Tax Deduction under Section 80C : 15 Best Tax Saving Investments !
(Last Updated On: July 20, 2017)
An important method for efficient Tax Planning is to claim the benefit of the available Income Tax Deductions Under Chapter VI A of The Income Tax Act. Through this blog we shall be highlighting one of the popular Deductions : Tax Deduction Under Section 80 C.
So, are you new to the Tax world ? Do you have any idea about Tax Planning ? Do you know how to reduce your taxes efficiently ?
Have you heard your friends talking about various Tax benefits and Deductions as per the Income Tax Act. Are you wondering what these actually mean ? How and to what extent you can claim their benefits ?
Are these the questions that worry you ? If yes, you are at the right place to get your answers….
So,Income Tax Deductions, as the name implies help you to reduce your Income tax liability to some extent.
You can claim the benefit of Tax Deductions by reducing the amount from Your Gross Total Income of a particular Financial year.
Simply stated, you can calculate your Taxable Income, by reducing the amount of Deductions Under Chapter VI A of The Income Tax Act from your Gross Total Income :
A. SALARY INCOME
B. HOUSE PROPERTY INCOME
C. INCOME FROM BUSINESS & PROFESSION
D. INCOME FROM CAPITAL GAINS
E. INCOME FROM OTHER SOURCES
GROSS TOTAL INCOME (A+B+C+D+E) Less : DEDUCTIONS UNDER CHAPTER VI A
You arrive at the TOTAL TAXABLE INCOME.
The most common Tax Deduction that you tend to hear is Tax Deduction Under Section 80C of The Income Tax Act.
Keeping in mind the importance of this deduction and in order to make you familiar with it, we have highlighted the most popular Investments that you can make to claim its benefit.
So,just have a look at each eligible Tax saving Investment,that you can probably make and select the one that suits you.
Section 80C of The Income Tax Act allows you to claim a maximum Deduction of Rs.1.5 lakhs during a particular financial year.
Here we will be discussing 15 Most Popular Tax saving Investments that can help you claim the Tax Benefit U/s 80 C.
15 Tax Saving Investments for claiming Tax Deduction under Section 80C :
1. Public Provident Fund or PPF :
PPF is one of the most tax efficient instruments in India where people can deposit money for a fixed tenure and enjoy the returns over their investments.
You can open a PPF account in any nationalised or authorised bank/post office with an initial deposit of Rs.100 only but a minimum deposit of Rs.500 is required to be made during a financial year.The maximum limit of PPF account is Rs.150000 during a financial year.
The Interest rate for first 2 quarters of FY.2016-17 was to 8.1% that has been further lowered by 0.1 percent in the 3rd quarter.So,PPF Interest rate for Oct’16 to Dec’16 is 8 % per annum only.
Note : PPF Interest rate for first quarter of Financial year 2017-18 i.e. Apr-Jun’17 has been reduced to 7.9% p.a.
PPF is normally considered as one of the Best Long term Investment Options due to its EEE nature i.e.Exempt,Exempt and Exempt.
- Contribution or Deposit amount is Tax free U/s 80 C of The Income Tax Act upto a Maximum of Rs.1.5 lakhs.
- Interest earned is Tax free.
- Maturity/Withdrawal amount is also Tax free.
Also Read our popular blog post : PPF or ELSS – Which is better Investment ?
2. Equity Linked Saving Scheme or ELSS :
ELSS is a diversified equity mutual fund where the investors enjoy the dual benefits of capital appreciation as well as taxation benefits. In ELSS,the majority of funds are invested in equities. ELSS has a lockin period of 3 years.
By investing your funds in ELSS ,you can claim a tax benefit U/s 80 C of The Income Tax Act upto a maximum of Rs.1.5 lakhs. Although,you can invest a higher amount in ELSS but the deduction shall be restricted to the total limit U/s 80 C i.e.Rs.1.5 lakhs during a financial year.
For additional details refer Equity Linked Saving Scheme or ELSS -Things to Know !
3. Life Insurance Premium :
An Individual or HUF can claim deduction U/s 80C for life insurance premium paid during a particular financial year.So,if you have taken any Life Insurance Policy, you can claim a deduction for the premium amount paid by you during the financial year.
In case of Individual,in order to claim this Deduction, the Life Insurance premium should be paid against policy taken for :
- Your Spouse
- Your children
In case of HUF,the premium should be paid on policy taken in the name of any of the members of HUF.
Life Insurance premium paid to private companies is also eligible for deduction.
The insurance premium paid for any insurance policy (except deferred annuity), the maximum allowable amount shall only be upto 10% of sum assured.(If policy is issued on or after 1.04.2012).For policies issued before April 2012 the maximum limit was 20% of sum assured.
4. Employee Provident Fund or EPF :
EPF is a benefit available only to the salaried employees. A fixed portion of your basic salary is deducted monthly by your employer towards EPF.
A minimum of 12% is deducted from the basic salary towards EPF. However,you can voluntarily increase your EPF contribution and convert your EPF Account to VPF Account. The employer contribution to your EPF is tax free.While the employees contribution can be claimed U/s 80C of The Income Tax Act.
The interest earned and maturity amount will also be tax free if the withdrawal is made after 5 years of continuous service.
Also go through : 7 Tax Saving Tips for Salaried Class !
5. Sukanya Samriddhi Yojana :
Also referred to as the girl child prosperity scheme,it is a welcome step taken in order to provide financial security to girls in India.Only One account for one girl child is allowed to a maximum of two accounts for two girl children.
The rate of interest was @8.6% per annum for first two quarters of the financial year 2016-17. The interest rate has been further lowered by 0.1 percent for the 3rd quarter.So,interest rate on SSY for Oct’16 to Mar’17 is 8.5% p.a.
Note : SSY Interest rate for first quarter of Financial year 2017-18 i.e. Apr-Jun’17 has been reduced to 8.40% p.a.
You can claim Tax deduction U/s 80 C upto a maximum of Rs.1.5 lakhs during a financial year.
For details you can refer Sukanya Samriddhi Yojana – Facts You need to Know !
6. National Savings Certificate or NSC :
National Saving certificates are tax saving instruments where the government accepts deposits from individuals through post offices.You get a fixed rate of interest as decided by the Government every year.
You can have a 5 year NSC or a 10 year NSC.The interest on NSC is compounded on a half yearly basis but it is payable at maturity only.
You can invest a minimum of Rs.100 in NSC.There is no maximum limit for investment in National Saving certificate or NSC. However,you can claim a tax benefit U/s 80 C for the principal amount invested.Also,the interest amount that is automatically reinvested is eligible for this deduction.
7. Senior Citizen Savings Scheme :
It is a good investment option for retirees i.e.this scheme is available only to investors of the age of 55-60 years .The investment limit is Rs.15 lakhs and the tenure of the scheme is 5 years extendable to another 3 years.The Interest is usually paid on quarterly basis.
This is a government sponsored scheme so is a reliable option for retirees and senior citizens.The interest on Senior Citizen Saving Scheme was 8.6% for first half of financial year 2016-17 which has been reduced to 8.5% in the third and fourth quarter.
Note : Interest rate for first quarter of Financial year 2017-18 i.e. Apr-Jun’17 has been reduced to 8.4% p.a.
Senior Citizen Savings Scheme qualifies for tax benefit U/s 80 C of Income tax act.You can open any number of accounts subject to maximum investment limit i.e.total amount all the accounts should not exceed the permissible amount.
8. Education fee of Children :
You can claim Income tax deduction U/s 80 C of Income tax act for fee paid for education of your children.The deduction is allowed to maximum 2 children. It is restricted to Rs.1.5 lakhs i.e.the maximum limit for claiming deduction U/s 80C. It is available only for full time courses in India. So,part time courses and distance education are not covered under it.
This deduction is available only to Individuals and HUF is not allowed to claim it.This deduction is allowed in the year in which fee has actually been paid by the individual.
Another important point to note here is that, this deduction is available only if fee has been paid to a school,college,University or Educational Institute.So,any payment made to a private coaching centre or for private tuitions is not covered here.
However,any fee paid to a play school or pre-nursery,nursery is allowed for deduction.
9. Home Loan Principal Repayment :
Home loans not only help you in stepping towards your dream home,but they provide you several tax benefits as well that help you save some of your money. The Principal amount that you pay for your home loan, qualifies for deduction U/s 80 C.
Further,if you have prepaid you Home loan,you can claim the benefit U/s 80 C upto a maximum of Rs.1.5 lakhs.
Besides,deduction under Section 80C, you get other tax benefits on home loan. The summary of home loan deductions is as follows :
|Section||Amount of Deduction||Deduction Available on
|80 C||Maximum Rs.150000||Principal repayment of Home loan|
|24||Maximum Rs.200000(For Self Occupied House Property)|
No limit- For not self occupied house
|Interest on Home loan|
|80EE||Maximum Rs.50000 (For first time home buyers)||Interest on Home Loan provided the loan is sanctioned between 1.4.16 to 31.3.17|
For details on Home Loans you can go through Home Loans : 5 Facts You need to Know !
You may also like our blog post : Peer to Peer Lending in India – Facts to Know !
10. Stamp Duty & Registration Charges for Buying a House :
When you buy a house, the amount you pay as stamp duty and registration charges which can range anything from 8-10% of cost of house,adds up to the overall cost of your house. But,are you aware that these can also be claimed as Tax deduction U/s 80 C.
Individuals and HUFs are allowed this deduction in the year of actual payment.Moreover,the house in regard to which stamp duty and registration duty are are paid should be registered in the name of the person claiming the tax deduction.
The payment should have been done by the assessee himself for a new residential house and he should also have the actual possession of the house.
11. 5 year Tax Saving FDs :
Tax saving investments include Tax Saving FD also.Tax saving FD provides you a dual benefit of earning a fixed interest as well as enjoying tax benefits.Tax saving Fd have a lockin period of 5 years and premature withdrawal is not allowed.
So,if you have invested or are thinking to invest your money in 5 year Tax Saving FDs, then you can get the benefit U/s 80 C.
Just to clarify,only the contribution made towards a Tax saver FD is eligible for deduction under section 80C. But,the interest earned on Tax saver FD is fully taxable.
To get a deeper insight on Tax saving FDs you can refer post : Tax saving FDs -one of the popular tax saving options !
12. NABARD Rural Bonds :
NABARD is and apex development institution,owned by Government of India and works towards the development and upliftment of rural India.
These bonds are issued by NABARD ( National Bank for Agriculture and Rural Development).An Investment in NABARD Rural Bonds or NABARD tax free bonds qualifies for Deduction U/s 80 C.
Interest earned from tax free bonds is not taxable so you can earn better post tax returns.
NABARD tax free bonds are best suited to individuals looking for fixed regular income without taking any risk.People in the higher tax bracket of 20% or 30% prefer to invest in such bonds.But,these bonds usually have a longer maturity tenure which seems to be a major point of concern for investors.
13. Infrastructure Bonds :
Infrastructure Bonds also called infra bonds, are issued by Infrastructure Companies.So,if you invest in Infra Bonds, you are eligible for Tax Deduction U/s 80 C.
These are not so popular option for tax saving due to the low rate of return on them.
14. Unit Linked Insurance Plans or ULIPs :
ULIP is an insurance product that provides you insurance as well as investment opportunity.Premium paid for ULIP is deductible U/s 80 C upto maximum Rs.1.5 lakhs.
For policies purchased after 1.04.2012 ,check :
If premium paid <10% of sum assured,the maturity amount is exempt from tax.
If premium paid >10% of sum assured,the maturity amount shall become”Income from other sources”and taxed at the prevalent tax slabs.
So,the tax deduction is allowed maximum upto 10% of sum assured.But,for policies issued before April 2012 the maximum limit was 20% of sum assured.
Further,you need to continue ULIP for at least 5 years in order to claim the tax benefits.
15. 5 year Post Office Time Deposits :
Post Office Time deposits are risk free investments for the risk averse investors exploring only safer options to invest their money.Time Deposits are available for 1 year,2 years,3 years and 5 years.But,only 5 year Post office time deposits qualifies for Tax deduction under section 80C.
The contribution made towards 5 years Tax Deposits qualifies for this deduction U/s 80C. The Interest is compounded on a quarterly basis and fully taxable.The current interest rate is 7.9 % p.a.
To analyse other Post office Saving schemes you can go through : Post Office Savings Schemes in India !
While doing your Tax Planning, just keep the above Investments in mind and claim their benefits to the maximum possible extent.
While investing your money,just remember that the Total tax deduction under section 80C cannot exceed Rs.1.5 lakhs during a financial year. This limit applies for the combined amount in the above investment options. e.g. If you invest Rs.150000 in PPF,Rs.150000 in ELSS,Rs.50000 in Tax saving FDs, you can claim a total deduction of Rs.1.5 lakhs only.
Go ahead,Plan wisely and Don’t miss a chance to save your Taxes !
Would love to hear your valuable feedback, any additions to the above list ….any suggestions…you can give in our comments section.
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Happy Tax Planning !
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