Tax Benefits on Investments


tax-benefits Increasingly, there is an awareness to save for the rainy day. Going by the unpredictable nature of life, it makes sense too. However, only saving is not enough. Investing wisely to get maximum returns on your savings is an important step in growing your wealth and catering to your future needs and goals. However, even high returns on investments can leave a frown on your face, thanks to the tax you’d be paying; unless, of course, you have planned your tax as well!

So before you get investing your well deserved annual bonus, check the tax benefits on investments before parking your money in one. Below are some options you might like to consider:

Section 80C – We have discussed in detail about investment options under Section 80C and those with highest return on investment in the previous two posts. In a snapshot, investing in ELSS for investors with moderate risk appetite and a long term investment horizon is the highest yielding option. Next in line is PPF (and VPF) for conservative investors followed by NPS for the extra rebate of INR 50,000 that it provides.

Section 80D (Health Insurance Premium) – Under Section 80D of the Income Tax Act, it is possible to claim deduction for health insurance premium paid for self, spouse and children. The limit for deduction is INR 25,000 (and INR 30,000, for senior citizens). In case you are paying health insurance premium for your parents, you can further claim a deduction of INR 15,000 (and INR 20,000 for senior citizens). Any expenses incurred on preventive health check ups up to INR 5,000 are also deductible under this section.

It is also possible to claim a deduction of up to INR 40,000 for treatment of certain diseases such as AIDS and certain types of cancer for self or dependants. You need a certificate from a registered doctor in order to claim this deduction.

Section 80E (Interest on Education Loan) – Here is another incentive to study further. Invest your bonus to increase your professional knowledge and expertise and also save tax. Under Section 80E of the Income Tax Act, any interest paid on education loan to finance higher education for self, spouse or children is tax deductible. This exemption is available for 8 years or until the interest is paid off in full, whichever is earlier.

Interest on home loan – While Section 80C allows for deduction of INR 1.5 lacs on home loan principal repayment, Section 24 allows a further INR 2 lac for interest repayment yearly for self-occupied property. There is no limit for investment property under Section 24. Investing in a home can be a great idea if you find some cash on hands considering the massive tax benefits you can avail. However, do not buy solely to maximise your tax benefits. Further, selling your property before 5 years will reverse the tax deduction claimed under Section 80C.

Planning your investments in time can save you lots of time and money in the future. Get started on the road to wealth creation by getting in touch with Dr. Celso, well known financial expert and author of the book, Who says money doesn’t grow on trees.


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