Section 80C – Income Tax Deduction under Section 80C

  • Income Tax

Introduction

As part of being an Indian citizen, paying tax is essential. However, the law also recognises that everyone functions on a fixed budget and the percentage of earnings given up as tax have a definite impact on one’s account and quality of life. Furthermore, allowing people to save tax gives them room to invest and spend, helping to fuel the economy. Subsequently, there have been a number of tax-saving instruments that have been developed in order to allow individuals to seek tax exemptions1, easing some of their tax burdens.

Section 80C1of the Income Tax act has emerged as a significant contributor to the list of tax-saving instruments and investment options with tax-saving components. In this article, we will take a look at some of the tax-saving instruments offered by section 80C

1. Life Insurance Premium

Purchasing life insurance offers individuals obvious advantages, as in the event of one’s death, their family is taken care of. However, under section 80C, life insurance and term insurance offer additional benefits, as the premium payments you make are exempt from being taxed

2. Public Provident Fund (PPF)

Public Provident funds are an investment option offered to the public by the government of India. As part of a PPF, individuals can invest up to 1.5 lakh per annum into the fund, though the fund requires you to lock the fund in for a minimum of 15 years. The tax benefit here is that the amount you pay in income tax reduces, in addition to any interest earned on the PPF being tax-free

3. Employees’ Provident Fund (EPF)

Employee provident funds function similarly to PPFs, though the investment here is done by the employer on behalf of their employees. As part of an EPF, the employer deposits 12% of an employee’s salary into the EPF, and this amount earns a certain fixed level of interest. Interest earned on EPFs are non-taxable and similar to PPFs, the income tax you pay reduces as it is charged on a lower amount.

4. Equity Linked Savings Scheme (ELSS)

For those looking to make a short-term investment through tax-saving investments, ELSS’ might be the way to go. Unlike PPFs and EPFs, an ELSS has a minimum locking period of a mere 3 years. Offering similar benefits to PPFs and EPFs, interest earned on ELSS’ are not taxable.

5. Unit Linked Insurance Plan (ULIP)

ULIP schemes allow individuals to invest in the market through their insurance plans, with a portion of the premium payment going towards the insurance premium, the remainder is invested into the market. The premiums you make towards the ULIP scheme is eligible for tax deductions of up to 1.5 Lakhs per annum.

6. Tax Saver Fixed Deposits

Some FDs offer individuals with tax-saving opportunities, alongside usual returns you would make on an FD. Under section 80C 1of the IT Act, individuals can invest a minimum of 100 rupees monthly and can claim tax benefits up to 1.5 lakhs per annum.

7. National Pension Scheme (NPS)

National Pension Schemes or NPS allows individuals to claim tax benefits of up to 1.5 lakhs per annum, according to section 80CCD (1) of the IT act. Additionally, under section 80CCD (1B), additional tax benefits can be claimed on an investment of Rs. 50,000 in an NPS.

8. Home Loan Principal Repayment

Home loans function on a similar repayment principal as insurance schemes, wherein borrowers repay their home loan amount in increments, monthly or annual. Under section 80C1 of the IT act, home loan repayments made by borrowers are exempt from tax.

9. Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana, a component of the Beti Bachao, Beti Padhao initiative, is a savings scheme targeted at parents of a girl child, encouraging them to set up an education fund for the child. Under section 80C1, investments made in the scheme are eligible for tax deductions up to 1.5 lakhs per year

10. Senior Citizens Savings Scheme

Senior citizen saving schemes are set up to enable you to save sufficiently to secure your financial needs past retirement. Given that it is also considered a type of investment, section 80C allows for a tax deduction of up to 1.5lakhs per year on investments made in the scheme.

11. National Savings Certificate

National savings certificate is another form of fixed income saving scheme, aimed at incentivizing mid and small income earners to invest their money, through the prospect of saving on income tax. The lock-in period for NSC is 5 years, and while section 80C allows for tax breaks on investments of 1.5 lakhs per annum.

How to maximise tax savings under section 80C.

As an individual earning a salary or as an investor, you are always looking for investment opportunities, whether it is a necessity or an opportunity to make good returns. However, with a little more research, you can align your investments in such a manner so as to maximise the tax benefits you can claim. For instance, if you are a family with children, then you are likely to invest in health insurance for the family, as well as an education fund for the children. Additionally, you are likely to invest in your future as well, through pension funds and retirement funds.

Picking investments that serve these purposes while still aligning under section 80C1 will help you gain additional returns in the form of tax benefits on your investments.

Conclusion

There are a wide number of tax-saving instruments and tax exemptions1 available under section 80C. However, in order to maximise your savings, the goal is to pick those tax saving instruments that are best suited to your needs and fit in best with your income, lifestyle and goals.

1Tax Benefits are subject to changes in tax laws. Please consult your financial advisor for more details.

ADV/3/20-21/2487

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