Expenditure-related deductions

Broadly, the expenditure-related deductions include tuition fees and home loan payments. Tuition fees for full-time education in any Indian university, college, school, educational institution, for any two children is eligible for deduction. However, development fees or donations are not considered.

Investment-related deductions

Equity Instruments

The most popular one here is the equity-linked savings schemes (ELSS) offered by mutual funds. These have a three-year lock-in period. and individuals who have a risk appetite may consider this option.

Provident Fund (PF)/Public Provident Fund (PPF)

In India, there is no comprehensive social security scheme; therefore, individuals have to rely primarily on their own savings/retirement funds. In this context, PF and PPF are two of the most popular and effective tools to create a pool of funds to meet long-term financial requirement.

Employees contribution towards PF is eligible for deduction. In case of self-employed individuals, in the absence of a PF, a contribution could be made to the PPF. It is important to note that in case of PPF, the maximum amount of contribution is restricted to Rs 70,000 per annum under the PPF rules.

Life Insurance Policies & Post Office Schemes

Life Insurance Policies (LIP)

There are different kinds of life insurance policies, which include term insurance, money-back, endowment, etc. Term insurance is particularly advisable, wherein by paying a small sum of premium, a large sum could be assured by an individual.

Post Office Schemes

Investment avenues under the post office schemes include National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS) and the Post Office five-year time deposits. Post offices in India have a good coverage and the interest rates do not vary frequently in comparison with banks/other deposits schemes. Therefore, these schemes are also quite popular amongst individual tax payers.

Deposits

Term deposit with a scheduled bank for a period of five years or more is also eligible for deduction. Fixed deposits with banks have been quite popular, especially in the last year due to substantial increase in term deposit interest rates. Similarly, investments made in bonds issued by the National Bank for Agriculture and Rural Development (Nabard) and debentures issued by specified companies are also eligible for deduction.

To sum-up

Every individual tax payer should consider the various expenditure/investment deductions available under the Act and also have a good mix of various schemes to ensure good reasonable returns and accumulation of funds over a period of time to meet his mid/long-term financial requirements.

After all, our age-old mantra of ‘regular savings’ irrespective of income/expenditure levels helped India and Indians sail through