It is very important to have a roof over the head. Having your own house automatically reduces many problems. Along with this, the care and maintenance of one’s own house is also in one’s own hands. At the same time, to protect your home from any kind of natural calamity, home insurance is also very important.

                                                                                                                                    Subas Tiwari

Due to natural calamities like flood and earthquake, there is a lot of loss of life and property. The worst thing is that these disasters never come without warning and when they do come, the scene of destruction is also horrifying. Many times due to natural calamities like floods, earthquakes, houses and even the biggest buildings have been seen to be destroyed. In such a situation, it is necessary to take home insurance to avoid any untoward incident and loss.

Why it is necessary?

What do you understand when you are told to take a household package insurance policy? A layman like you could only guess- it is for households where insurance cover is available on the happening of an unfortunate event. If it is not enough & the policy coverage is wider than this understanding, does that mean that the wider scope needs to be fully understood? YES, that’s why we are offering here a deep insight into this whole gamut of household insurance to understand the concept & applicability in real-life situations for the average consumer.

Read this article fully to get some knowledge awareness & education so that when the need arises (events come without advance notice), you are not left high & dry and that you are fully competent to deal with the situation for your benefit. If you have already bought a policy, you can assess whether you have the best policy on hand.

What it means for household effects?

Coverage for household effects means insurance cover against accidents due to fire due to short-circuits, or theft of household goods, theft of jewellery, household appliances, etc. There are 3 insurable components in a home insurance – the structure (building), the contents (material assets) and people (family members and third party). You can get a specific coverage either for the structure or the contents of your home. You can also opt for a comprehensive coverage that includes both the structure and the contents. Home Insurance provides coverage for the loss or damage to your personal property and possessions against natural and man-made calamities as under. IRDA calls this type of insurance as ‘Property Insurance’.

(i)Natural- Fire, Storm, Earthquake (see BOX), Tornado, Cyclone, Flood, Landslide, Lightning, etc.

(ii)Man-Made -Fire, Burglary, Theft, Aircraft Damage, Malicious Damage, Terrorism, Strike, Riot, Explosion, etc.

Perils Covered

Allied (special) perils covered under a Fire Policy

Insurance against fire is invariably linked to perils associated with it such as fire damaging fixed glass, breakdown of domestic appliances (TV,VCP/VCR/DVD, PC, Laptop) pedal cycle, baggage, payment of professional fees paid for reconstruction after damage, rent paid on relocation due to damaged house, loss of documents (Passport, Driving License). It also includes damages caused by fire, lightening, explosion/implosion, aircraft damage, riot, strike, malicious & terrorism damage, storm, cyclone, typhoon, tempest, hurricane, tornado, flood & inundation, impact damage, subsidence and  landslide including rock-slide, bursting and/or overflowing of water tanks, apparatus & pipes, missile testing operations, leakage from Automatic Sprinkler Installations, Bush fire & Earthquake (fire & shock). So, if you take a household policy with fire cover, you are automatically covered for all these perils.

Benefits covered in a Burglary Policy

Burglary or theft to home, robbery/dacoity of the contents of the home, contents that has been placed in safe custody during temporary absence from home, contents that have been removed to private accommodation (other than one’s home) that is being occupied by insured/his family for the period of insurance, impact damage by falling trees/electric poles/lamp-posts, breakage or collapse of television or radio aerial/satellite dishes & damage by civic authorities in prevention of fire. When you buy a burglary policy, you are protected against burglary, housebreaking, theft & larceny, damage to your house or safe due to burglary/housebreaking.

Can articles in bank lockers be covered?

No. This household policy only covers material assets which are housed where you stay. So, locker contents in a bank cannot be covered. However, there are insurance companies which offer a separate policy insuring such locker contents in a bank. 

Can it cover Home Loan amount?

Except one private insurer, the insurance cover on a home loan amount taken for the construction/outright buy of a flat/apartment is not available under this policy. However, banks have been offered a tailor-made policy insurance cover for death/disability due to personal accident of the borrower covering the outstanding amount of the home loan by the insurance companies which have a tie-up. This cover helps the legal heirs in not getting the burden of the home loan repayment, as the insurance company directly remits the claim to the loan account of the deceased borrower.

What are the Exclusions?

(1) Exclusions in the structure – Property under construction, residential property used for official/business purposes and kachcha construction (Third Class).

(2) Exclusions in the contents – Books, manuscripts, money (some do not cover them), bonds, shares, securities, consumables, vehicles, etc.

(3) Willful destruction of property,

(4) Loss, damage, or destruction caused by negligence, wear and tear, civil war and nuclear weapons, etc.

(5) Terrorism (some of the insurance companies load extra premium for covering this insurance risk).

Under what circumstances, extra premium becomes payable? 

Customers can opt for plans in which the sum assured is increased by a certain percentage every year. A few insurers offer this plan, with a nominal add-on premium. Otherwise, based on risk-assessment of a structure, material assets, etc., insurance companies load additional premium. Extra premium also becomes payable if you include domestic servants on permanent employment (maids, drivers, etc.) which are called “Legal Liability towards servants/third party”.

What are the inclusions without extra premium payment?

Expensive belongings, electronic goods such as laptops, televisions, etc., precious goods like gemstones, jewellery, etc., appliances such as washing machine, refrigerator, kitchen appliances, furniture and furnishing items, personal accidents, etc. But insurance cover inclusions vary from company to company & cannot be standardized.

Period of the Insurance Policy

Generally, the term of home insurance is one year & renewable thereafter, but a few insurers offer plans up to a term of 3 years.

Advantages of a Home Insurance Policy

• Since almost all insurance companies are offering online policies, it becomes easier to buy a policy from the comforts of your home.
• Complete peace of mind regarding your property /investments.
• When you are away on holiday/tour/going abroad for a longer stay, you can go without thinking about your home & its safety.
• For a nominal premium (approx. Rs.0.50 paisa per Rs.1000), it is the cheapest of the premiums in an insurance policy.
• Some of the insurers are offering discount on premium (even up to 50%) if one takes a long-term policy.
• All unintentional damage to structures/assets is adequately compensated with repairs/ reimbursement of rent paid on lease (up to one year), transportation costs involved, therebyminimizing the hassles and documentation.

Limitations

• Perils covered are not uniform thereby the consumer is not able to take an informed decision quickly while comparing the home insurance product on offer.
• Sum insured & premium cannot be clearly defined as it is based on risk-assessment of building (value, age & class of construction), material assets and additional insurance covers.
• Individual ceiling on compensation on each item damaged thwarts full compensation of costly items.
• Structural damage due to earthquake (fire & shock) are covered in some of the policies but seldom settled in a home insurance claim.

Complicated Issues & Solution

(1) Why should anyone insure a building? Fire cannot possibly do any harm to the building.

Fire and other perils (normally covered under a fire insurance policy) can cause loss/damage to buildings. There have been fire accidents that have completely destroyed multi-storied buildings. Floods can also bring about devastating losses. Similarly, riots and acts of terrorism can also produce huge losses to human lives as well as property.

(2) One has taken an insurance policy covering his building. The bank which has financed his business has also taken insurance separately. Both policies are in force covering same property. How then is a claim settled?

In the event of a claim, each insurer will pay the loss amount in proportion to the Sum Insured under their respective policies, in accordance with the principle of contribution. The object of the principle of indemnity is to place the insured in the same place as he occupied prior to occurrence. Insured is prevented from making claim for full amount of loss under each policy. Insurance company indemnifies the insured only to the extent of actual loss suffered subject to depreciation, policy excess etc., and not permit to make profit out of a loss.

(3) One wants to cover his household goods against burglary when he is away. Can he get a burglary insurance policy?

A burglary insurance policy covers goods against the risk of burglary. A burglary insurance policy may also offer extension of cover against theft. A burglary insurance policy will usually cease to operate if the house is not occupied beyond a certain defined period unless you have intimated the insurance company and they specifically agree to extend the cover even when the house is not occupied. It is a good idea to ensure that you have a burglary policy always rather than opting for one only when you are away. You might not get one if you want to ensure to insure the contents only when the house is locked.

(4) One needs to cover his jewellery. What policy should he take?

Insurers offer ‘All Risks’ policy for covering jewellery. You must ensure that your jewellery is valued correctly and you are able to show proof of valuation should a claim occur. An All Risks policy also has exclusions, so go through the terms and conditions thoroughly.

Conclusion-Obligations of the insured

Every insured is expected to behave as though he is uninsured. It is better to take all precautions to prevent / aggravate the loss. After lodging an FIR with your area Police Station, please inform Insurance Company also who have to be given an opportunity to inspect the damages. You have to first call the Fire Brigade also who will assist you to put out the fire. During firefighting, any damage caused to other insured property caused by water, will be paid by the Insurance Company. It is beneficial to extend cooperation to surveyor while inspecting and assessing the loss. If arrival of surveyor is likely to be delayed, then, you can take photos / and shift unaffected assets to a place of safety. Please give completed claim form and documents as required by Insurer, in support of your claim. After repairs / replacement, you have to submit bills to the Insurer.

Nowadays people are getting more attracted towards seasonal employment or business instead of regular salary job. In such a situation, they do not know whether they will have the capital to pay regular premiums or not. That’s why the trend of single premium insurance policy has increased a lot. In single premium insurance policy, you do not have to pay premium from time to time. You get rid of the hassle by paying the amount once, so at first sight this policy looks better.

                                                                                                                              Subas Tiwari

A single premium insurance plan is one in which the policy premium is paid only once during the term period of the plan. These plans provide a life cover on payment of a onetime lump sum premium amount.

 How do single premium term insurance plans work?

 As the name indicates, single premium plans are policies that need you to pay the premium just once and never again during the remaining term of the policy and continue to enjoy the cover for the full term of the insurance policy. Obviously, in the case of single premium policies, the premium that you pay upfront will be a larger amount.

Are they good?

• The policyholder thinks that he will pay the premium just once in his life and it’s all done. The thought does have some merit because paying premiums regularly each year calls for discipline. If you miss it, then your policy might lapse.
• For regular payment of premium, you need to have the money in the bank account to keep the policy alive. So paying the premium just once is easy.
• Many investors buy regular premium-payment policies during the tax-saving season (January to March each year) as a tax saving instrument rather than for protection, which is not what insurance is meant to be.
• For people with fluctuating income, this is possibly one of the best instruments available today. Single premium is simply a mode of payment and comes handy for those with shorter career spans.
• People who have made some windfall gains or are sitting on huge investible surplus prefer single premium plans.
• These plans are suitable for those who do not wish to make recurring payments or fear lapse of the policy.
• If you have a sizable amount such as bonus, proceeds from sale of property, etc. and want to invest one time for life cover for a particular term, then this plan would suit you.

What else do they give?

• These are tax savings instruments as the premium paid is allowed as Section 80C deductions. You are entitled for a tax free maturity/death benefit under Section 10 (10D) only if the minimum sum assured throughout the policy term remains 10 times the single premium paid.
• The tax benefit under Section 80 C is available only if the annual premium is at least 10% of the sum assured.
• But to avail tax benefits every year, you may have to buy such policies every year, which is not always practicable.
• Bonus is paid on the declared rate every year, thereby enabling the paid-up value to grow.
• Loan is available against this type of policy either from the Insurance Company itself or by assigning the Policy in favour of the lending institution as security for the loan.

What then are its limitations/drawbacks?

• Many investors feel the pinch when they are told of a host of charges which are loaded on the single-premium policy. So in a way, it acts as a dampener for further investments.
• There are justified objections that such loading of charges offset any growth achieved on the policy and thus erode the paid-up value of the policy, generating genuine concerns of the investors.
• When comparisons are made between them and returns are compared, the case that regular investment options are preferable because they provide more opportunities for greater returns rather than choosing the single premium kind of insurance is strengthened.
• Under Section 80 (C) of the Income Tax Act, to be eligible for IT deductions, you would have to have a policy with a life cover 10 times higher than the annual premium. Thus, you may be required to either change the yearly premium significantly to get that life cover or opt for an altogether a new policy. This is cumbersome to a few, though not difficult to fulfill. For example, if you want to save Rs. 30,000 with your policy, you would have to buy a minimum life cover of Rs 3, 00,000/-.

With the above mentioned criteria, you may also have to choose a policy with a longer tenure, irrespective of whether you require it or not.

 What is in store for the future?

IRDA is bringing out new guidelines to be framed for appointment of Insurance Agents and capping on payment of commissions to insurance agents & reducing the rates of commissions during the first year of the policy & for its renewals from the second year onwards.

The salient features are-

• Insurance Agents will be appointed on a fixed salary structure thereby ensuring and assuring them on fixed monthly income;
• Everyone in the insurance business knows that insurance agents’ commission on the first year’s premium is much higher (sometimes @ 25% & above) and tapers down for each year renewal; now the revised policy will bring them further down not to exceed to an aggregate of 10 per cent of all first year premiums and four per cent of all renewal premiums on policies with deferred annuities. It further suggested that the insurer should be capped at not more than five per cent of premiums received during the year on single-premium annuity products and 1/20th of one per cent of the average of the total sums assured by policies excluding single-premium policies.

• IRDA guidelines further speak of cancelling payment on any upfront commissions by insurance companies to distributors like banks. IRDA also suggested cancelling the system of advance payments to insurance intermediaries. Insurance companies, which are selling their products through bank branches, will then need to come up with a different model.
• The proposed IRDA guidelines, if adopted into law, will enable the common man to hope to get premiums at a low cost since insurance companies would not be spending a huge sum of money on commissions.

As an investor, it is your responsibility to enquire all the details of a product before choosing it. If you have been suggested any insurance plan by your friendly insurance agent, make sure that the agent has your objective as the paramount factor and nothing else.

 Certain variables explained

• Almost all the Insurance companies offering the single premium policy are offering “Surrender Value” after the mandatory 5 years (lock-in period) from the date of the policy.
• Partial withdrawals are allowed under this policy after the completion of “lock-in period” which extends from a minimum of Rs.1000 (only on the policyholder reaching the age of 18 years as on the date of exercising such an option) to a maximum of 50% of the premium paid without interruption during the last 5 years from the date of the policy. A small fee is charged as “surcharge” for facilitating this partial withdrawal.
• There are certain companies which also levy a “miscellaneous charge” to meet the cost of duplicate statement if sought; change in name; change/incorporation of date of birth; addition of contact numbers; and so on.
• Some Companies are offering “top up” on premium to increase sum assured proportionately and this situation could come if the insured is laden with surplus money & want to invest the same in this policy.
• “switching” means that the insured is offered opportunities to switch from one Fund to another under the same Insurance product (like from “dividend” option to “growth” option or from “equity’ to “debt” option or vice versa), which is again subject to availability of such options in the Fund.  

Key Findings

• 88% of the users reported that their interest in sports increased after participating in Online Fantasy Sports contests. 
• 81% of the users agreed that by virtue of using Online Fantasy Sports platforms, they have become more aware of non-cricket sports like Kabaddi, Hockey, and Handball.
• 85% of the users agreed that the option of participating in free contests allowed them to participate without fear of incurring any financial loss. 
• Close to 90% of the users said that the terms of use for paid contests were easy to find and understand before they participated in paid contests. 
• 73% of users spend over 30 minutes researching statistics and other information to make their Online Fantasy Sports teams before a match.

For the complete report, click here

After the big increase in the repo rate by the Reserve Bank of India (RBI) in the last few months, all the major banks of the country have increased the interest rates offered on their fixed deposits (FD) several times to attract new customers. Due to this, investing in FD has once again become beneficial.

Significantly, to reduce inflation, RBI is increasing the repo rate. RBI has increased rates by a total of 190 basis points since May. It is likely to increase further. That is, the increase in rates on FD may continue even further. This is good news for investors. After Corona, banks had reduced the interest rates on FDs significantly. Now it has started increasing.

Subas Tiwari

What is a FD?

A fixed deposit or an FD is an investment instrument that banks and non-banking financial companies (NBFC) offer their customers. Through an FD, people invest a certain sum of money for a fixed period at a predetermined rate of interest in an FD. The rate of interest varies from one financial institution to another, although it is usually higher than the interest offered on savings accounts.

Fixed deposits are available for different periods, ranging from very short-term tenures of 7-14 days to long tenures of 10 years. A fixed deposit is sometimes known as a term deposit.

How does a FD work?

You may think of a fixed deposit as lending money to a bank or an NBFC. When you invest in an FD, the financial institution guarantees to return the invested sum at the end of the tenure, known as the maturity period, and pays you interest for it. The bank may use this money to lend to other borrowers and charges them an interest for the same. A portion of this interest is passed on to you.

The interest offered depends on the tenure or maturity period of the FD. A 7-day fixed deposit will carry a lower annual interest rate compared to a one-year FD. This is to compensate for the time-risk of money. Simply put, a rupee today is more valuable than the same rupee a year from now. This is because inflation pushes up prices over time. A rupee will buy you more goods today than it will a year from now. An investor needs to be compensated for this.

You can choose to reinvest the interest or receive an interest amount periodically in your bank account.

Cumulative FDs pay you the interest and the principal at maturity. The interest is reinvested every year. This means that you will not be eligible to receive regular interest pay outs, instead of receiving a lump sum at the end of the FD tenure. The cumulative FD option may be suitable for you if you do not need a regular stream of income. Under this option, you will also benefit from the power of compounding, as the following year’s interest will be calculated on the principal plus interest of the previous year.

 Non-cumulative FDs will pay you interest at fixed intervals. You could choose to receive interest payments monthly, quarterly, half-yearly, or annually, depending upon your needs. This will give you a regular stream of income. However, the downside of non-cumulative FDs is that you will lose out on earning interest on interest.

Types of Fixed Deposits

Before you invest in a fixed deposit, you must know the different FDs offered in the market.

• Standard Term Deposits

Standard fixed deposits are investment schemes wherein you invest an amount for a fixed period and a predetermined interest rate. The period of investment or tenure can range from 7 days up to 10 years. The interest offered depends on the duration of investment as well as the financial institution offering this instrument.

• Senior Citizen Fixed Deposits

For individuals over 60 years of age, banks and NBFCs offer a higher interest rate on FDs than other investors, usually providing about 25-50 basis points (0.25-0.50%) more. They also provide an additional tax benefit. Interest from senior citizen FDs does not carry a tax deducted at source if it does not exceed ₹50,000 a year. Other investment options do not provide this benefit for seniors.

For individuals who are not senior citizens, the TDS deduction limit is at ₹40,000 a year. Investing in FDs as a senior citizen will reduce your overall tax burden and hence, increase returns.

• Tax-Saving Fixed Deposit

There are specific tax-saving FDs that are eligible for tax deductions. A tax-saving FD has a maturity period of 5 years and the principal amount, up to ₹1, 50,000 per annum is tax-deductible under section 80C of the Indian Income Tax Act.

• Recurring Deposit

A recurring deposit is a type of fixed deposit wherein you can invest a fixed sum monthly or quarterly for a specified time. The interest rate is predetermined. At the end of the maturity period, you will receive your principal along with interest calculated proportionately. For instance, you can deposit ₹1,000 every month for five years. Interest on the first deposit will be paid for five years while that on the last deposit will be paid for one month.

• Flexi Fixed Deposit

A flexible fixed deposit is linked to your savings account. In this instrument, you can instruct your bank to automatically transfer any sum beyond a predetermined balance to a fixed deposit via an auto sweep-in feature. For instance, if you want to maintain a balance of ₹20,000 every month, any excess will be transferred to an FD. Conversely, if your balance falls below ₹20,000, the bank will liquidate a portion of your FD to maintain your balance. It gives you the benefit of liquidity and investment.

The interest on the flexi-deposits is higher than savings account interest rates but lower than standard fixed deposit rates.

• Fixed Deposit for Non-Resident Indians

Non-resident Indian citizens can invest in non-resident external (NRE) or non-resident ordinary (NRO) fixed deposits. NRE FDs are suitable for citizens earning in a foreign currency. Although there are currency fluctuations, the most significant advantage of NRE FDs is that the whole amount, principal and interest, are tax-free. NRO FDs can be deposited in Indian or foreign currency and are taxable at 30% per annum.

• Corporate Fixed Deposits

Some companies or corporate entities also offer fixed deposits. While they offer a higher rate of interest than banks and NBFCs, the risk associated with corporate FDs is higher. While bank and NBFC deposits enjoy backing and insurance coverage from the DICGC, corporate fixed deposits do not provide this insurance. If a company goes bankrupt, there is no guarantee that your money in corporate deposits can be recovered.

Deposit Insurance

All banks which are members of the Deposit Insurance & Credit Guarantee Corporation enjoy protection by way of enjoying insurance coverage against bank winding up and/or liquidation of bank for which the banks need to pay a nominal insurance premium at regular intervals. The bank depositors thereby enjoy DICGC cover up to Rs.5, 00,000 per deposit account in each bank in the event of such unfortunate events taking place at any time.

Taxation on FDs

The interest earned on fixed deposits is taxable. It is charged at your applicable tax slab under the head of “Income from Other Sources”.

However, banks will deduct TDS (tax deducted at source) at the rate of 10% per annum from your interest. That can be accounted for when filing your income tax. When filing your taxes, calculate the interest income you have earned for the year, compute tax by charging tax based on your income tax slab rate and then deduct any TDS amount. This is the net tax payable. TDS on interest income is deductible only if your total interest is above ₹40,000 per annum. For senior citizens, the limit is ₹50,000.

Fixed Deposit Interest Rates in India 2022

Sourced from- ET Money on 15^th Dec 2022

In March, the fiscal year 2022–2023 will come to an end. Only on the basis of your annual savings will you receive a tax rebate. If you have a job, firms will start requesting investment documentation in December. These will determine whether or not tax deductions are made from your paycheck.

Tax deductions will increase if you don’t save, which will lower your take-home pay. The maximum salary will be paid to you if taxes are not withheld. There’s a chance you haven’t made an investment yet. If that’s the case, do it right away. We inform you of the investment programme that will be most profitable for you.                                                                                                                                    

                                                                                                                         Subas Tiwari                                                                                                                                                                                                                                                                                               

However, it requires special planning. This is the New Year, so do your tax planning as soon as possible based on your financial goals. There are 17 ways through which you can reduce your tax liability including PPF, NSC and life insurance premium.

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  Unit Linked Insurance Plan (ULIP)

ULIP Life Insurance Plan is one of the most important investment plans in India. It ensures that one’s family is financially balanced in the case of an event of death. By purchasing a life insurance policy, the taxpayer can avail of the benefit under the income tax act.

Under section 80C of the income tax act 1961, the premium paid towards the purchase of a life insurance policy qualifies for deduction up to Rs. 1.5 lakh. Furthermore, as per section 10(10D), income on the maturity of the policy is tax free. The income is tax-free if the premium is not more than 10% of the sum assured. In the case wherein the money goes to the nominees of the person insured, the same remains as a tax exemption in the hands of the nominee.

In terms of the deduction under section 80C 1961, the taxpayer can claim 20% of tax deduction on the premium paid. The following conditions also apply:

• The taxpayer purchases a life insurance policy on or before 31st March 2012
• The policy is in his own name or in the name of their spouse or child

If the life insurance policy is purchased after 1st April 2012, then the premium paid is eligible for tax deduction up to 10% of the sum assured.

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  Equity Linked Savings Schemes (ELSS)

Equity Linked Savings Schemes are mutual fund investment schemes that invest a large percentage of their portfolio in equity. Furthermore, the fund has a mandatory lock-in period of 3 years which is the shortest amongst all the investment products.

Investment in ELSS funds qualifies for deduction under section 80C of the income tax act up to a maximum of Rs. 1.5 lakh. Both lump sum investment and the amount invested through a systematic investment plan (SIP) qualifies for the deduction. Since ELSS funds invest a large amount in equity, there is always some inherent risk.

ELSS funds provide the dual benefit of capital appreciation and tax-savings. This makes it one of the most popular tax saving schemes amongst investors.

In general, taxpayers who want to claim tax deductions of up to Rs 1.5 lakh under Section 80C provisions and are willing to take some risk should consider investing in ELSS. These mutual funds are equity-oriented, and they invest a minimum of 60% of their portfolio in equity and equity-linked instruments. This makes it crucial to be invested in the funds for a long period of time in order to reap the benefit of the returns.

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  Public Provident Fund (PPF)

The Public Provident Fund has always been a popular tax saving schemes amongst the taxpayer. One of the major reasons for this popularity is the fact that PPF falls under the category of exempt–exempt–exempt tax status. You can open your PPF accounts with a bank or post office.

Taxpayers can claim a deduction under section 80C of the income tax act for the amount invested by them during the financial year. The maximum amount eligible for deduction is Rs. 1.5 lakhs. Since PPF falls under the exempt category, the interest and maturity amount are exempt from tax.

PPF account comes with a lock-in period of 15 years and it allows the investors the below options at the end of the maturity period:

• Withdrawal of proceeds from the account
• Continue for another 5 years

(4) Sukanya Samridhi Yojana (SSY)

Sukanya Samriddhi Yojana has become one of the most important tax saving schemes. It was launched in 2015 by the government of India as a part of the Beti Bachao Beti Padhao campaign. It had a major impact on the general public. The scheme allows a fixed income investment through which the taxpayer can invest regular deposits and at the same time earn interest on it. Investing in Sukanya Samriddhi Yojana also qualifies as an eligible deduction under section 80C of the income tax act.

The government of India determines the rate of interest on the scheme on a quarterly basis and is payable on maturity. The scheme comes with a lock-in period of 21 years and will mature after the expiry of 21 years. A minimum deposit of Rs. 250 is required to be made per year for 15 years. Failure to pay the minimum amount in a year will lead to disconnection of the account. To re-activate the account, you need to pay a penalty of Rs. 50 along with the original Rs. 250 deposit.

In order to open a Sukanya Samriddhi account, below is the eligibility criteria for this tax saving option:

• Only girl children can claim the benefits of this scheme.
• The girl child cannot be more than 10 years of age. A grace period of one year is provided which allows the parent to invest with 1 year of the girl child being 10 years of age.
• The investor must submit age proof of the daughter.

(5) National Savings Certificate (NSC)

A government of India initiative, a national savings certificate is a fixed income investment scheme that aims at the small and middle-income investors to invest and earn handsome returns. It is considered a low-risk investment and as secure as the Provident Fund. The investors can invest as per their income profile and investment habits.

Investment in NSC qualifies for deduction under section 80C of the income tax act up to Rs. 1.50 lakh. Apart from providing the benefit of tax exemption, it provides the investor with complete capital protection and guaranteed interest. Some of the features of the NSC, tax saving option are as follows:

• 8% annual interest as a guaranteed return.
• You can claim a tax benefit under section 80C up to Rs. 1.5L.
• You can invest as low as Rs. 1,000 (or multiples of Rs. 100). You can increase the investment amount as per your convenience.
• On maturity, the entire maturity value will be received by the investor and the same will be taxed in the hands of the taxpayer.
• An early exit is not available. You can use the same as collateral security in case of loans from Bank or NBFC.

(6) Tax-Savings Fixed Deposit (FD)

Fixed deposits are considered one of the safest tax savings schemes. It’s safer than equity investments in terms of risk and returns. The banks decide the interest rates and it depends on several factors. Below are some of the features of a tax-saving fixed deposit:

• Investment in tax saver fixed deposit eligible for deduction under section 80C while calculating the taxable income.
• A minimum lock-in period of 5 years
• Senior citizens can get a higher interest rate on investment
• In the case of a joint account, the primary holder can avail the benefit of tax deduction while calculating the taxable income
• Tax saver fixed deposits do not allow any premature withdrawal. However, after the expiry of the 5 year lock-in period, investors get access to premature withdrawal. The terms and conditions for premature withdrawal vary from bank to bank.

(7) Senior Citizen Savings Scheme

A Senior Citizen Savings Scheme is an income tax saving schemes available to senior citizens who are residents in India. The scheme is available for investment through banks and post offices and offers one of the highest rates amongst the various savings schemes.

Depositors can make an investment with a minimum amount of Rs. 1000 and in multiples thereof. The scheme also provides the facility of investment through cash provided the investment amount is less than Rs. 1 lakh. The deposits made into the scheme matures after a period of 5 years. The depositors also have the option to further extend the maturity period by another 3 years.

Investment in the Senior Citizen Savings Scheme qualifies as a deduction under section 80C up to Rs. 1.5 lakhs from the taxable income. The interest on such deposits is fully taxable and liable for a tax deduction if the interest is above Rs. 50,000. Deposits made into a Senior Citizens Savings Scheme account are compounded and paid out annually.

(8) School Tuition Fees

The income tax act 1961 provides a deduction under section 80C of the income tax act for payment for school fees of children. This tax saving option is available under section 80C in addition to other investments like PPF, NSC, ELSS, etc. Tuition fees paid to any registered university, college, school, or educational institution qualifies for deduction up to Rs. 1.5 lakh.

Moreover, only the tuition fees qualify for deduction under the income tax act. Any other fee like donation, development fee, etc. even if paid to such an institution does not qualify for the deduction.

The income tax act allows both the parents to claim the deduction to the extent of the amount paid by them. So if the total fee paid by the parents is Rs 1 lakh, of which the father has paid Rs 40,000, while the mother has paid Rs 60,000, both can claim the amount individually as per the payment made by them.

(9) National Pension Scheme (NPS)

NPS or National Pension Scheme has become a popular income tax saving investment product. It is a tax saving option that is available to both government and private employees. It enables the depositor to build a corpus for their retirement along with a regular monthly income. The amount invested by the depositor is invested in several schemes including the equity markets.

There are two types of NPS accounts, Tier-1 & Tier-2. A tier-1 account has a lock-in period until the subscriber reaches the age of 60 years. The contributions made by the subscriber to tier-1 are tax-deductible under section 80CCD (1) and 80CCD (1B). Tier-2 accounts are voluntary in nature which allows the subscriber to withdraw the money when they like. However, contributions under tier-2 accounts are not eligible for a tax deduction.

As per the provision of section 80CCD, an individual can claim a deduction up to Rs. 1.5 lakh by investing in NPS. Additionally, a new sub-section 1B was also introduced, which offered an additional deduction of up to Rs. 50,000/-for contributions made by individual taxpayers towards the NPS.

(10) Health Insurance premium under section 80D

You can claim a tax benefit up to Rs. 25,000 in respect of the below contributions:

• Premium paid to keep in force health insurance covering self, spouse, or dependent children.
• Any contribution to Central Health Government Schemes.
• Any other scheme may be notified by the central government as eligible for deduction.

In order to take care of one’s medical emergencies, medical insurance is considered the safest investment option. This allows the taxpayer to avail of the benefits on two fronts. Firstly, being taken care of by the insurance policy in the case of a medical emergency. Secondly, the tax benefit under the income tax act for investing in an investment product.

Apart from the above, an additional deduction for the insurance of the parents is available to the extent of Rs. 25,000 if they are less than 60 years of age or Rs. 50,000 if they are more than 60 years of age. If the individual and the parent are both above 60 years of age, the maximum deduction available under this section will be Rs. 1, 00,000.

Summary of the deductions that are available under various categories:

(11) Education Loan

The income tax act provides a tax benefit on repayment of the loan as a tax deduction under section 80E of the act. You must remember that this tax saving option is available to the person who is repaying the loan. Once an educational loan is availed, the interest paid on the education loan qualifies for a tax deduction for a maximum of 8 years, or the interest is repaid, whichever is earlier.

Depending on who pays the EMI for the education loan, the parent or the child can claim the deduction. The deduction under section 80C is available only if you take the loan from a financial institution and not family members. You can claim the tax deduction starting from the year in which the repayment starts.

The income tax authorities provide a moratorium period of up to one year to the borrower from the date of completion to start repaying the loan. This allows the taxpayer sufficient time to manage their finances and claim the deduction once they start repaying the loan.

For example, if the taxpayer repays their education loan in 5 years from the date of repayment, the tax deduction would be available for this 5 year period only. As per section 80E, this benefit can be claimed for a period of 8 years so the taxpayers should avail this benefit. Borrowers should note that their repayment may exceed 8 years, but in such cases, they won’t get the tax deduction under Section 80E beyond the 8th year.

(12) Rent paid and no HRA received

Generally, you receive HRA as a part of your salary and treat HRA as a major tax saving schemes while filing income tax returns. However, there can also be a case wherein it does not form part of the salary of the employee. In such a case, standard HRA deduction cannot be claimed and the taxpayer would not be able to claim the benefit even if they are paying the rent. Further, in such cases, a taxpayer must claim a tax benefit under section 80GG.

In order to provide the taxpayer with benefit even in a case where HRA is not received, section 80GG was introduced. As per this section, a taxpayer can claim the deduction of rent paid even in a case wherein they do not receive HRA. This is subject to the below conditions:

• The individual is self-employed or salaried.
• HRA has not been received at any time during the year for which deduction is being claimed under section 80GG.
• You, your spouse, or the HUF in which you are a member does not hold any residential accommodation at a place where you currently reside.

To claim deduction under section 80GG, you must file form 10BA for payment of rent. The lower of the below will be considered as a deduction under this section:

• 5,000 per month.
• 25% of the total Income (excluding long-term capital gains, short-term capital gains under section 111A and Income under Section 115A or 115D and deductions under 80C to 80U.
• Actual rent less 10% of Income

(13) Interest paid on Home Loan

In order to claim the interest component on a housing loan as a tax deduction, you must satisfy the following conditions:

• A home loan must be taken for the purchase or construction of a house.
• Construction of the house must be completed within 5 years from the end of the financial year in which the loan was taken.
• The interest component paid as a part of the loan can be claimed as a deduction under section 24 up to Rs. 2 lakh. This is applicable in the case of a self-occupied property. In the case of a let-out property, there is no upper limit for claiming interest.
• In the case of interest being paid towards a home loan taken during a pre-construction period, the pre-construction interest paid can be claimed as a deduction. The deduction is available in five equal installments starting from the year in which the property is acquired or construction is completed. However, the maximum limit is Rs. 2 lakh.

(14) Savings bank account interest

The income tax act 1961 provides deductions with respect to interest earned from savings bank accounts. Individuals and Hindu undivided family can claim the tax deduction under section 80TTA on the interest earned. This deduction is applicable to taxpayers other than those who are senior citizens. In the case of senior citizens, section 80TTB is applicable.

The maximum deduction under section 80TTA is Rs. 10,000. The limit of Rs. 10,000 applies to the total interest earned from the savings bank account that the assesse has. Any interest over and above Rs. 10,000 is taxable under “Income from Other Sources”. The rate of tax will be as per the applicable tax slab rate. For example, the total interest earned by Amit from his savings bank account was Rs. 15,000. In this case, the total exemption allowed under section 80TTA will be Rs. 10,000 and the balance Rs. 5,000 will be taxable as “income from other sources”

On 1st April 2018, section 80TTB came into existence for senior citizens. As per section 80TTB, senior citizens can claim deduction up to Rs. 50,000 or an amount specified from the total gross income.

(15) Medical expenses towards disabled dependent

As per the provisions of section 80DD, a taxpayer can claim a deduction if they are looking after disabled dependents. This tax benefit will help in reducing the tax liability of the person who is taking care of someone disabled in the family who is dependent on them.

As per section 80DD, disabled dependents include spouses, children, parents, or siblings (brother or sister). In the case of HUF, a disabled dependent may be a member of the Hindu undivided family. In order to claim tax benefits under section 80DD, a deduction should not have been taken under section 80U. Below are a few of the disabilities:

• Blindness
• Low vision
• Hearing impairment
• Mental illness
• Autism

Medical expenses against which you can claim tax benefits are as follows:

• Any expenditure made towards medical treatment, nursing, training, rehabilitation of a dependent person with a disability.
• Any amount paid as a premium for a specific insurance policy designed for such cases as long as the policy satisfies the conditions mentioned in the law.

(16) Treatment of specified diseases u/s 80DDB

A deduction under section 80DDB is allowed to a taxpayer wherein a case they have contracted diseases such as cancer, neurological diseases such as dementia, motor neuron disease, Parkinson’s disease, AIDS, etc. All such disease entails expensive treatment costs and the expenses done can be claimed as a deduction under section 80DDB.

The deduction under section 80DDB is allowed for the medical treatment of a dependent who is suffering from a specified disease by individuals or HUF. The deduction is up to ₹ 40,000 or the amount actually paid (whichever is lower). This limit goes to ₹ 1 lakh in the case of senior citizen taxpayers or dependents.

(17) Donations made to charitable institutions

Section 80G provides a tax deduction to the taxpayer with respect to the amount paid by them to an approved charitable organization. The donations made to such organizations should be made via cheque or online transfer. Cash transfers, above Rs. 2,000 do not qualify for deduction under this section. It is very important to take the stamped receipt from the organization wherein the donation has been made in order to claim the deduction.

Depending on the type of organization where a donation has been made, the tax deduction under section 80G can be either 50% or 100% of the donation amount. However, the same is restricted to 10% of the adjusted gross total income of the taxpayer. An adjusted gross total income can be defined as:

• The gross total income (sum of income under all heads) minus
• Amount deductible under Section 80CCC to 80U (but not Section 80G), minus
• Exemption from income, long-term capital gains, minus
• Income as referred under Sections 115A, 115AB, 115AC, 115AD, and 115D, relating to non-residents and foreign companies.

There are basically four buckets in which donations can be categorized to claim the tax deduction.

• Donations with 100% deduction without any qualifying limit, such as the National Defence Fund set up by the Central Government.
• Donations with a 50% deduction without any qualifying limit such as the Jawaharlal Nehru Memorial Fund or the Prime Minister’s Drought Relief Fund
• Donations with 100% deduction subject to 10% of adjusted gross total income. The donation must be towards a Government or any approved local authority, institution, or association to be utilized for the purpose of promoting family planning
• Donations with 50% deduction subject to 10% of adjusted gross total income such as any institution which satisfies conditions mentioned in Section 80G(5).

Income Tax Rates

Income Tax Rates- Sourced from- https://www.incometaxindia.gov.in on 07^th Dec 2022