After assessing your tax liability, the next step is tax planning. It involves selecting the right tax saving instruments and making investments accordingly.
Deductions from Taxable Income:
Deduction under section 80C
This new section has been introduced from the Financial Year 2005-06.
Under this section, a deduction of up to Rs. 1,00,000 is allowed from Taxable Income in respect of investments made in some specified schemes.
Specified Investment Schemes u/s 80C and u/s 80CCC (1)-
1. Life Insurance Premiums
2. Contributions to Employees Provident Fund/GPF
3. Public Provident Fund (maximum Rs 70,000 in a year)
4. NSC (National Savings Certificates)
5. Unit Linked Insurance Plan (ULIP)
6. Repayment of Housing Loan (Principal)
7. Equity Linked Savings Scheme (ELSS) of Mutual Funds
8. Tuition Fees including admission fees or college fees paid for full-time education of any two children of the assessee (Any development fees or donation or payment of a similar nature shall not be eligible for deduction).
9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc.
10. Interest accrued in respect of NSC VIII issue.
11. Pension scheme of LIC of India or any other insurance company.
12. Fixed Deposit with Banks having a lock-in period of 5 Years
Notes:
1. There are no sectoral caps (except in PPF) on investment in the new section and the assessee is free to invest Rs. 1,00,000 in any one or more of the specified instruments.
2. Amount invested in these instruments would be allowed as deduction irrespective of the fact whether (or not) such investment is made out of income chargeable to tax.
3. Section 80C deduction is allowed irrespective of the assessee's income level. Even persons with taxable income above Rs. 10,00,000 can avail the benefit of section 80C.
4. Some of the popular pension plans are Jeevan Suraksha by LIC, Life Time Pension By ICICI Prudential Life Insurance, Aviva Life - Pension Plus by Aviva Life Insurance, Max-Easy Life policy by Max New York Life, Nirvana Plus by Tata AIG Life Insurance etc.
Please note that because the deduction is allowed from taxable income, the exact savings in tax will depend upon the tax slab of the individual. Thus, a person in the 30% tax slab can save income tax up to Rs. 30,900 (or Rs. 33,990 if annual income exceeds Rs. 10,00,000) by investing Rs. 1,00,000 in the specified schemes u/s 80C.
Deduction under section 80D.
Under this section, deduction of up to Rs 40,000 can be claimed in respect of premium paid by cheque towards health insurance policy of various General Insurance companies like Royal Sundaram Health Shield Gold, Reliance Healthwise etc. Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.as per following table:
| On whose life health Insurance Policy is taken | Individual taxpayer, his/her spouse,and dependent children | Addittional Deduction for parents of the Individual whether dependent or not | Total |
| General Deduction | 15,000 | 15,000 | 30,000 |
| Aditional Deduction if one of the insured is Senior Citizen | 5,000 | 5,000 | 10,000 |
| Total | 20,000 | 20,000 | 40,000 |
Accordingly a person who is falls/in the 30% tax bracket can save income tax up to Rs 4,635 (or Rs. 5099 if the annual income exceeds Rs 10,00,000) by paying Rs 15,000 as premium for "Mediclaim" policy in a year.
Deduction under section 24(b)
Under this section, interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs. 1,50,000 with some conditions to be fulfilled.
