V - Thinking beyond
Section 80C
Well, most people think that tax planning ends with Section 80C; but please note that there’s
more to tax planning than just investment instruments specified under Section 80C. Our Income
Tax Act, 1961 also considers the humane side of our life and also gives deduction for such
expenditure. So, in case if you pay your medical insurance premium, incur expenditure on the
medical treatment of a “dependent” handicapped, donate to specified funds for specified causes,
contribute in monetary form to political parties or electoral trusts, take a loan for pursuing higher
education, or if you are an individual suffering from “specified” diseases; then all this too can help
you effectively plan your tax obligations, thereby optimally reduce your tax liability.
So, let’s understand how each of the above expenses for a cause or an investment, can help you
effectively in tax planning. Herein below is the list of some major ones.
1. Premium paid for medical insurance (Section 80D):
The premium paid by Individual or HUF on medical insurance policy (commonly referred to as a
Mediclaim policy) to cover your spouse and you, dependent childrenand parents against any
unexpected medical expenses, qualifies for a deduction under Section 80D. Even HUFs can avail
a tax benefit under this Section, by paying premium for the benefit of any member of the HUF.
The Union Budget 2015-16 has increased the maximum amount allowed annually as a deduction
(from your GTI) to Rs 25,000 (from Rs 15,000 earlier), in case you are non-senior citizen paying
self, spouse and dependent children. For senior citizens too, the maximum deduction has been
increased to Rs50,000 (from Rs30,000 earlier).
Types of permissible deductions under section 80D are:
1. Tax deduction on health insurance premium paid for you & your family
2. Tax deduction on health insurance premium paid for your parents
3. Tax deduction on preventive health check-up expenses
4. Tax deduction on medical expenses of super senior citizens
The maximum deduction possible under this section is Rs1,00,000 (increased from Rs 60,000
earlier). Below is the table will give you brief idea of deduction limits under section 80D:
25
Preventive Health
Individuals covered Exemption Limit Total
Check-Up Expense
Self and family (self, spouse
and dependent children) Rs 25,000 Rs 5,000 Rs 30,000
Self & family + parents Rs 50,000 = Rs (25,000 +
(below 60 years) Rs 5,000 Rs 55,000
25,000)
Self & family + senior citizen Rs 75,000 = Rs (25,000 +
parents(above 60 years) Rs 5,000 Rs 80,000
50,000)
Senior citizen self & family +
senior citizen parents (self and Rs 1,00,000 Rs 5,000 Rs 1,00,000
parent both above 60 years)
However, while paying the premium you need to ensure that the payment is made in any mode
other than cash.
If you are super senior citizens, who may not be covered by health insurance, the Union Budget
2015-16 has allowed a deduction of Rs50,000 towards expenditure incurred on your medical
treatment.
With effect from Assessment Year 2017-18, expenditure towards preventive health check-ups can
be claimed as deduction upto Rs 5,000 – irrespective of senior or non-senior citizen, and whether
in India or abroad (provided your health insurance policy permits and insurer is registered with the
Insurance Regulatory and Development Authority). This means, if you are paying a premium of
less than Rs 10,000; you may avail this benefit and save tax. But note that this deduction is very
much a part of this of maximum permissible deduction under Section 80D.
Here are a few exclusions when claiming deduction under Section 80D:
• Group health insurance policies are not eligible for tax deduction under Section 80D. However,
when you pay extra premium to enhance your group cover or buy a separate/additional health
insurance policy, a deduction thereto can be claimed.
• If children aren’t dependent, parents can’t claim deduction for their Mediclaim health insurance
premium and preventive health check-ups.
• Mediclaim insurance premium paid on behalf of in-laws–– irrespective whether dependent or

not––is not entitled for a deduction under Section 80D.
• The tax component in the premium amount cannot be claimed; only the premium amount is
allowed as deduction under Section 80D. The premiums should be paid in financial year relevant
to the Assessment Year.
26
2. Maintenance including medical treatment of

a handicapped dependent (Section 80DD):
If you have incurred any expenditure in the form of medical treatment (including nursing), training
and rehabilitation for a handicapped “dependent” suffering from disability, then the expenditure so
incurred by you qualifies for deduction under Section 80DD of the Income Tax Act. Similarly, if you
have deposited a sum of money under any scheme framed in this behalf by LIC (Life Insurance
Corporation of India) or any other insurer or administrator or a specified company (approved by
the Board), for maintenance of the “dependent” being a person with disability; also qualifies for a
deduction under Section 80DD.
The quantum of deduction here depends upon the severity of the disability suffered by the
“dependent”. Hence, if the “dependent” is suffering from 40% of any disability [Specified under
section 2(i) of the Person with Disability Act, 1955, then you would be entitle to a deduction of a
fixed sum of Rs 75,000 p.a. from your GTI irrespective of the expenditure incurred or amount
deposited. Similarly, if the “dependent” is suffering from severe disability (i.e. 80% of any
disability), then you claim a higher deduction of fixed sum of Rs 1.25 lakh, from your GTI
irrespective of the expenditure incurred or amount deposited.
It is noteworthy that over here, the term “dependent” means a person with disability andin case of
individuals it is spouse, children, parents, brothers and sisters; while in case of HUF means a
member of the HUF. Moreover, in order to claim the deduction you need to submit a medical
certificate issued by a medical authority along with your return of income. Also, if you are claiming
a deduction in your tax returns for such an expenditure incurred or amount deposited, your
“dependent” cannot claim a deduction under Section 80U in case he’s (handicapped dependent)
filing his tax returns separately.
3. Expenditure incurred on your medical treatment (Section 80DDB):
If you have incurred expenditure on your medical treatment of specified diseases (mentioned
below) or for your “dependents”, then too the expenditure so incurred, makes you eligible for
deduction under Section 80DDB of the Income Tax Act.
Specified disabilities:
• Neurological Diseases (where the disability level has been certified as 40% or more).
• Malignant Cancers
• Acquired Immune Deficiency Syndrome (AIDS)
• Chronic Renal failure
• Hematological Disorders
The deduction from your GTI, which you are entitled to, is Rs 40,000 or the amount actually paid,
whichever is lower. For both senior citizen and super senior citizen the deduction available has
been increased to Rs 1 Lakh from Rs 60,000 and Rs 80,000 respectively. It is noteworthy that over
here the term “dependent” means wholly or mainly dependent spouse, children, parents, brothers
and sisters in case of individuals, while in case of HUF the members of the family. Also, in order to
claim a deduction under this section, you are required to submit a medical certificate / prescription
from a specialist doctor (neurologist, oncologist, urologist, haematologist, immunologist, or any 27
other specialist).
4. Repayment of loan taken for pursuing higher education (Section 80E):
While pursuing a personal goal of enrolling for “higher education” in order to be competitive
enough to meet your financial goals; the Income Tax Act offers you deduction (from your GTI) on
the interest paid, when you take a loan to fulfil such dreams.
You can even take an education loan for your spouse or children’s education or for any person
(minor) for whom you are the legal guardian. But that makes you eligible for deduction under
Section 80E of the Income Tax Act, to the extent of the interest paid on such a loan taken. It is
noteworthy that HUFs are not allowed to claim deduction under section 80E in respect of interest
paid on loan taken for higher education. The deduction is available for a maximum of 8 years or till
the interest is paid, whichever is earlier. So, to simplify it further, the deduction is available from the
year in which you start paying the interest on the loan, and the seven immediately succeeding
financial years or until the interest is paid in full, whichever is earlier.
Here the term “higher education” means full-time studies for any graduate or post-graduate course
in engineering (including technology / architecture), medicine, and management or for
post-graduate courses in applied science or pure science including mathematics and statistics.
But from the Finance Act of 2011 its scope is extended to cover all fields of studies (including
vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from
any school, board or university recognised by the Central or the State Government or local
authority or any other authority authorised by the Central or the State Government or local
authority to do so. However, no deduction is available for part-time courses.
It is vital to note that deduction can be claimed only if the loan has been taken from a bank,
approved financial institution or an approved charitable institution.
5. Donations to certain funds and charitable institutions (Section 80G):
As mentioned earlier that our Income Tax Act considers the humane side of our life, and so if on
humanitarian grounds you donate to certain specified funds, charitable institutions, approved
educational institutions etc., the donation amount qualifies for deduction under this Section.
The deductions allowed can be 50% or 100% of the donation, subject to the limits stated under
the provision of this Section. For example, donations to “National Defence Fund” set up by the
Central Government are allowed 100% deduction, while for “Prime Minister Drought Relief
Fund” are allowed at 50%. If you make donations to any of the host of notified funds and / or
charitable institutions, you are eligible for deduction under Section 80G.
28
Funds / Charitable Institutions Amount Deductible

National Defence Fund 100%
Prime Minister’s National Relief Fund 100%
Prime Minister’s Armenia Earthquake Relief Fund 100%
Africa (Public Contributions – India) Fund 100%
National Foundation for Communal Harmony 100%
Approved university / educational institution 100%
Chief Minister’s Earthquake Relief Fund 100%
Swachch Bharat Kosh 100%
Clean Ganga Fund (for resident individuals only) 100%
National Fund for Control of Drug Abuse 100%
National Children’s Fund 100%
Jawaharlal Nehru Memorial Fund 50%
Prime Minister’s Drought Relief Fund 50%
Indira Gandhi Memorial Trust 50%
Rajiv Gandhi Foundation 50%
Note:This is not an exhaustive list and there are other funds and charitable institutions that are
eligible for deduction under Section 80G.
In order to claim deduction under this section, you are required to attach a proof of payment along
with your return of income.
6. Rent paid in respect to property occupied for

residential use (Section 80GG):
If you are a self-employed or a salaried individual who is not in receipt of any House Rent
Allowance (HRA), and is paying a rent for an accommodation (irrespective of whether furnished or
unfurnished) occupied for residential use, then you can claim a deduction under this section.
But as a pre-condition for availing deduction under this section,
• You must pay rent for the house you live in, and should not get HRA for even a part of the year
• You should not own and occupy any other house anywhere
• You or your spouse or your minor child (which includes step-child and adopted child) or Hindu
Undivided Family (if you are part of one) must not own any residential accommodation in the city
you reside or work in.
And the deduction which will be available to you under this section is the least of:
• 25% of your total income or,

• Rs5,000 per month or,
• Rent paid in excess of 10% of your total income
29
To claim deduction under section 80GG, you need to file a declaration in Form No. 10BA
7. Contributions made to any political parties or

electoral trust (Section 80GGC):
Say, if you are an ardent follower of any political party or electoral trust as you appreciate the work
done by them, and therefore decide to make a monetary contribution to the party or electoral
trust; the amount so contributed would be eligible for a deduction under this section, provided
such contributions are not made in cash.
8. Specified disability(s) (Section 80U):
As said earlier, that our Income Tax Act, 1961 considers the humane side of life. So if you as an
individual resident in India is suffering from any specified disability i.e. if you are suffering 40% or
more than 40% of any of the below specified diseases, then you would be eligible for deduction
under this section.
Specified disabilities:
• Blindness • Locomotor disability

• Low vision • Mental retardation
• Leprosy-cured • Mental illness
• Hearing impairment
The deduction available under this section is flat (i.e. fixed) Rs 75,000, immaterial of the
expenditure incurred. But if the disability is severe in nature (i.e. 80% or above), one is entitled to
flat (i.e. fixed) deduction of Rs1.25 lakh.
9. Rajiv Gandhi Equity Savings Scheme (RGESS) (Section 80CCG):
Rajiv Gandhi Equity Savings Scheme (or RGESS) was introduced in the Finance Act, 2012. The
deduction for investment in RGESS wasavailable only to a ‘new retail investor’ who complies with
the conditions that his/ her gross total income for the financial year (in which the investment is
made under RGESS) is less than Rs 12 lakh. The maximum investment permissible for claiming
deduction under RGESS is Rs 50,000 and the new retail investor would get a 50% deduction of the
amount invested from the taxable income for that year u/s 80CCG.
However, this section has been scrapped by the Finance Act, 2017-18. Hence, investing in RGESSs
eligible schemes will no longer offer tax benefits to new investors. An assessee who has claimed
deduction under this section for the assessment year 2017-18 and earlier assessment years, shall
be allowed deduction under it until the assessment year 2019-20.
10. Deduction for interest on savings bank account (Section 80TTA):
This Section allows individuals and HUF to avail a deduction for interest earned on a savings
account (with a bank, co-operative society and post office) to the extent actual interest or Rs
10,000, whichever is lower. Thus,the interest income earned from a saving account over Rs 10,000
will be subject to tax as per your tax slab. The benefit of this section cannot be applied on interest
earned on a term deposits (also known as fixed deposits), recurring deposits, or interest income
30 from corporate bonds.
Options Galore - Snapshot of deduction under other 80s
Section Quick Description of Deduction

Key investment instruments eligible for deduction under this Section include – Equity
Linked Savings Scheme (ELSS), Public Provident Fund (PPF), EPF (Employee Provident
80C* Fund), NSC (National Saving Certificate), Senior Citizen Savings Scheme (SCSS), 5-year tax
saving bank fixed deposits, 5-year Post Office Time Deposit (POTD) , premium paid for
life insurance plans, housing loan principal repayment, etc.
Contribution to Pension Fund of Life Insurance Corporation or any other insurer referred
80CCC*
in section 10(23AAB).
Contribution to Pension Scheme (National Pension Scheme) notified by Central
80CCD* Government. Additional deduction of up to Rs.50,000 is allowed for contribution
towards NPS which is over and above the limit of Rs 1.5 lakh under section 80 CCD(1B).
80D Premium paid for medical insurance
Maintenance including medical treatment of a handicapped dependent who is a person
80DD
with disability
80DDB Expenditure incurred in respect of medical treatment for specified diseases
80E Interest on loan taken for pursuing higher education
80G Donations to certain funds and charitable institutions
80GG Rent paid in respect of property occupied for residential use
80GGA Certain donations for scientific research or rural development
80GGC Contribution made to any political parties or electoral trust
80TTA Deduction in respect of interest earned on savings bank deposits
80U Person suffering from specified disability(s)
*The deduction limit is upto Rs.1.5 lakh aggregated across section 80C, 80CCC, 80CCD
Note: The list is not exhaustive, but only indicative
31
VI– How your home loan

can help in tax planning
While all of us have a dream of buying a dream home or constructing or reconstructing or
repairing our homes, it’s also important to consider the tax angle when we decide to do any of
these activities. For some of us, the amount of wealth we have created allows buying or
constructing or reconstructing or repairing or renewing homes from our own funds - i.e. without
opting for a “home loan”; but again doing so precludes you to avail of the tax benefits, which are
attached if one takes a loan for such activities.
Just to reiterate, please don’t rule out the financial planning aspect of number of years left with you for
repayment of your home loan.
Yes, our Income Tax Act, 1961 too considers our desire to buy or construct or reconstruct or
repair or renew our dream home and gets a little benevolent, if one avails of a loan to fulfil these
desires for one’s dream home. The Act encourages you to buy, to do the aforementioned activities
(for your home) with a loan, as it provides you with tax benefits (that come along with it). Both,
“repayment of principal amount” and “payment of interest” are eligible for tax benefit.
As we know that the “repayment of principal amount”, makes you eligible to claim a deduction
upto a sum of Rs 1.50 lakh under Section 80C; and that benefit is available irrespective whether
you stay in the same property (Self Occupied Property - SOP), or have let it out on rent (Let Out
Property - LOP).
In Union Budget 2016, the Government reintroduced Section 80EE (which was initially introduced
effective 2013-14 and was applicable for only 2 assessment years, 2014-15 and 2015-16) for first
time home buyer to avail an additional tax benefit of Rs 50,000, after satisfying certain conditions
which are:
• Value of the property is Rs50 lakh or less

• Loan taken for this house is Rs35 lakh or less
• Loan has been sanctioned by a financial institution or a housing finance company
• Loan has been sanctioned between 01-04-2016 and 31-03-2017
• As on the date of the sanction of the loan no other house is owned by you
But the additional tax benefit exemption can be availed after first exhausting limit under Section
24(b) for the interest portion.
32
The payment of interest amount (for the loan amount availed) is available for deduction under
Section 24(b). In the first full budget of the Modi-led-NDA Government announced in July 2014,
the deduction limit on interest payment of a home loan on a self-occupied property was increased
from Rs 1.50 lakh to Rs 2.00 lakh. If you as “first time home buyer” a satisfy conditions as
mentioned above for Section 80EE, the maximum sum you can avail for interest deduction under
Section 24(b) is Rs 2.00 lakh for SOP, plus an additional tax benefit of Rs 50,000 under Section
80EE. But if the house purchasedon a loan does not satisfy the conditions mentioned to enjoy
additional tax benefit under Section 80EE, you can’t claim the additional benefit under Section 80EE.
In case of let out the property on rent (LOP), the actual interest payable is eligible for deduction
under Section 24(b), thereby not being subject to any maximum limit. This applies even in the case
where you have two home loans for two different properties, where one is self-occupied and the
other is let out on rent.
Similarly, if you have taken a loan for the purpose of reconstructing, repairing or renewing the
property, the amount of deduction under Section 24(b) you are eligible for will be restricted to Rs
30,000, irrespective whether you want to stay in it or let it out on rent.
Let’s understand with an example how a home loan taken for “buying” your dream home to stay
in it (SOP) can reduce the total tax payable by you.
Let’s assume you earn Rs 6.5 lakh p.a. by way of salary and have taken a home loan of Rs 40 lakh
on February 1, 2016 for buying your dream home and you have decided to stay in it. The home
loan is for tenure of 20 years and the rate of interest is 9.0% p.a., the Equated Monthly Instalments
(EMI) you need to pay is Rs 35,989.
Tax savings on account of home loan
Particulars Particulars
Gross Annual Salary (Rs) 6,50,000 Principal paid in the 1st year (Rs) 74,908
Contributions towards
Loan Amount (Rs) 40,00,000 tax-efficient instruments (Rs)
1,50,000
Tax paid without availing home loan
Tenure (yrs.) 20 benefits (Rs) (includes deduction towards 80C) 13,000
Rate of Interest p.a.( % ) 9.0 Tax paid after availing home loan benefits (Rs) 2,600
EMI (Rs) 35,989 Tax Savings (Rs) 10,400
Annual Interest Paid (Rs) 3,56,960
(*tax calculated after giving effect for health and education cess)
33
The above table clearly shows the benefit of availing a housing loan if you are contemplating buying
a house. The total tax payable on your income without a home loan works out to Rs13,000 while
after availing a home loan works out to Rs 2,600, thereby saving you a tax outgo of Rs10,400.
Maximise your tax benefits
Now, let’s delve deeper into the benefits Now consider, you have invested in the
available. Say, your interest amount in the first following manner under Section 80C.
year is Rs 3.57 lakh – which is much more than
Particulars Amt. ( Rs)
the maximum amount (of Rs 2.00 lakh) allowed
Principal Repayment 74,908
as a deduction. Your principal repayment
Life Insurance 50,000
amount of Rs 74,908 is within the Rs 1.50 lakh
PPF 60,000
limit allowed under Section 80C. But, it takes
EPF 20,000
away almost half of the amount eligible under
NSC 20,000
Section 80C and leaves you with - Rs 75,092- to
Total 224,908
claim towards other tax saving instruments
Claim deductions under Section 80 C 150,000
such as PPF, NSC, Life Insurance, ELSS,
Contributed but can't claim tax
POTDs. benefit 74,908
So, now the next question is how do you claim maximum available deductions to minimise your
tax liability? The answer lies in taking a joint home loan. A joint home loan can be taken with your
spouse or relative.
Your
Particulars You
Let’s understand with an Spouse
example how a joint Gross Salary (Rs) 650,000 650,000
home loan with your Home Loan Amount (Rs) 4,000,000
spouse can help reduce Tenure (years.) 20
your tax liability. Rate of Interest p.a. 9.0%
EMI (Rs) 35,989
Assume your spouse and Annual Interest Paid (Rs) 178,480 178,480
you decide to take a joint Principal paid in the 1st year (Rs) 37,454 37,454
home loan of the same Life Insurance (Rs) 50,000 50,000
amount as mentioned Other contributions towards tax-efficient
above and share the loan instruments (Rs) 1,00,000 1,00,000
in ratio of 50:50. Total amount contributed under section 80C &
24(b) (Rs) 3,65,934 3,65,934
Amount which cannot be claimed to reduce tax
liability (Rs) 37,460 37,460
Tax Paid when: (Rs)
Note:* calculations are done
assuming that home loan and the 1. No home loan benefit availed 44,200 44,200
EMI paid by the assessee and the 2. Single home loan benefit availed 12,500 12,500
spouse are in the ratio 50:50 3. Joint home loan benefit availed 7,367 7,367
Total Household Tax Savings (Single Home
Loan) (Rs) 30,000
34 Total Household Tax Savings (Joint Home
Loan) (Rs) 36,767
Now since your spouse is a co-owner and has contributed towards repayment of the loan she too
would be eligible for the tax benefit (for both principal and interest component).
So, as indicated in the table above, if the principal and interest amount is shared equally between
your spouse and you, the contribution per person comes to Rs 37,454 for principal repayment and
Rs 1.78 lakh for interest payment. The principal amount is now half of what was earlier which
allows you to claim deductions towards other contributions. At the same time, it reduces the tax
liability to a significant extent and leads to a household saving of upto Rs 36,767. As compared to
a Single home loan, a Joint home loan leads to an additional household saving of Rs 16,167.
From the tax planning point of view, it is vital to ensure that the higher earning member pays
higher portion of the home loan EMI. This is because the tax benefit accrues in proportion to your
contribution towards loan repayment.
So, remember if you plan to buy a house, it makes sense to include your spouse as a co-owner;
especially if your spouse’s income is taxable. This will result in higher tax saving in addition to
boosting your loan eligibility.
35
VII - House Property

and taxes
After showing benevolent side by providing you with the tax benefit, for availing a home loan (to
buy or construct or reconstruct or repair or renew), the Income Tax Act then eyes the house
property* owned by you for taxing the same. And this applies especially when you have an income
from let out property, or in case where you have more than one property which aren’t let out on
rent, but which are vacant (known as Deemed to be Let Out Property – DLOP).
*Owning a farm house, which forms a part of your agriculture income, is not brought under the tax net.
Now you may ask - “How can the income tax authority tax me, if I have not let out my property
on rent”?
Well, that’s because “annual value” of your property after providing for deduction available under
Section 24(b) is taxed under the head “Income from House Property”. A noteworthy point is,
term “house property” includes building(s) or land appurtenant (i.e. attached) thereto as well.
And now the next question which may be popping on your mind is –
“What is annual value of the property

and which deductions are available?”
36
Annual Value:
To understand that better let us take a case where you

have let out the property (LOP) and then DLOP.
• Let Out Property (LOP)
In cases where you are enjoying a regular income from the property in the form of rent, then the
annual value of your property would be calculated by adopting the following steps:
a) Find out the reasonable expected rent of the property (which is municipal rent or fair rent,
whichever is higher)
b) Consider the rent actually received / receivable*
c) Take whichever is higher from a) and b)
d) Calculate loss due to vacancy (i.e. in case if the property is vacant for period(s) during the
financial year)
e) The difference between step c) and step d), will be your “annual value” – which is here
referred to as the “Gross Annual Value” (GAV)
Now when we go one step further and minus the municipal taxes paid by you (on the property)
from “step e)” you’ll arrive at the “Net Annual Value” of your property. But to avail the deduction
for municipal taxes; they have to be paid by the landlord only.
*Note: Rent earned by you from the property is calculated after subtracting any unrealised rent
from the tenant (i.e. in case if he defaults to pay)
• Deemed to be Let Out Property (DLOP)
In case you own more than one house, and the other house(s) apart from the one where you are
staying is vacant throughout the month, then the other house property(s) would be considered as
a “Deemed to be Let Out Property(s)” - DLOPs. Moreover, you would be liable to pay tax on such
property(s) after having calculated the Gross Annual Value (GAV), which will be calculated in the
same way as for LOP. But the only difference being that, here rent would be the standard rent
calculated as per the municipal laws.
Thereafter, if you as the landlord are paying any municipal taxes towards these properties, then
those would be subtracted to obtain the Net Annual Value (NAV).
Remember, over here in case you have multiple DLOPs, you have an option to consider one of
property as a SOP and the rest would be considered as DLOPs under the present Income Tax law.
So, say you have 4 such DLOPs then you should ‘ideally’ select the property with the highest GAV
as a SOP property, as the remaining properties available with you will have a lower GAV. Having
said that, it would prudent to weigh the pros and cons by undertaking a comparative analysis to 37
optimize your tax planning exercise.
• Self-Occupied Property
You need not worry here if you are occupying the property throughout the financial year for your
stay (i.e. residential use) as the NAV of the property will be considered as Nil.
However, if you are occupying the property for some part of the year and the rest of the year you
have earned an income by letting it out, then proportionately for the rest of the year when the
property was let out, the calculation of “annual value” would be applicable as that of LOP.
Deductions:
After having calculated the Net Annual Value (NAV) as seen above, you are eligible to claim
deductions under Section 24, which further reduces your taxability under this head of income. You
broadly get the following deductions:
• Standard Deduction [Section 24(a)]
Owning a home and maintaining the same costs you money. But irrespective of the fact whether
you have incurred any expenditure or not to do so, you will be eligible to claim a flat deduction of
30% calculated on the NAV of the property. And this deduction is of specific use if one’s property
is LOP and / or DLOP. In case if the property is SOP, you are not eligible to claim any deduction as
the NAV of your SOP is Nil.
• Interest on borrowed capital [Section 24(b)]
As reiterated above (in the home loan section), if one wisely takes a home loan for buying a house
property then the interest so paid on the borrowed capital will make you eligible for deduction
under Section 24(b), irrespective whether the house property is SOP, LOP or DLOP. In case of SOP
the income from house property will be negative income, (if interest is paid on capital borrowed
by you to buy or construct or reconstruct or renew or repair the house), which will enable you to
reduce your overall Gross Total Income (GTI). In case of other properties – i.e., LOP and DLOP
the income from house property will be positive, but would be reduced to the extent of standard
deduction and interest paid.
The quantum of deduction depends upon the purpose for which you take a loan – i.e. purchase,
construction, reconstruction, repair or renewals, and also the type of property – i.e. SOP, LOP or
DLOP. Hence, in case you have taken a loan for the purpose of purchase or acquisition of the
house which is an SOP, then you will be eligible for a maximum deduction of a sum of Rs2.00 lakh.
But if the loan is taken for the purpose of repair, renewal, or reconstruction, then the eligible
deduction is restricted to Rs30,000.
Now if the property is LOP or DLOP, you do not have any maximum restriction for claiming
interest – so it can be above the otherwise limit of Rs2.00 lakh, irrespective of the usage i.e.
whether for the purpose of purchase, construction, reconstruction, repair or renewals.
Remember, while everyone buys house property(s), it is important to avail the benefits under the Income
Tax Act, wisely as this would enable in optimally saving your tax liability, and of course enjoy the fruits of
38 your investment made too and / or enjoy the comfort of your dream house.
VIII –How to save tax

on your salary
While many of you in employment take enormous efforts to earn a salary, it is also equally
important in our opinion that you restructure your salary well, in order to save tax on your hard
earned salary. And mind you, if you do so you’ll have a greater “Net Take Home” (NTH) pay, which
will allow you to streamline your finances well and also, help you buy physical assets such as your
dream house and a dream car.
It is important that one looks at the various components of salary in order to avail tax benefits on
the same.The vital component of salary, where restructuring may be required is as under:
• Basic Salary:
While this is the base of your head of income – “income from salary”, it is important that you have
your basic salary set right. This is because the basic salary constitutes 30% – 40% of your
Cost-to-Company (CTC). So, having a very high basic component may lead to having a high tax
liability in absolute Indian rupee terms. On the other hand, if you reduce your basic salary
considerably, you would lose out on the other benefits such as Leave Travel Allowance (LTA),
House Rent Allowance (HRA) and superannuation benefits associated with your basic.
• House Rent Allowance (HRA):
If you are paying rent for an accommodation, and if your organisation extends you HRA benefits,
then this is another vital component that can help you to reduce your tax liability. But it should be
noted that you cannot pay rent for the house which you own and if you are residing in it.
Hence, now on the other hand if you are staying in a rented house and you are the one paying the
rent, then HRA exemption [under Section 10(13A)] can be availed for the period during which you
occupy the rented house during the financial year.
However in order to obtain an exemption, you are required to submit appropriate and adequate
proof of payment of rent for the entire period for which you want to claim exemption.But, if you
as an employee are getting an HRA of less than Rs 3,000 per month, you are not required to
provide a rent receipt to your employer.
In addition, you need to note an important change in HRA rules introduced in FY 2013-14. As per
the circular issued by the Central Board of Direct Taxes (CBDT) in October 2013, if you are paying
an annual rent of more than Rs 1.00 Lakh or Rs 8,333 per month, then you will have to report the
Permanent Account Number (PAN) of your landlord to the employer (Earlier you had to furnish a
copy of the PAN card of your landlord only if your annual rent exceeded Rs 1.80 lakh, or Rs 15,000
per month). If your landlord does not have a PAN then you need to file a declaration to this effect
from your landlord along with the name and address of the landlord. 39
The maximum exemption which you can enjoy for HRA is as under:
In Chennai/ Delhi/ Kolkata/ Mumbai In other cities

Least of: Least of:
Actual HRA Actual HRA
Rent paid in excess of 10% of salary* Rent paid in excess of 10% of salary*
50% of salary* 40% of salary*
*Salary for this purpose includes basic salary + dearness allowance (if in terms of service)
Here a noteworthy point is, if your rent is very high and if you are not fully covered by the HRA
limit, then it would be wise to pick a company leased accommodation (if the company in which you
work in offers so), as this company leased accommodation would constitute to be the perk value
and would be taxed @ 15% of your gross income. Sure, the perk value is taxable but it still works
out to be more effective for tax planning, than opting for a HRA that doesn’t fully cover your rent.
• Leave Travel Concession (LTC):
While you may be fond of opting for a leave and travel with your family for a holiday, don’t forget
to assess what tax benefits are extended to you for doing so. The Income Tax Act provides you tax
concession if you have actually incurred expenditure on your travel fare anywhere in India, either
alone or along with your family members (i.e. your spouse, children, parents, brothers and sisters
who are mainly or wholly dependent on you). LTA exemption does not consider expenses on local
conveyance, sightseeing, hotel accommodation, food etc.
But such exemption is limited to the extent of actual expenses incurred i.e. you can claim
exemption on the LTC amount OR the actual amount incurred, whichever is lower.
Also note that only domestic travel (i.e. travel within India) is considered for exemption,
international travel is not covered under LTA.
Also the exemption extended to you under the Act is for two journeys performed in a block of four
calendar years. And the current block of four calendar years is from 2018 to 2021 (i.e. from January
1, 2018 to December 31, 2021); the next block will be from 2022 to 2025 (i.e. from January 1,
2022 to December 31, 2025).
As per the present Income Tax Rule, the exemption would be available to you in the following
manner:
40
Particulars Amount exempt

Amount of "economy class" airfare of the national
carrier by the shortest route to the place of
Where the journey is performed by air
destination or amount actually spent, whichever is
less.
Amount of air-conditioned first class rail fare by
Where the journey is performed by rail the shortest route to the place of destination or
amount actually spent, whichever is less.
Where the places of origin of journey and destination Air-conditioned first class rail fare by the shortest
are connected by rail and journey is performed by route to the place of destination or amount
any mode of transport other than air. actually spent, whichever is less.
Where the place of origin of journey and destination
(or part thereof) are not connected by rail
First class or deluxe class fare by the shortest
> Where a recognised public transport exists
route or the amount spent, whichever is less.
Air-conditioned first class rail fare by the shortest
> Where no recognised public transport system exists route (as if the journey is performed by rail) or the
amount actually spent, whichever is less.
In case you do not avail of a LTC or if you travel just once in the four calendar year of the block
period (2018-2021), then you will be allowed to carry-over the concession to the first calendar
year (2022) of the next block 2022-2025, but for only one journey. In addition to this, you will be
eligible to travel two more times in the next block.
It is vital that you utilise your leaves wisely and travel to any of your loved holiday destination in
India, as this will not only de-stress you, but also help you in reducing your tax liability. After you
have returned from your journey, please do not tear your travel tickets / boarding pass (for air
travel) as you need to submit them to your employer so that your tax liability can be reduced.
• Education and Hostel allowance:
If you are married with kids, and if your employer is providing with education allowance, then do
not refrain from availing it, as this can again help you in reduction of your tax liability. The
exemption extended to you under the Income Tax Act is Rs 100 per month for a maximum of two
children (i.e. in other words Rs 2,400 p.a. totally). Similarly, if your children are staying in a hostel
then a maximum of Rs 300 per month per child but subject to a maximum of two children will be
available to you as an exemption (i.e. Rs 7,200 per annum).
41
• Meal Allowance through Food Coupons / Food Cards:
While you may be tempted to increase your NTH (in the cash form) you should not ignore to avail
the food coupon / food card benefit, if your employer provides one. This is because, effective
utilization of the same will enable you to effectively reduce your tax liability along with getting the
feeling of being pampered by your employer.
The exemption amount which you can enjoy is Rs 50 per meal available only in respect of meals
during office hours. However, the exemption is also available in case your employer provides you
food vouchers / cards of value of which can be used at eating joints. The exemption limit in this case
is restricted toRs2,500 per month for a food voucher / card value.So remember, if your employer
is providing you food coupon / card don’t refrain from availing the same for a maximum voucher
value of Rs2,500 every month.
• Standard Deduction:
As per an amendment in the Budget 2018, tax exemption on medical reimbursement amounting
to Rs 15,000 and exemption on transport allowance amounting to Rs 19,200 in a financial year have
been replaced with a standard deduction of Rs 40,000. This amendment has become applicable
from FY 2018-19 onwards.
42
IX- Tax implication of

investing in mutual funds
Every mutual fund investment may have tax implications. This depends on the nature of the asset
and the period of holding. Unfortunately, prior to investing in mutual funds, specifically debt or
non-equity mutual funds, many ignore the implications of capital gains tax on their investment.
Capital gains tax on mutual fund holdings is established upon whether you hold equity oriented
funds or non-equity oriented funds.
Equity oriented funds are defined as those in which 65% of the investible corpus in invested in
Indian equities.
Non-equity funds are those which invest less than 65% in Indian equities – these include debt funds
(such as income funds, liquid funds, gilt funds, floating rate funds, Fixed Maturity Plans (FMPs),
Monthly income Plans, (MIPs), Gold ETFs and so on. Notably, even fund-of-funds that may invest
indirectly in Indian equity through other mutual funds are not considered as equity funds.
Tax Rates for 2018-19

Individual/HUF Domestic Company NRI
Equity Oriented Schemes

LTCG (units held for more than 12 months) , STCG (units held for 12 months or less)
10% of the profits Nil Nil
LTCG exceeding Rs 1 Lakh in
a financial year.
15%+ Surcharge as 15%+ Surcharge as 15%+ Surcharge as

STCG
applicable + 4% Cess applicable + 4% Cess applicable + 4% Cess
Non-equity Oriented Schemes
LTCG (units held for more than 36 months) , STCG (units held for 36 months or less)
20% with indexation + 20% with indexation + 20% with indexation +
LTCG Surcharge as Surcharge as Surcharge as
applicable + 4% Cess applicable + 4% Cess applicable + 4% Cess
30%^ + Surcharge as 30% + Surcharge as 30%^ + Surcharge as
applicable + 4% Cess applicable +4% Cess applicable + 4% Cess
STCG
25%^^^ +Surcharge as
applicable + 4% Cess
^ - Assuming the investor falls into highest tax bracket.

^^^-If total turnover or Gross receipts during the financial year 2015-16 does not exceed Rs. 50 crores.
43
As can be seen in the table above, for equity oriented funds, LTCG tax is applicable at 10% of
profits, if the profits exceed Rs 1 Lakh in a financial year, without indexation benefit, Short Term
Capital Gains (STCG) are taxed at 15%. For non-equity oriented funds, long-term capital gains are
taxed at 20% with indexation. Indexation lets an individual adjust the purchase price of the mutual
fund units by taking into account inflation, thus enabling them to reduce your tax outgo.
Short-term capital gains for non-equity oriented funds are added to the total income and taxed as
per one’s tax slab, which means that if the 30% tax bracket applies to you, short-term capital gains
arising from the sale of your mutual fund units will be taxed at 30%. This means that the tax is
calculated on mutual fund units on a First-in-First-out basis. So, if you have invested via a Systematic
Investment Plan (SIP), do pay attention to check that the units you are redeeming met the requisite
tax guidelines.
Tax Deduction at Source (TDS) by Mutual Funds for NRI’s
Tax Deduction at Source is applicable on gains for NRI investors. This short-term or long-term
capital gain tax will be deducted at the time of redemption of units in case of NRI investors only.
Below is the table with the applicable tax rates.
Tax Deducted at Source (Applicable only to NRI Investors)
STCG LTCG
Equity oriented schemes 15%+ 15%/10% 10% of the profits
Surcharge+4% Cess exceeding Rs 1 Lakh in
a financial year.
Other than equity oriented schemes (Listed) 30%^ + 15%/10% 20%+ 15%/10%
Surcharge + 4% Cess Surcharge + 4% Cess
Other than equity oriented schemes (Unlisted) 30%^ + 15%/10% 10%+15%/10%
Surcharge + 4% Cess Surcharge + 4% Cess
^ - Assuming the investor falls into highest tax bracket. (Source: PersonalFN Research)
Calculation of Indexation
Let’s look at this example:
Suppose you have invested Rs 10,000 in a debt fund on May 15, 2013. And, you decide to sell these
units on November 10, 2016. The redemption value is Rs 13,000. The holding period is
approximately 42 months. So in this case, because your holding period is greater than 36 months,
your long term capital gains is Rs 3,000 (Rs13000-Rs10000).However, tax will be charged on the
indexed gains. The indexed capital gains tax is calculated as below:
44
Particulars Amount
(Rs.)
Cost of Purchase (P) 10,000
CII- year of purchase (2013-14)* (a) 220
CII-year of sale (2016-17)* (b) 264
Adjusted cost of purchase (P*b/a) 12,000
Taxable gains - with indexation 1,000
(Rs 13,000 - Rs 12,000) (A)
Tax rate 20% + Cess4%, excluding surcharge^ (B) 20.60%
Tax payable on gains (A*B) 240
*Cost of Inflation Index, ^Surcharge applicable if income is greater than Rs 50 lakh

(Source: PersonalFN Research)
Let’s say, on account of demonetisation, you Particulars Amount (Rs.)

put off your redemption to April 20, 2017. On Cost of Purchase (P) 10,000
the redemption date, due to the volatility in the CII- year of purchase (2013-14)* (a) 220
bond market, your redemption value remains CII-year of sale (2017-18)* (b) 272
Adjusted cost of purchase (P*b/a) 12,364
the same at Rs 13,000. Here again, your gains
Taxable gains - with indexation 636
will be Rs 3,000. The holding period is about 47 (Rs 13,000 - Rs 12,000) (A)
months.However, when you redeem these in Tax rate 20% + Cess4%, 20.60%
another financial year, your indexed cost will be excluding surcharge* (B)
different. Take a look at the calculation below: Tax payable on gains (A*B) 153
*Cost of Inflation Index ^Surcharge applicable if
income is greater than Rs 50 lakh
(Source: PersonalFN Research)
Financial Year CII

Therefore, even though the redemption value 2001-02 100
is the same, by extending your redemption by 2002-03 105
just 5 months, you’ll be able to reduce your tax 2003-04 109
outgoes. 2004-05 113
2005-06 117
Below is the New Cost of Inflation Index: 2006-07 122
2007-08 129
2008-09 137
2009-10 148
2010-11 167
2011-12 184
2012-13 200
2013-14 220
2014-15 240
2015-16 254
2016-17 264
2017-18 272
45
(Source: CBEC) 2018-19 280
X- Penalties for non-filing

of returns / non-payment
of taxes
Missing the deadline for filing I-T returns can give you sleepless nights. Here are some vitalpoints
thattalk about the consequences that you as an individual assesse might face if you don’t file your
returns and / or pay your taxes on time…
• What if you missed your tax filing deadline:
A belated return (tax returns filed after the due date) attracts a penalty and interest. Under Section
234F of the Income Tax Act) there will be two set of penalties, first, a Rs 5,000 penalty for belated
returns filed on or before December 31 for that assessment year and Rs 10,000 for returns filed
after December 31 for that assessment year or any other case. For small taxpayers whose total
income does not exceed Rs 5 lakh, the penalty amount is reduced to Rs 1,000. Apart from this,
under Section 234A, interest would be levied @1% per month, calculated from the due date.
Under Section 234A, interest would be levied @1% per month, calculated from the due date. In
addition to this, if you are unable to file your returns before the end of the assessment year, i.e.
March 31, 2018, a fine of Rs 5,000 may still be applicable. An assessing officer may, at his discretion,
charge a fine of Rs 5,000 under Section 271F of the Income Tax Act.
Section 271F states, if one fails to furnish tax returns before the end of the relevant assessment
year, the Assessing Officer may direct that person to pay a penalty of Rs 5,000.Thus, if you are filing
a belated return for AY2018-19, make sure to do it before March 31, 2019, to avoid the probability
of an additional penalty. From next year onwards, ensure to file tax returns well in advance, because
a window of opportunity to avoid the fine will not exist.After April 1, 2018, the new Section 234F,
in respect of penalty for delay in furnishing return, will come into effect, while the provisions of
Section 271F shall cease to exist.
Under Section 234F, belated returns filed after December 31st of the relevant assessment year will
attract a fine of Rs 10,000. For returns filed after the due date but before December 31st of the
assessment year, there is a penalty of Rs 5,000. However, for individuals with a total income less
than Rs 5 lakh, the penalty will be Rs 1,000. Under this section, not only are the fines steeper and
applicable immediately after the due date, but the assessing officer plays no role in deciding the
applicability of the penalty.
Thus, from the next assessment year onwards, if you delay filing your income tax returns, along
with the tax and interest payable, a fee for delayed furnishing of return of income will be applicable.
46
• What if you haven’t paid your tax due on time:

If you haven’t paid your tax due on time, then a penal interest of 1% per month (simple interest)
will be levied on the amount of tax due or balance tax payable from the due date to the actual date
of filling of your returns. However, if you are lucky enough to have no tax payable, you won’t be
liable to pay any interest even if you file your return after due date but before the end of relevant
assessment year.
• Did you miss paying your advance tax:
If the amount of tax that you are liable to pay exceeds Rs 10,000, then advance tax needs to be
paid in 3 instalments.
• The first due date is September 15, where you are required to pay at least 30% of the tax
payable as advance tax.
• The second due date is December 15, where at least 60% needs to be paid.
And the third instalment, is on March 15, where 100% of the tax payable needs to be paid.
If you defer any of these payments, then a simple interest of 1% per month would be levied as penalty.
• Lose the rights of make any amendments:

Did you miss some key information or forgot to claim a significant tax saving benefit while filing your
return? Well, there is always a chance of such human error while filing an I-T return. If you don’t file
your I-T returns before the due date, you would not be allowed to make any changes later in case
of any errors while filing returns. But if you have filed your returns by the aforementioned deadline,
you enjoy the right to correct any errors and make changes in your tax form any number of times
before March 31 or till the time your returns are assessed, whichever is earlier.
• Lose your chance of carrying forward losses:

You may have a capital gain loss in your investment portfolio. Income tax act allows you to carry
forward losses to adjust against future gains. If you haven’t filed your returns on or before the due
date, you are disallowed from carrying forward losses. But if the returns are filed by the due date,
carry forward of losses for the next 8 years is allowed to adjust it with gains that you may make in
the future. Besides, not filing your I-T return on time bring along other peril such as:
• Risk of prosecution under the relevant provisions of the Income Tax Act, 1961 which may
also lead to imprisonment from 6 months to 7 years plus the fine
• Impediments in obtaining bank loan or even a credit card (as I-T returns often validate your
credit worthiness before financial institutions)
Impediments in your visa application approval, if you have plans to travel abroad
• Problems in registration of immovable property
Hence, make sure that you file your I-T returns and pay your taxes before the due date. Filing I-T
returns apart from being viewed as a legal responsibility, should also be considered as a moral
responsibility. It earns you the dignity of consciously contributing to the development of the nation.
This apart, your I-T returns validate your credit worthiness before financial institutions and make it
possible for you to access many financial benefits such as bank credits etc. Even if you aren’t earning
47
income that comes under the tax bracket; it is always advantageous to file your returns. But while
you do so, make sure the correct form is filed.
XI - Income tax
return forms
The Central Board of Direct Taxes (CBDT) announced a few changes in the Income Tax Return
(ITR) forms in 2015, as a measure to keep black money in check. In 2017, the income tax form was
further simplified. The New ITR- 1 (Sahaj) Form is a one page form and it can only be filed by an
individual with income of up to Rs 50 lakh a year. Those who have income of more than Rs 50 lakh
or own more than one house property will have to file ITR - 2 Form. In order to account for those
who have deposited Rs 2 lakh or more in a bank account during the demonetisation period, the tax
department has introduced a new column where the person filing the tax will have to give details
of the money deposited and bank account. Mentioning Aadhaar number is mandatory for filling
income tax return. You have to mention the 12-digit Aadhaar number or the 28-digit Aadhaar
enrolment number while filing the income tax return.The asset and liability column has been remo-
ved from ITR- 1.
The number of income tax forms has been reduced from earlier nine to seven. "Old ITR-2, ITR-2A
and ITR-3 have been done away with and merged to new ITR-2. As the ITR 2A and ITR 3 no longer
exist, ITR-4 and ITR-4S (Sugam) have been renumbered as ITR-3 and ITR-4 (Sugam) respectively
Applicable in case you have the following Not applicable in case you have the following
Form Number
incomes incomes
ITR 1 [For individuals having Income from salary Income from capital gains
income from salaries, one Income from other sources Profits and gains from business and profession
house property, other Exempt income Lottery winnings
sources (interest etc.)] Own only 1 house property Income from horse races
Agricultural income up to Rs 5000 Foreign asset
Pension income Foreign income
Income from salary Profits and gains from business and profession
Income from capital gains
Income from other sources
ITR 2 (For Individuals and Lottery winnings
HUFs not having Income Income from horse races
from Business or Own more than 1 house property
Professions) Agricultural income more than Rs 5000
Foreign asset
Foreign income
Income from capital gains

ITR 3 (For individuals and Own more than 1 house property Profits and gains from business and profession
HUFs having income from a
Any claim or relief u/s 90, 90A, or 91
proprietary business or Agricultural income more than Rs 5000
profession) Foreign asset
Foreign income
Presumptive business income Lottery winnings

ITR 4 (For individuals or Income from salary Income from horse races
HUFs who have Income from other sources Income from capital gains
presumptive business
Own only 1 house property Foreign asset
income)
48 Agricultural income up to Rs 5000 Foreign income
Other changes applicable are:

• Foreign Travel: Now onwards,those making foreign trips will need to furnish only the passport
number in ITR-2
• Bank account details: Going forward, the bank-wise closing balance in all accounts will not be
required to be disclosed. Moreover, you won’t have to give disclosures for dormant accounts that
have not been in operation during the previous 3 years. Only the following details will be required
to be disclosed:
• Account numbers for all the accounts (current and savings) held at any time during the
‘previous year’ for which income is being reported; and
• IFSC Codes
• Disclosure of assets held by foreign nationals: Foreign nationals who had acquired assets when
they were non-residents won’t be required to disclose them, as long as no income is being earned
from them in the ‘previous year’
• Moreover, CBDT has made it mandatory for all individuals with a taxable income of over Rs 5 lakh
to file their I-T returns online.
Remember that if you have an Aadhaar card and have fed the same while filing your I-T returns,then
the process of filing return online would be hassle-free and even obtaining refunds may not be
delayed.
49
Conclusion
In this guide, we have seen that your extra step towards the tax planning way would enable you to
wisely reduce your tax liability. Remember waiting till the eleventh hour to do your tax planning
exercise, is not going to help in a big way. It would just lead to “tax saving and not “tax planning”.
Just to reiterate, while you have host of tax-saving investment options available under Section 80C,
following an asset allocation model (for your tax planning exercise), in accordance to your age, abili-
ty to take risk and investment horizon is going to make your tax saving portfolio look more prudent.
In other words, tax planning as an exercise is not just limited to filing returns and paying taxes. It is
a process whereby your larger financial plan needs to be taken into consideration after accounting
for the above mentioned factors.
Also, one needs to look beyond the ambit of Section 80C, as you may exhaust the limit of Rs1.50
lakh and still find it insufficient to reduce your tax liability. So, you should access the other deduc-
tions available under Section 80 and the exemptions too, to save tax legitimately.
Moreover, while you are working hard with an organisation; remember to effectively know and
structure each component of your salary income in order to effectively save more tax, which in a
way will help you in buying all the comforts and luxuries in life.
While you must take help of your tax consultant while filing your returns and seek his/ her opinion,
a self-study approach on your tax planning exercise is also necessary as one should be well versed
with at least those tax provisions which affect you directly. And with that note we wish you all
Happy Tax Planning!!
General Disclaimer: This communication is for general information purposes only and should not be
construed as a prospectus, offer document, offer or solicitation for an investment or investment advice.
50
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In this report, you will find THREE mutual funds that will not only help you save up to Rs 46,350 in
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51
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Mutual Fund research house, SEBI Registered Investment Adviser(Reg. No: INA000000680) and
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Your Comprehensive Guide to Tax Planning

II - 4 MISTAKES TO AVOID WHILE SAVING TAX 4

III - YOUR SMALL STEPS CAN TAKE YOU FORWARD 6

IV - HOW TO SAVE TAX WITH SECTION 80C 12

V - THINKING BEYOND SECTION 80C 25

VI – HOW YOUR HOME LOAN CAN HELP IN

VII - HOUSE PROPERTY AND TAXES 36

VIII – HOW TO SAVE TAX ON YOUR SALARY 39

IX - TAX IMPLICATION OF INVESTING IN MUTUAL FUNDS 43

X- PENALTIES FOR NON-FILING OF RETURNS

XI - INCOME TAX RETURN FORMS 48

3 TAX SAVING MUTUAL FUNDS FOR 2018 51

I - Tax Saving Vs. Tax Planning

1. Undertaking tax planning at the last moment:

2. Unnecessarily buying insurance plans for the purpose of tax

3. Power of compounding through tax saving mutual funds:

4. Failing to optimise all available options for tax saving:

III - Your small steps can

Step 1: Compute the Gross Total Income

• Income from salary

Step 2: Compute the Net Taxable Income

• Investing in tax saving instruments (under the popular Section 80C)

Step 3: Calculate the tax payable

Net Taxable Income (in Rs) Rate*

Computation of Tax Liability (AY2019-20)

Tax Slabs For Calculating Tax

Parameters for “prudent tax planning”:

Let’s understand this much better with the help of an illustration.

Particulars Suresh Mahesh Rajesh

Retirement age (years) 60 60 60

Investment tenure (years) 35 30 25

Monthly investment (Rs) 7,000 7,000 7,000

Assumed Returns per annum 10% 10% 10%

IV - How to save tax

• Life Insurance Premium

Now you may ask “how”?

Tax Planning with market-linked instruments:

1. Equity Linked Savings Schemes (ELSS):

3.Unit-Linked Insurance Plans (ULIPs):

4. National Pension System (NPS):

Asset Class E - Equity

To summarise, all NPS proceeds will be completely tax – free.

Non-Resident Indians (NRIs) also can actively participate in NPS.

Tax planning the “assured return” way:

1. Non-Unit Linked Life Insurance Plans:

2. Public Provident Fund (PPF):

The main features of a PPF account are:

Eligibility Applicant needs to be a Resident Indian

Interest rate 8% p.a. compounded annually*

15 financial years (plus the first year of

Up to Rs 1,50,000 under Section

Any Post Office and some authorized

Hindu Undivided Family (HUF);

Nomination Nomination facility is ava ilable

3. National Savings Certificate (NSC):

5. Senior Citizens Savings Scheme (SCSS):

6. Sukanya Samriddhi Scheme (SSS):

Min – Max Premature Current Tax on

Bank Deposits 6.50% - 8.25% 5 years No upper Limit No Interest

All information is as of December 31, 2018

7. Tuition fees paid for children’s education (maximum 2 children):

8. Principal repayment on Housing Loan:

Types of permissible deductions under section 80D are: