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It's best to start your tax planning in the beginning of the year to help you systematically grow your savings coupled with the added benefit of tax saving realised at the end of the financial year.
The most popular tax saving schemes fall under Section 80C of the Income Tax Act. Under this section, this year too a deduction of up to Rs 100,000 is allowed from taxable income in respect of investments made in some specified schemes.
This may change to Rs 300,000 from April 1, 2011, once the new Direct Taxes Code kicks in to place.
Meanwhile, let's focus on this year and see how you can make the best of Section 80C.
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Eligible schemes under section 80C for 2010-2011
The Specified Investment Schemes u/s 80C and u/s 80CCC are:
1. Life Insurance Premiums
2. Contributions to Employees Provident Fund
3. Public Provident Fund
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 tax payer.
9. Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC, etc.
10. Pension scheme of LIC of India or any other insurance company.
11. Fixed Deposit with Banks having a lock-in period of five years.
This article will discuss the details of all the above plans.
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Life insurance premiums
An amount up to Rs 100,000 that you pay towards your life insurance premium for yourself, your spouse or your children can be included in Section 80C deduction.
Life insurance premium paid for your parents or your in-laws is not eligible for deduction.
If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy only from Life Insurance Corporation; even insurance bought from private companies can be considered. All plans like endowment, money-back plans and term plans are eligible for the deduction.
You can also seek exemption from gross income under Section 10 (10) D for any sum received from insurance policy as maturity proceeds. Death benefits are exempt from tax.
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