HYDERABAD: We may not often pay attention, but all financial savings such as bank deposits and investments in mutual funds in the country are taxed using 25 different Sections of the Income Tax Act, 1961.
Though every financial savings instrument including the Public Provident Fund (PPF) comes under the tax scanner, some are fully exempt, but not all are spared.
However, taxpayers can fully or partly avail exemptions on income earned from even those financial products that are taxed.
There are three stages of tax treatment for all financial savings, that is, at the stage of contribution (like when you make a deposit), accumulation (tenure of the deposit) or withdrawal (maturity of the deposit).
In other words, Exempt-Exempt-Exempt (like provident fund), Exempt-Taxed-Exempt (life insurance), and Exempt-Exempt-Taxed (equities, mutual funds, etc).
Knowing well which financial product attracts what tax rate or the Sections that help you avail exemptions is key to maximise savings. Often, this job is left to financial advisers or tax planners.
However, it is no rocket science, and below is a ready reckoner to get you started.
Exemptions:
Deduction from income from savings schemes like GPF, NSC, NSS, EPF and PPF, tax-saving units of mutual funds, the premium paid on life insurance, repayment of housing loans, and infrastructure bonds. The deduction is capped at Rs 1,50,000.
Deduction from income for contribution to pension funds managed by any insurer, subject to a ceiling of Rs 1,50,000. Pension/annuity under the scheme is, however, taxable under Section 80CCC.
Exemption under Section 10(10D) in respect of any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy [other than any sum received under sub-Section (3) of Section 80DDA].
Exemption under Section 10(11) and Section 10(12) in respect of any payment from a recognised provident fund.
Exemption under Section (12A) of the Act for any payment from the National Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed 40 per cent of the total amount payable to him at the time of such closure or his opting out of the scheme.
Exemption under Section (12B) of the Act for any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions specified under the PFRDA Act, 2013, and the regulations made thereunder, to the extent that it does not exceed 25 per cent of contribution made.
Exemption under Section 10(13) in respect of any payment from a Superannuation Fund on the death of a beneficiary or in commutation of annuity on retirement or by way of transfer to the account of the employee under a pension scheme referred to in Section 80CCD and notified by the Central government.
Exemption under Section 10(15)(i) in respect of income earned by way of interest, the premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates, other certificates issued and deposits notified by the Central government.
Exemption under Section 10(15)(iib) in respect of interest on Capital Investment Bonds notified before June 1, 2002.
Exemption under Section 10(15)(iic) in respect of interest on Relief Bonds.
Exemption under Section 10(15)(iid) in respect of interest on bonds notified before June 1, 2002.
Exemption under Section 10(15)(iv)(h) in respect of interest on notified public sector bonds.
Exemption under Section 10(15)(iv)(i) in respect of interest on deposits.