The Union Budget 2019-20 has come out with several measures that will benefit taxpayers, chief among them being the exemption of taxes on personal income up to Rs. 5 lakhs. In fact, with proper investments, one may actually pay no taxes on personal income up to Rs. 6.5 lakhs as per experts. Those earning up to Rs. 5 lakhs annually will not have to pay income tax. Additionally, under Section 80C, investments made up to Rs. 1.5 lakh will help in saving income tax up to Rs. 6.5 lakhs, i.e. no taxes will have to be paid till this threshold as per financial experts.
There is of course the increase in standard deduction to Rs. 50,000 from Rs. 40,000 for salaried individuals and also pensioners and this may help in lowering overall taxable income till the Rs. 5 lakh threshold. TDS limit has also been increased to Rs. 40,000 from Rs. 10,000 at present. As a result, TDS will only be deducted from FDs and similar investments in case the income from interest surpasses Rs. 40,000 for a particular financial year. The limit for TDS deduction to kick in has also been scaled up to Rs. 2.4 lakhs from Rs. 1.8 lakhs in case of homes that are rented out.
You should first claim your standard deduction of Rs. 50,000 to keep your income below Rs. 5 lakhs. Then, you should consider investments up to Rs. 1.5 lakh in instruments under Section 80C. This will enable you to pay zero taxes on income up to Rs. 6.5 lakhs. You can also get tax benefits up to Rs. 50,000 under Section 80D on premiums paid for health insurance. You can get deductions up to Rs. 25,000 for your own health insurance and that of your children and spouse. You can also get deductions up to Rs. 25,000 for health insurance in case of your parents provided they are less than 60 years of age.
If they are more than 60 years of age, you can get deductions up to Rs. 50,000. An added Rs. 50,000 can be enabled in deductions for investing in the NPS (National Pension Scheme) under Section 80CCD. You can consider investing in the Public Provident Fund. You can invest up to Rs. 1.5 lakh annually and this will not be taxed. The interest earned is non-taxable and the maturity duration is 15 years. Investments made towards EPF (Employee Provident Fund) and VPF (Voluntary Provident Fund) are also exempted from taxes under Section 80C.
The interest above 9.5% on the investment will be taxable and so will employer contributions exceeding 12% of one’s salary. Both these investments offer total tax exemption upon maturity. You may also consider investments in ELSS up to Rs. 1.5 lakh which is tax exempt. There is no upper ceiling however. These investments have 3 year lock-in periods and you can get higher returns from these mutual fund investments. NSC (National Savings Certificate) investments usually come with 5 year periods for lock-in and you can invest from Rs. 100 onwards with no upper limit. The interest earned for the first 4 years will be reinvested and it is repaid in the 5th year along with other invested money.
The SCSS (Senior Citizen Savings Scheme) also comes under Section 80C and people above 60 years of age can invest accordingly. Those above 55 years of age can invest in the Voluntary Retirement Scheme. However, the account should be set up within 3 months of the date of retirement. The annual interest rate is paid out on a quarterly basis. 5-year tax-saver FDs also come under this section although the interest you earn will be taxed. The payment of tuition fees also comes under Section 80C for schools, universities and colleges for your children. Investing in NPS up to Rs. 1.5 lakh will help you get tax benefits as well along with the added deduction of Rs. 50,000 mentioned above.
This section also covers investments made in the Sukanya Samriddhi Account. You can open an account till your daughter turns 10 years old. The amount invested will be eligible for tax benefits for a maximum of two daughters. You should keep contributing for a period of 15 years and the account will be maturing after a period of 21 years. A maximum of Rs. 1.5 lakh can be invested here. ULIPs are also eligible for tax deductions on investments made in this section. NABARD rural bonds are also eligible and you can invest in the same if the Government notifies them. 5-year post office time deposits are also investment options that attract tax benefits under Section 80C similar to the 5-year tax saver FDs.
You can also get deductions up to Rs. 1.5 lakh on the home loan principal amount that you repay annually under Section 80C. If you already have a home loan, you can maximize principal repayment and will be able to save taxes up to the full threshold under this section. Section 80C also covers payment of life insurance premiums for yourself, spouse and children. As can be seen, you can maximize and diversify investments under Section 80C and 80D, covering life insurance and health insurance which are basic needs along with a healthy mix of FDs or post office deposits or even ULIPs along with tuition fees, PPF and EPF. If you have a home loan then a major portion of benefits under Section 80C will anyway be covered if not the entire amount of Rs. 1.5 lakh. As a result, you can enable zero taxes up to Rs. 6.5 lakh if you invest wisely according to experts.