What investments are exempt from income tax

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Are your investments always exempt from income tax

An old proverb goes, “The art is not in making money but in keeping it.” A few weeks ago, you may have had to rip yourself off of your daily routine to manage doing your taxes. First time taxpayers may have found the experience especially harrowing while older people may have looked forward to it in the same way they do death.investments are exempt from income tax.

investments are exempt from income tax

Nonetheless, the deadline for filing your ITRs has passed and gone. Continuing in the vein of the previous blog, we hope you will have made better plans for income tax filing next year. But planning doesn’t JUST mean waking early on the last day.

How to Plan your Taxes

There are many components to planning your taxes. The part we’re all interested in is how we can pay the least possible tax so as not to attract notices from the tax authority.

Section 80 of the Income Tax Act, 1961

You may be aware that Section 80 and its various sub-clauses govern exemptions from that part of your income that is taxable by way of various savings and investment instruments. So your Provident Fund, Life insurance, Health insurance, National Savings Certificates Schemes etc. come under that head of your income tax that can be deducted from your income. The remaining part is used to calculate your tax liability.

The maximum deduction allowed in Fiscal Year 2017-2018 is Rupees 1, 50,000. This means that if your investments exceed Rupees 1, 50,000, that part would also be considered taxable income.

A computed example from an online income tax return:

Now consider what sort of investments would give you maximum returns. As an example, consider the case of an elderly citizen, aged between 60 and 80 who earns an income of Rupees 4, 80,000 per annum. The applicable tax for her is 10% of her taxable income. Upon filing her ITR, she would have to pay a tax of Rupees 48,000. Suppose she invests Rupees 1, 50,000 of her money in a Fixed Deposit account that offers interest at the rate of 8% per annum. But interest income is also a part of amount taxed. Since 10% of 8 is 0.8, in effect, she would end up earning 8 – 0.8 or 7.2 % interest. If you are a stickler for exact figures, then that would be Rupees 10, 800 at the end of the first year instead of Rupees 12,000 at 8% interest p.a.

So, is there an investment that attracts no tax at all? Had the lady in our example been earning Rupees 4, 00,000 instead, her taxable income would fall to Rupees 2, 50,000. Since the exemption limit is Rupees 3, 00,000 per annum, she would end up having to pay no tax at all.

Exempt-Exempt-Exempt investment examples

Not all of us would find ourselves in the same circumstance though. There are, in fact a number of investment options that are completely exempt from taxes. These include Equity Linked Savings Schemes (a form of diversified mutual funds), Public Provident FundsEmployee Provident Funds and ULIPS to name a few. Note that some of these investments have upper limits on the amount you can invest and usually have minimum terms in the range of 5 to 15 years.

There may be provisions both legal and contractual, that most taxpayers might not easily comprehend. After all, even Einstein once famously said, “The hardest thing in the world to understand is Income Tax.” In such a situation, finding affordable advice from financial experts has historically been a hassle. But technology is changing all that as firms like All India ITR, known for making the efiling of income tax returns fast and convenient, continue to provide advisory services to help you get the most out of your money.

3 COMMENTS

  1. Thanks for Nice and simplified blog with hands on. Great work by ITR team it really nice to explaining everything about taxes Thanks a lot! Great Presentation did not faced not even single mistake while doing practicals for the same.looking for such more blog.It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster. Excellent team work by All India ITR. Very easy to understand with all the clarity. Excellent team work by All India ITR.Great work by ITR team it really nice to explaing everything about taxes.
    Thnx for this this really help me alot.This blog is really helpfull for us to know more about ITR. This tell us everything that we should know about ITR. This is like a algorithm to fill taxes becaute it tell us step by step how we should fill taxes and yes it is also easy to understand. It tell breifly and accurately about taxes. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. It’s really great that u take initiative to tell people about this and your way of representation of thought is really good.We can understand out problem very easily and get our answers faster.Great keep it up.

  2. Excellent work by ITR. This blog contains details in briefly and accurate manner.It genuinely helped me with the information i was seeking for. Appreciate it.
    through this blog i came to clear my doubt regarding how to have a better plans for income tax filing for the next year.This is the blog that i needed and i have been searching for such blog from a very long time now but today finally i found it and that to even in such an easy language which was really easy for me to understand and very easy to learn from it.With much anxiety i had gone through this and will share this with my colleagues too as they too can get everything related to tax through a single platform.
    Thank you!

  3. Thanks this blog has really helped me alot. This really helps and tells a process that is required to fill up an Income tax return. This blog tell us step by step how we should fill taxes and yes it is also easy to understand. Each and every details have been mentioned in simple and clear language.
    i would prefer anyone to have a eye on it to clear all their doubts. The best thing about this blog is that we can get every information hear only. we shoud not go on different side to search about itr. Great work keep it up.It tell breifly and accurately about taxes. The blog is very detailed and the way it explains the things is very easy to understand and to retain it really helps a person on how to fill up the ITR and how to enquire about it. Great work from ALL INDIA ITR since it is a very well written and a very useful blog.

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