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How do the different tax saving options in section 80C compare against each other?

Section 80C of the Income Tax Act, 1961 has several provisions for tax savings through investments in different instruments. Benefits under Section 80C are available through investments on tools such as Equity Linked Saving Schemes (ELSS), Public Provident Fund (PPF) and Unit Linked Investment Plan (ULIP) among others. 

However, before investing in these instruments, it is necessary to understand the different parameters associated with each, including the returns they offer and the risks they pose. Section 80C lets individuals claim tax benefits up to a cumulative limit of ₹1,50,000. Read on to learn about which is the best instrument to invest in, based on your requirements.

  • ELSS:ELSS enables investors to invest in equity stocks and earn market-linked returns that can potentially beat inflation. However, since the equity market is also volatile, returns cannot be assured and can result in losses as well. The benefits under Section 80C allow ELSS to be among the few market-linked instruments to have tax-deduction benefits.

  • National Pension Scheme (NPS): NPS is an excellent option for cautious investors since a significant part of the fund invested goes into government security and corporate debt, both of which are secure investment options with guaranteed returns. Additionally, aside from benefits under Section 80C, NPS also provides for tax savings under Section 80CCD(1b) through which investors can claim deductions for upto ₹50,000. Furthermore, if an employer invests 10 % of the basic salary into the NPS account, that has tax benefits as well.

  • PPF: PPF is a popular investment option for those looking for secure investments which guarantee assured returns, and are intended for long-term benefits. Additionally, the returns earned through it are also exempted from income tax which adds to its charm for investors looking for high profits through secure investment instruments.

  • Fixed Deposits: Fixed deposits in banks are also a popular investment option with investors looking for safe and assured returns. While returns are lesser as compared to other instruments such as ELSS, they help foster a habit of saving among investors. The lock-in period also ensures that the returns help achieve long-term goals.

  • ULIPs: ULIPs have the dual benefit of investment and insurance. While a portion of the funds invested goes towards providing an insurance cover, the other is invested into a combination of debt and market-linked instruments. ULIPs are among the rare instruments that come under the Exempt-Exempt-Exempt tax regime. This includes 80C deduction on the premiums paid, the tax-free amount on maturity under section 10(10D) and thirdly, ULIPs are also exempted from Long Term Capital Gains Tax.

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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