The Income Tax Act, 1961 offers tax saving benefits on investment instruments savings plans, like life insurance premium, EPF/PPF/VPF and others under Section 80C and its sub-sections. Section 80C deduction provides you an option to reduce your taxable income up to Rs. 1.5 lakh for every financial year.
Section 80C of the Income Tax Act prescribes several instruments that not only offer income tax saving benefits, but also provide monetary returns throughout the obtained policy period. Currently total 80C limit as per Income Tax Act, 1961 is Rs.1.5 lakh per financial year. Herewith are some of the major 80C deduction options available according to Income Tax Act, 1961:
- ,Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- Life Insurance Premium
- Equity Linked Savings Scheme (ELSS)
- ,Unit Linked Insurance Plan (ULIP)
- Home Loan Principal Repayment
- Tax Saver Fixed Deposits
- Sukanya Samriddhi Yojana
- Senior Citizens Savings Scheme
- National Pension Scheme (NPS)
- National Savings Certificate
Now let us understand in brief about above options which are available under 80C deductions according to Income Tax Act, 1961:
- Public Provident Fund (PPF)
PPF is a government scheme that permits you to invest minimum Rs. 500 to Rs. 1.5 lakh in a particular financial year. Under the provisions of Section 80C of the Income Tax Act 1961, your taxable income will be reduced by the amount you invest in the said fund.
Apart from this, PPF interest you earn on such funds is tax-free which means you can gain an all financial advantage under Section 80C, by putting money in PPF.
2. Employees’ Provident Fund (EPF)
Under Section 80C of Income Tax Act, 1961, Employees’ contribution to the EPF account is also eligible to avail 80C deductions. Whereas, employer’s contribution remains tax free but cannot be available in 80C deduction.
3. Life Insurance Premium
If you buy any life insurance policy for yourself, your spouse or children, it can be claimed 80C deduction on the total premium paid towards the plan in given FY. However, if you pay premium for your parents or in-laws, then you will not be eligible to receive this benefit. If you hold more than one policy, then you can claim tax benefits on all of them up to the Rs. 1.5 lakh limit as per Section 80C of Income Tax Act 1961.
If you are an HUF, then you will also be eligible to claim such income tax saving deduction benefits on the amount of premium with or without individuals premium. Top of Form
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4. Equity Linked Savings Scheme (ELSS)
ELSS is another type of investment scheme covered under Section 80C, in which you enjoy Income Tax Saving benefits on the amount you put into the fund. Such a scheme offers you higher returns as your money gets invested in equity funds, but the point to note is that equity investment is prone to higher market-related risks.
There is no upper limit on the amount that you can invest in ELSS. However, you can only avail income tax saving benefit up to the total limit stated under Section 80C.
5. Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan offers the twin benefit of life cover and investment benefit. Under Section 80C, it also provides income tax saving benefit, up to Rs. 1.5 lakh, on the amount invested. You can avail tax-deduction benefits up to either 10% of the sum assured or annual premiums, whichever is lower. Investing in ULIPs will help you enjoy flexibility of maximising your savings through a variety of market-linked fund options.
6. Home Loan Principal Repayment
If you have availed home loan from any bank or financial institution, you can avail 80C deduction up to Rs.1.5 lakh on the home loan principal repayment amount.
7. Tax Saver Fixed Deposits
Tax Saver Fixed Deposits also come under Section 80C deduction. Any deposit that you make with a bank for a period of 5 years is eligible for tax deductions, up to the specified limit stated under Section 80C of Income Tax Act, 1961.
8. Sukanya Samriddhi Yojana
Sukanya Samridhi Yojana is a saving scheme for girl child and is eligible for 80C deduction of Income Tax Act. This account is for the girl child under 10 years of age. This account can be opened for a maximum of 2 girl childs and claim income tax deductions under Section 80C of Income Tax Act.
9. National Pension Scheme (NPS)
Contributions made towards the National Pension System are tax deductible under Section 80CCD, which is a subset of Section 80C of Income Tax Act. However, the combined deduction under Section 80C and Section 80CCD (1) cannot be more than Rs. 1.5 lakh.
In case, you contribute an additional Rs. 50,000 under NPS (over and above the Section 80C limit of Rs. 1.5 lakh), the total amount can be claimed as deduction under Section 80CCD (1B).
In other words, you can claim tax deduction on the contributions made towards NPS, of up to Rs. 1.5 lakh and Rs. 50,000 as per Section 80C limit and Section 80CCD (1B) respectively.
10. Senior Citizens Savings Scheme
Senior Citizens Saving Scheme is for senior citizens with at least 60 years of age. Senior Citizens who have opted for Voluntary Retirement Scheme (VRS) can opt for it after 55 years of age. Any investments made under this scheme is eligible for 80C deductions with the maximum 80C limit remains Rs.1.5 lakh only.
11. National Savings Certificate
Any investments made under the National Savings Certificate can also be claimed under Section 80C deductions. Not only the investment amount, but also the interest accrued for the first 4 years are eligible for deduction under Section 80C of Income Tax Act. You can reduce the taxable income up to Rs.1.5 lakh (Section 80C limit).
How to Maximize Tax Saving under Section 80C?
Under Section 80C, there is an overall ceiling of Rs. 1.5 lakh on the amount of income tax saving benefits you can enjoy. As mentioned above, the provisions cover a number of fund options that offer both insurance investment benefits. The most noteworthy point about saving tax under section 80C is that it allows you to invest either the entire amount of Rs. 1.5 lakh in one investment or diversify across different instruments.
There is no ideal way to enjoy Section 80C deductions, as it depends on an individual’s specific needs. That is why it is essential to pick up the right instruments. Your choice must be guided by your financial goals and risk profile.
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