Tax planning for women

Tax planning for women

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With a variety of options available, it becomes challenging for the woman taxpayer to choose the appropriate tax saving instrument.


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Kuldip Kumar

Chander Talreja

Income-tax is levied on individuals where they have taxable income. But when it comes to the women taxpayers, Government has given special concession to encourage then to become financially independent. The Income-Tax Act, 1961, provides for a higher tax exemption limit to women taxpayers as compared to males.

In the case of resident women taxpayer, the basic tax exemption limit is set at Rs 1,90,000 whereas for the male taxpayer, it is Rs 1,60,000. It means an additional tax saving of Rs 3,090. The limit increases to Rs 2,40,000 if the age of the taxpayer is 65 years or more.

This article looks at how women taxpayers can minimise their tax liability by making appropriate tax saving investments and/or utilising other deductions available under the Act.

Section 80C

Section 80C of the Act provides for a deduction of Rs 1,00,000 in relation to certain investments (tax saving instruments) or payments made by a taxpayer during the financial year.

The various investments which are eligible for deductions under Section 80C are: equity-linked savings schemes offered by LIC, mutual funds; unit-linked insurance plans for self, spouse or children; life insurance policies for self, spouse or children; employees' contribution to recognised provident fund; contribution to public provident fund; deposits in post office schemes such as — National Savings Certificate, Senior Citizen Savings Scheme, if it applies, and the post office five-year time deposits; term deposit with a scheduled bank for a period of at least five years; investments made in bonds issued by the National Bank for Agriculture and Rural Development and debentures issued by specified companies,

In addition to these investments, the following payments also qualify for deduction under Section 80C: payment of tuition fees for a full-time education in any Indian university, college, school, educational institution (available for any two children); however, amounts paid for development fees or as donations are not eligible for deduction; and repayment of the principal portion of a housing loan.

Budget 2010 has provided a further opportunity to save tax where the taxpayer invests in notified infrastructure bonds.

A new Section 80CCF has been proposed to be introduced which allows a deduction of Rs 20,000 in relation to investment made in long-term infrastructure bonds to be notified by the Central Government.

Such deduction would be over and above the existing limit of Rs 1,00,000 as provided under Section 80C of the Act and would be available from next year (2010-11 onwards). The maximum saving could be Rs 6,180 (if the woman taxpayer is falling in the 30 per cent tax slab).

Saving instruments

With a variety of options available, it becomes challenging for the woman taxpayer to choose the appropriate tax saving instrument.

It would essentially depend on the actual circumstances of the each individual taxpayer as to what type of tax saving investments would suit her the best. The various tax saving instruments as discussed above carry a lock-in period — you may not able to withdraw your investments before the lock-in period or if you withdraw you may have to surrender the tax benefit you got at the time of making the investment.

Besides the lock-in period, there are several other factors such as the age of woman taxpayer, marital status, investment objectives, etc., which may also impact her decision to pick up the right type of investments. For example, where the woman taxpayer is, say, 22 and unmarried, she may need money in the near future for her marriage, further studies, etc.

In such a situation, she may like to invest in ELSS or keep the money with a bank or post-office in fixed deposits, which has lock-in period or three to five years rather than making deposit in PPF which has a lock-in period of 15 years or other long-term investments.

Where the woman taxpayer is in employment, she would compulsorily be contributing to the PF. As such contribution is eligible for deduction under Section 80C, she would need to consider those contribution to arrive at the net amount which she may need to invest within the overall limit of Rs 1,00,000.

Later, say, when she gets married and has family, she may utilise Section 80C differently. For example, where she has two school-going children, then besides PF, she would also need to consider the tuition fees she would be paying to ascertain the remaining amount to be invested in tax saving instruments.


Interest on loan

Where she borrows money to buy or construct a house, then she would also need to consider the principal amount she would repay during the year before arriving at the amount to be invested for tax saving purposes.

In such a case, the amount of interest paid on such loan is also deductible up to maximum of Rs 1,50,000 from her taxable income. It may be noted that where she buys or constructs the house jointly with her spouse and borrowed the money and are repaying the loan, then they both may be able to claim deduction of Rs 1,50,000 each for the interest and claim deduction under Section 80C for the repayment of principal.

Take another example, where both the husband and wife are earnings members and wife has her entire income at her disposal to save and she does not need money in near future, she may consider investing in long term tax savings schemes such PPF, ULIPs, etc., where money gets accumulated for old age. Even investing in another house for investment purposes may also be an option.

Medical insurance

Besides Section 80C, there are several other deductions available which a woman taxpayer can claim. Where she has taken a medical insurance for self and/or family (spouse and dependent children), she is eligible to claim a deduction up to Rs 15,000 (Rs 20,000 if any of the family member is a senior citizen). Further, where the medical insurance is taken for her parents, you will get an additional deduction of Rs 15,000 (Rs 20,000 if any of the parent is a senior citizen).

If she has contributed towards charity, deduction is available under the I-T Act up to 50 per cent (in some cases 100 per cent) of the amount donated to specified funds or institutions. Further, in case she borrowed money to pursue higher education for self, spouse or children, interest repaid on such loan during the year is also deductible under the Act. Such deduction is allowed over a period of eight financial years starting with the year when she starts paying the interest or tenure of the loan, whichever is earlier. There is no limit on the amount of interest that is claimed as deduction.

No special concession has been provided to the woman taxpayer in Budget 2010. However, the taxable income slabs has been amended to provide relief to all taxpayers having taxable income exceeding Rs 3 lakh. The maximum saving could be as high as Rs 51,500 for the taxpayers having taxable income of Rs 8 lakh or more. With more money in hands and the variety of options available, woman taxpayer can really make good use of investment opportunities while saving tax at the same time.


(The authors are with PricewaterhouseCoopers.)