Tax season is here, and it is natural to think of ways to reduce your tax burden. No one wants to part ways with one’s hard-earned money. However, one needs to make sure that the ways one resorts to are legal. This would require some research and consultation.

So, to make your work easier, let us take you through a list of investment options under Section 80(C) of the Income Tax Act, through which you can reduce your tax burden.

Note:

  • Under Section 80C, you can claim a maximum of ₹1,50,000 tax deduction.
  • Section 80C allows individuals and HUFs to claim tax deduction under Section 80C

The following list is divided into two categories against which you can claim tax deduction under Section 80C:

  1. Investments Activities
  2. Certain Payments/Expenses

Let’s understand each of the components included in these two categories:

1. Investments

a. Life Insurance Premiums

Annual premium paid for a life insurance policy in the name of you or your spouse and children is a good tax saving option.

  • Deduction under Section 80C of the Income Tax Act is valid only if the premium is up to 10% of the sum assured.
  • Added life cover along with time tax benefit. Hence, it helps secure your loved ones future both in your absence and presence.
  • The maturity payout may be tax-free under Section 10(10D)
  • If policy is issued from 01.04.2003 and on or before 31.03.2012 then premium paid up to 20% of sum Assured.

b. Public Provident Fund (PPF)

You may also claim a tax deduction for contributions to your PPF account.

  • A resident Indian can start a PPF account.
  • The taxpayer may be a salaried or non-salaried individual.
  • PPF has a 15 year lock-in period.
  • The current interest is 1 % per year (which is not taxable).
  • The minimum limit of investment is ₹500. Whereas, the maximum limit of investment in PPF is ₹ 1,50,000.
  • Compounded interest is added each month, i.e., each month's interest will be calculated on the sum accumulated by the 5th of the month.
  • You can claim up to ₹1,50,000 tax deductions (inclusive of other investments and payments) under Section 80(C).

c. Employee Provident Fund (EPF)

Any organisation whose workforce is of 20 or more employees is liable to register with the EPFO, that is, the Employees Provident Fund Organization of India.

  • Anyone can start an EPF account with a basic salary of more than ₹15,000 per month.
  • The interest rate is 1% per annum and interest is compounded like that of PPF.
  • If withdrawn after 5 years of continuous service, the complete PF balance and interest is exempted from tax.
  • Section 80C allows a maximum of ₹ 150,000 in tax deductions (including other investments and payments) against this fund.

d. National Savings Scheme (NSC)

It is a fixed income investment scheme that you can avail from any post office.

  • The current rate of interest is 8% per annum.
  • There is no maximum limit for investment, but Section 80C deduction is applicable only up to ₹ 1,50,000 (inclusive of other investments and payments).
  • Interest earned is also added back to the initial investment and qualifies for a tax deduction.

e. Senior Citizens Savings Scheme (SCSS)

Section 80C of the Income Tax Act allows for a tax deduction for contributions to Senior Citizens Savings Schemes.

  • A maximum deduction of ₹ 1,50,000 is available, which includes other payments and investments made under Section 80C.
  • It's also worth noting that the interest earned on this investment is taxable.
  • It offers an interest rate of 7.4% per annum.

f. Tax Saving 5 years FD

Tax saving FDs are fixed deposit schemes offered by both banks and post offices that allow tax deduction under Section 80C.

  • Putting your money in Fixed Deposits (FDs) can provide steady income with relatively lower risk.
  • The rate of interest typically varies between 5.5%-7.75%
  • There is typically a 5 year lock-in period for tax-saving FDs.
  • The maximum amount that can be saved is ₹150,000.
  • Premature withdrawal is not allowed under this investment.
  • Interest earned on tax saver fixed deposits, however, are taxable and will be deducted at source.

g. Sukanya Samriddhi Yojana

This is a scheme aimed at the welfare of the girl child. Contributions to the Sukanya Samriddhi Yojana provide for the education and marriage of girl children, are eligible for a tax benefit under Section 80(C).

  • Parents can open an account in the name of a girl child upto the age of 10 years.
  • The interest rate is 7.6% per annum.
  • Investment withdrawals, as well as maturity amount, are tax-free.

h. NABARD Rural Bonds

NABARD stands for National Bank for Agriculture and Rural Development. Rural Bonds offered by NABARD are eligible for tax exemption under the Income Tax Act of India. The maximum deductible amount is capped at ₹ 1,50,000 under Section 80C.

i. Equity-linked Savings Scheme (ELSS) Funds

ElSS also known as Equity-Linked Savings Schemes are mutual funds designed for tax-saving.

  • Investing in ELSS funds means that the stock market will make up the vast majority of your portfolio.
  • Investments in these instruments are tax-deductible up to ₹1.5 lakh
  • The returns received are taxable.
  • These funds have a three-year lock-in period.

j. Infrastructure Bonds

  • Tax deductions on infrastructure bonds are available under Section 80C of the Income Tax Act, maximum deduction available is ₹ 20,000.
  • These long-term secured bonds are still subject to the ₹ 1,50,000 limit.

k. Unit-linked Insurance Plans (ULIP)

ULIP is a unique combination of insurance and investment.

  • Unit Linked Insurance Plans (ULIPs) are a superior wealth-building product in the market, as they do considerably more and have less hidden expenses.
  • You can buy a ULIP for yourself, your spouse, or your child, and save tax under Section 80C of the Income Tax Act.
  • Investment, withdrawals, and maturity amount are all tax-free.
  • ULIPs have low fund-management charges
  • Easy switching between debt and equity securities
  • Addition of life cover
  • The amount invested under ULIP plans is eligible for tax deductions under Section 80(C).

2. Other Payments Eligible for Deduction under Section 80(C)

a. Home Loan Repayment of the Principal Amount

The principal amount paid on a loan used to purchase or build a residential property is deductible under Section 80(C) of the Income Tax Act. The highest amount of deduction you can claim is ₹ 1,50,000. However, one must keep in mind that the property purchased with the benefit cannot be sold for at least five years after possession. If a sale is made, the previously claimed deductions will be applied to the income of the year in which the sale is made.

b. Children’s Tuition Fees

Tuition costs for up to two children are eligible for a tax deduction of up to ₹ 150,000 under Section 80C (including any other investments and payments made under the Section). It should be noted, however, that such fees must be paid for a full-time course and the education institution to which they are paid must be located only in India. Deduction under Section 80C is available only for tuition fees paid for two children education.

Suggested Read: I am unable to save a lot due to the school fee payments? How do I maximise my tax deduction this year?

c. Stamp duty and registration fee of the house

The two most significant costs associated with acquiring property ownership are stamp duty and registration fees. The Indian government permits stamp duty and registration fees paid for house purchase to be deducted from taxable income up to the 80C limit. However, exemptions can only be claimed in the year that the duties are paid; otherwise, the deduction under Section 80C will be disallowed.

Subsections of Section 80C

Section 80C of the Income Tax Act has certain sub sections. They are:

Tax-Saving Sections Amount of Tax Deduction Eligible Investments and/or Expenses

Section 80CCC

₹ 1,50,000

Payments made toward pension plans or annuity plans of life insurance companies.

Section 80CCD

₹ 1,50,000

Contributions made to the Pension Scheme of the Central Government. (This deduction is available only to individuals and not HUFs).

Section 80CCF

₹ 20,000

Investments made toward long-term government-approved infrastructure bonds.

Section 80CCG

₹ 25,000

Investments made under a government-approved equity savings scheme.(This deduction is available only to individuals and not HUF’s)

How much can be claimed u/s 80C?

There are limits to the amounts that can be claimed for different activities and the total that can be claimed under these activities.

The total amount that can be claimed under sections 80C, 80CCC and 80CCD(1) combined is ₹ 1,50,000.

There is an option to increase the total deduction by an additional Rs 50,000!

Here’s “how”?

The deduction of ₹ 50,000 is available on NPS under Section 80CCD(1B). This deduction is available over and above ₹ 1,50,000 deduction available under Section 80C.

How long should you stay invested?

This is an important obligation often ignored by taxpayers while investing under sections 80C, 80CCC & 80CCD. Different investment instruments have different time limits which you must follow to avoid reversal of the deduction:

Investment Minimum Lock-in Period

Unit Linked Insurance Plan

5 years

Term Life Insurance Plan

2 years

Repayment of Home Loan Principal or Cost of purchase or construction of residential house

5 years

Deposit in Senior Citizen Saving Scheme

5 years

Time Deposit in Post Office/Bank

5 years

Equity Linked Savings Scheme (ELSS)

3 years

PPF

15 years

NPS

Till Retirement

Conclusion

Several investment instruments available in the market provide tax benefits under Section 80C of the Income Tax Act. However, investors need to judge for themselves as to which tool works best for them by considering the returns, lock-in, liquidity and the risk factor.

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