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Tax Exemption and Scope of Coverage

  • 28th Jan 2020
  • 292
Tax Exemption and Scope of Coverage

Most salaried and self-employed people opt for tax-savings scheme made available by the government. These options not only help you decrease your taxable income but also create wealth over time. Let’s look at some of the tax-exempt investment options and understand the scope of income tax deductions that you can claim.

1. Unit-Linked Insurance Plan (ULIP)

ULIP or Unit Linked Insurance Plan is a mix of an insurance plan and investment. ULIPs enable you to get a life cover and invest in equity or debt to secure your future. Some part of the monthly or yearly premium you pay goes in securing a life cover while the rest is invested into funds based on your risk appetite.

Tax exemption benefit: You can avail tax benefits under Section 80C and Section 10(10D). You can claim the premiums paid towards the ULIP under Section 80C with a maximum limit of INR 1,50,000 and the maturity benefits received can be claimed under Section 10(10D).

2. Public Provident Fund (PPF)

PPF is an investment scheme which has a maximum investment limit of INR 1,50,000 per year and a lock-in period of 15 years. Also, the returns after maturity are exempt from taxes giving you a dual advantage.

Tax exemption benefit: You can claim the entire amount received after maturation under Section 80C of the Income Tax Act, 1961. The maturity sum obtained is tax-free.

3. Equity-Linked Savings Scheme (ELSS)

Equity-Linked Savings Scheme or ELSS is a diversified equity mutual fund which has a lock-in period of 3 years. This scheme gives you long-term returns with tax benefits. The money invested gets compounded every year giving you lucrative returns in the future.

Tax exemption benefit: A maximum of INR 1,50,000 can be claimed under Section 80C per financial year.

4. Employees’ Provident Fund (EPF)

Employees’ Provident Fund is exercised by organizations where a part of your salary is deducted on a monthly basis and accumulated in an account. This amount collected is exempt from tax and starts attracting interest over the period of time.

Tax exemption benefit: Your share can be claimed for tax deductions under Section 80C but not your employer’s share. The interest gained on the EPF amount is tax-free in nature.

5. National Pension Scheme (NPS)

National Pension Scheme is a pension program started for employees that don’t have a pension system in place at their organization. It was initiated by the Government of India to
enable employees working in private sectors to also have a pension after retirement. The amount invested remains in a lock-in period till you reach the retirement age. Partial withdrawals are allowed after completing 10 years in the scheme.

Tax exemption benefit: A maximum cap of INR 1,50,000 can be claimed by you under Section 80C of the Income Tax Act, 1961.

6. Senior Citizens Savings Scheme (SCSS)

SCSS is an investment option created for senior citizens with a tenure of five years. You have to be at least 60 years of age to be eligible. In the case of voluntary retirement, you are allowed to opt for it after the age of 55.

Tax exemption benefit: Investments made towards SCSS qualifies for deduction under the income tax Section 80C.

7. National Savings Certificate (NSC)

NSC is a tax-saving scheme with a lock-in period of five-years. It is a post-office savings scheme that gives lucrative returns after maturity.

Tax exemption benefit: You can claim the amount earned under this scheme for tax deductions under Section 80C.

8. Post Office Savings Schemes

There are numerous post office savings schemes which enable you to invest and gain tax benefits. Some of the investment schemes are 5-Year Recurring Deposit (RD), Post Office Time Deposit Account (TD), Monthly Income Scheme Account (MIS), Kisan Vikas Patra (KVP), etc. These schemes have different lock-in periods and interest rates.

Tax exemption benefit: You can claim tax deductions under Section 80C of the Income Tax Act, 1961.

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