If you are looking to save tax, you can make an investment under 80C of the Income Tax Act. This is one of the most preferred investment avenues among salaried and other individuals. The maximum amount of deduction that can be claimed under section 80C is Rs 1.5 lakh for the current financial year.
Section 80C offers various investment options to the taxpayer which not only generate returns for him but can also be claimed as deduction while calculating total taxable income.
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction.
It is noteworthy that the premium paid by you for your parents or your in-laws is not eligible for deduction under Section 80C.
If you are paying a premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC), even insurance bought from private players (registered under Insurance Regulatory and Development Authority of India or IRDA) are considered here.
Apart from individuals if a Hindu Undivided Family (HUF) buys a life insurance for its member, then it can claim tax deduction on the premium paid.
2. Unit-Linked Insurance Plans (ULIPs)
ULIPs is an insurance product which covers life insurance and also provides the benefits of equity investments, Ulips offer life cover, tax-saving and also help you grow your money over the long-term. However, unlike PF or ELSS, higher charges are associated with investment in ULIPs due to the life cover element. Also, there are certain conditions associated with ULIPs as it is a life insurance policy as compared to other tax savers.
3. Equity-Linked Saving Scheme Equity Linked Saving Schemes (ELSS)
Equity-Linked Saving Scheme Equity Linked Saving Schemes, or ELSS shall come under the exemption category of Section 80C up to the absolute cap (Rs.1.5 lakh). These investment plans come with a compulsory lock-in term of 3 years.
4. Provident Funds
There are two kinds of Provident Funds namely Employees’ Provident Fund (EPF) & Voluntary Provident Fund (VPF).
Under Section 80C of the Income Tax Act, 1961, the return received from the Employee Provident Fund (EPF), plus interest, are eligible for a tax exemption. It is only available for an employee who has continued their work for a period of 5 years.
An employee can increase this contribution if he is willing to get a less take-home salary. This additional contribution is called VPF and is also eligible for deduction under Section 80C. The rules for both EPF and VPF are the same.
5. Payment of stamp duty on purchase of house property
The Payment of Stamp Duty on purchase of house property shall come under the exemption category of Section 80C.
If you have purchased or constructed a house property you might want to look into the provisions of stamp duty exemption. Stamp duty and registration charges and other expenses which are directly related to the transfer are allowed as a deduction under Section 80C.
6. Payment of principal amount of a home loan
The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C. The maximum amount that can be claimed is up to Rs 1.5 lakh. But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
7. National Saving Certificate (NSC)
The National Savings Certificate is a fixed income investment scheme that you can open with any post office. A Government of India initiative, it is a savings bond that encourages subscribers mainly small to mid-income investors to invest while saving on income tax. A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a secure and low-risk product.
You can buy it from the nearest post office in your name, for a minor or with another adult as a joint account. They come with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum.
8. Tax-saving fixed deposit
A tax-saving fixed deposit (FD) account is a type of fixed deposit account that offers a tax deduction under Section 80C of the Income Tax Act, 1961. Any investor can claim a deduction of a maximum of Rs.1.5 lakh per annum by investing in a tax-saving fixed deposit account. Some of its features namely a lock-in period of 5 years and Interest earned is taxable.
9. Small savings schemes
The small savings schemes such as Senior Citizen Savings Scheme, Sukanya Samriddhi, etc. are eligible for tax deduction under Section 80C of the Income Tax Act, 1961.
Sukanya Samriddhi Yojana was launched in 2015 for the girl child aged 10 years or below. Parents can open the accounts for their girl child for a tenure upto 21 years. Parents or legal guardians need to make a minimum investment of Rs.1,000 and can invest upto Rs.1.50 Lakh every year. Under Sec 80 C of the Income Tax Act, SSY comes with EEE (exempt, exempt, exempt) tax feature, where the principal amount invested, interest earned and the amount received at maturity allows tax exemptions. SSY enables a premature withdrawal of funds upto 50% of the funds for educational purposes as the girl attains the age of 18.
Senior Citizens Saving Scheme or SCSS is a government-backed investment scheme for senior citizens above the age of 60 years. The individuals who are aged between 55 years and 60 years and have opted for Voluntary Retirement Scheme can also avail the benefits of SCSS. Here are some features of the Senior Citizens Saving Scheme. Senior Citizens need to invest a minimum of Rs.1,000 in their accounts and can invest upto Rs.15 Lakh. The tenure of Senior Citizens Saving Scheme is 5 years, which can further be extended for 3 years. Under Sec 80C of the Income Tax Act, you can get tax exemptions upto Rs.1.50 Lakh on your investments. However, there are no tax deductions on interest earned on the investment.
You cannot close your account prematurely as closing the account after one year attracts a penalty of 1.5%. If you close the account between 1st and 2nd year of opening the account, then you will have to pay a penalty fee of 1% for premature closure.
10. Payment of tuition fees paid to a university, college or school
Payment of tuition fee up to Rs 1.5 lakh can be claimed as deduction under section 80C. But the payment of tuition fee for a full time course must be for any two children of an individual. It follows therefore one can not claim deduction for payment of tuition fee for his/her spouse.
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