Each financial year starts on April 1. All the accounting work has to be done until this date, and transactions made to date have to be added to the accounting books.
We look for ways by which we can save money in taxes, and section 80c provides a range of schemes with tax saving options. Section 80c gives you ways to deduct your gross income up to 1.5 lakh.
What Is Section 80C?
In this article
Section 80c of the Indian constitution allows India’s citizens to save taxes by investing, contributing, or doing some expenses. All these will reduce your gross income, which in turn will reduce the amount of tax you pay.
Currently, the upper limit for deductions is up to 1.5 lakhs, which means that you can reduce your gross income by 1.5 lakhs by making investments specified by the Income Tax act.
But, these deductions cannot be availed by corporate bodies.
Making these investments will give you returns in the form of interests or dividends and even save taxes.
Best Tax Saving Options Under Section 80C
1. Equity Linked Saving Scheme(ELSS)
ELSS is a type of mutual fund which invests in the stocks of the company. It has two main features: it provides tax exemption under section 80c up to 1.5 lakhs, and second, the investment has a lock-in period of 3 years, which means you cannot withdraw your amount before 3 years.
These investments are known to provide a high return of up to 15-18% and even higher in prevailing market conditions. Returns from the company completely depend upon the market conditions.
Features Of ELSS
- More than 60% of its money is invested in equity and equity-related funds.
- There is no maximum period for storing your funds.
- Tax can be exempted under section 80c up to 1.5 lakhs.
- The tax has only been paid for income or profit on investment.
Tax Benefits Under ELSS
No tax has to be paid for investments up to 1.5 lakhs; however, The profit/returns you make is taxed up to 15%. These schemes have a lock-in period of 3 years and provide high returns.
To maximize the returns on investments and minimize the tax paid, the investor can diversify his investments to multiple ELSS funds, which also lowers the investments’ risk.
Most Popular Equity Funds Schemes
i. Mirae asset tax saver funds
ii. DSP Natural resource and new energy fund
iii. Axis long term equity funds
iv. Axis bluechip fund
v. Invesco India midcap funds
2. National Pension Scheme
Pension helps a person sustain and carry forward the life after retirement. Receiving monthly income even after retirement helps an elderly live without being dependent on his children or anyone.
Indian Government launched a scheme to counter the senior citizens’ growing concern, known as the National Pension Scheme.NPS is a contributory scheme where each employee contributes a part of his income each month in NPS.
NPS is a market-linked scheme managed by the fund managers, contributions are collected, and the money collected grows concerning the market. Then the employee receives a monthly pension after his retirement.
Features Of NPS
i. Flexibility And Liquidity
Flexibility and liquidity are offered under NPS via two different tier account.
Minimum deposits for tier 1 start from 500Rs, and minimum deposits for tier 2 start from 250Rs. Where you voluntarily deposit this money each month through your salary in NPS.
ii. Flexibility Of Investments
Investors have a choice which they can choose from
Auto Choice:- This is a default option for all investors. A fund manager completely manages investments under this type.
Active Choice:- In this type of investment, investors are free to choose from the variety of available assets class.
Investors can invest in equity, government security, corporate debt security. They can diversify their investment, change the place to invest, and also change fund managers.
However, there is some restriction that has to be followed by investors.
iii. Partial Withdrawal
The investors have an option to withdraw some amount saved in NPS. The investors of tier 1 can make a maximum withdrawal of 25% of the funds saved until now.
Some terms are to be included:-
- The minimum contribution is to be made up to 10 years.
- Consecutive withdrawals should have a difference of more than 5 years.
Tax Benefits Of NPS
Tax benefits can only be availed under tier 1 accounts.
Tax benefits under section 80C:- If you wish to invest money up to 1.5 lakhs, then the complete money can be exempted from the gross income, and you have to pay taxes only on the remaining gross income of yours.
Tax benefits under section 80ccd(1b):- Only invests of NPS are given these benefits. Tax benefits up to 50,000Rs can be covered under these sections.
So overall you can avail tax benefits up to 2,00,000Rs. 1,50,000 under section 80c and 50,000Rs under section 80ccd
Tax benefits under section 80ccd(2):-This benefit can be availed by employees where a government employee can avail 14% of their salary under tax benefits. Employees in the corporate sector can avail of tax benefits up to 10% of their salary.
3. Unit Linked Insurance Plan(ULIP)
ULIP is a combination of insurance as well as investments. From the money, you invest a part of it goes to insurance for a secure life, and the remaining money is invested in funds similar to mutual funds.
The investor can invest either monthly or yearly, and the investor invests continuously for a long period.
An Investor can also switch his investments by investing more in equity-related funds and lesser insurance policy. By this strategy, the investor receives higher returns under ULIP.
Feature Of ULIP
i. Flexibility:- Investors can switch between funds and also make partial withdrawals in case of emergency.
ii. Transparent Procedure:- The investor can be updated on the funds their money is invested. We can also keep track of the premium and percentage of extra charges levied.
iii. Wide range of funds:- The investors have an option of a wide range of funds to choose from. There are different funds with low risk, and there are also funds giving high returns.
iv. Triple benefits:- ULIP provides you with triple benefits of investments, tax savings, and life cover.
v. Death benefits:- death benefits are provided to the family of the investor in case the investor dies.
vi. Withdrawal Benefits:- The investor can partially withdraw their money in case of some emergency. But there are some constraints regarding this you need to follow.
Tax Benefits Of ULIP
ULIP is the complete package that you need. It provides you with life cover, investment benefits, and also tax benefits.
Under section 80c, a maximum benefit of up to 1.5 lakh is provided under ULIP. The returns you earn are also tax-free under ULIP.
Please note that if the sum assured after death is not 10 times the annual premium, then the maturity amount and the returns you earn may not be tax-free.
4. Public Provident Fund
PPF is perfect for people willing to take a low risk. It is backed by the Indian government, which means that it is quite secure and gives returns regularly.PPF is formatted, keeping the huge population of the country in mind.
Even in the quite downfall, when the economy is sinking, PPF provides returns annually. It has a lock-in period of 15 years, which can be extended more for 5 years.
Features Of PPF
i. Investment tenure:- PPF has a lock-in period of 15 years, which means you cannot completely withdraw the complete amount. The tenure of PPF can be extended for 5 years after a lock-in period.
ii. Principle amount:- Investors can invest from 500Rs to 1.5 lakhs annually. Investors can either invest annually or monthly, and the investors should make payments every year to keep the account active.
iii. Loan Facility:- A person can also get a loan against investments. The loan can be availed from 3 years to the end of 6 years. The maximum tenure for your loans is 3 years, and only 25% of the claim can be availed as a loan.
Tax Benefits For PPF
PPF comes under section 80c, which means that investments made are completely exempted from income tax. Exempted tax amounts cannot exceed 1.5 lakhs.
The interest earned is also exempted from taxes. So the total amount is exempted from taxes after maturity.
5. Sukanya Samridhi Yojna
Sukanya Samridhi Yojna was started in 2015 by the government of Indian under the Beti Bachao Beti Padhao scheme. Under this scheme, a savings account is created for a girl child under an authorized bank.
A minimum amount you can invest 1,000, and the maximum amount is 1.5 lakhs in one year.
After maturity, the girl receives a completely lump-sum amount. Here the general maturity term is about 21 years.
Tax Benefits For Sukanya Samridhi Yojna
Investments done under sukanya samridhi yojana are exempted from taxation up to 1.5 lakhs. If you choose to invest 1.5 lakhs under SSY, your complete amount is tax-deductible from your gross income.
You do not have to pay any interest at the time of maturity, and even the interest you earn is tax exempted.
6. National Saving Certificate
National Saving Scheme is an investment scheme launched by the Government of India, which gives fixed returns to the customers. This is perfect for people having a low-risk appetite or people wanting to diversify their investments.
NRI’s, public, and private sector companies, undivided Hindu family are the people who are not allowed to invest in NCS. Even in the depression period, these investment schemes provide a fixed return.
It is easily available in any bank and can be issued in electronic form.
Features Of NSC
i. Interest rate:- NCS has a fixed rate of 7.9%, which means that under any market conditions, the investor will receive a fixed return.
ii. Maturity Period:- It was available with two maturity periods, 5 and 10 years, but the 10-year subscription was discontinued.
iii. Investment flexibility:- You can start investing in NCS with as low as 100Rs
iv. Compounding:- The interest you earn is compounded annually and then reinvested by default until maturity.
v. Loan Security:- The certificates you receive may be considered as security while securing loans.
vi. Premature Withdrawal:- You cannot prematurely withdraw under this scheme
vii. Nomination: The investor can nominate anyone to inherit his investments in case of the investor’s death.
Tax Benefits Of NSC
You can invest any amount in NCS; however, Under section 90c, an investment of 1.5 lakhs will only be considered and exempted from your gross income.
Only the interest earned in the 5th year is considered for taxation and is taxed according to the applicable slab rates.
7. Senior Citizen Saving Scheme
SCSS is an investment scheme that can be used by senior citizens above 60 years of age. It is completely backed by the Indian government, which makes it a very safe and secure investment with fixed returns.
Current SCSS interest rates stand at 7.4% per annum. It provides one of the highest rates of return among all the small saving schemes. With a minimum deposit of 1000Rs and maximum of 15 lakhs, it is quite accessible for all the old age citizens to get a fixed income.
Features Of SCSS
i. Interest Rate Revisions:- SCSS interest rates are revised every 4 months, whose changes depend upon the market fluctuations, inflation level, etc.
ii. Fixed Income:- The interest at the time when you invest is considered and does not change with change in quarter. The same rate of interest is carried forward up to maturity. A person will receive his complete investments with interest earned as a wholesome amount.
iii. Minimum and Maximum amount:- The investor can invest from 1000Rs to 15 lakhs where the amount greater than minimum investments has to be invested in its multiples.
iv. Maturity tenure:- The default maturity tenure for SCSS is 5 years, and it can be extended more for 3 years.
v. Premature Withdrawal:- The investor can withdraw his funds after completion of one year.
vi. Account Closure:- Penalty may be levied if you close your account before the maturity period. If you close the account before 2 years, a penalty of 1.5% is levied, and if you close after 2 years, then a penalty of 1% is levied.
vii. Mode Of Deposits:- Investments up to 1 lakhs may be done in cash. However, deposits above 1 lakhs have to be made in the cheque.
viii. Nomination Facility:- The senior citizen can nominate anyone for carrying forward of his investment in case of death of the investor
Tax Benefits Of SCSS
Under section 80c of the income tax act, the invested amount up to 1.5 lakhs is eligible for tax deductions.
Though the principal amount may be tax exempted, the interest you earn has to be paid tax according to tax slab rates.
This is one of the best schemes with a high-interest rate for the elderly who have fewer income sources.
8. Bank FD
Fixed deposits are one of the most common schemes used by most people for storing their excess money. The bank FD tenure ranges from 6 months to 5 years. It provides a fixed rate of return every year and is compounded annually.
The investments you make up to 1.5 lakhs are exempted from your taxable income. Bank FD provides you with a higher interest rate than the savings account. The bank’s FD interest changes from bank to bank and are reviewed quarterly.
Life Insurance is also considered tax-saving investments. However, you should not just buy life insurance for saving taxes.
Tax benefits are also available under section 80c and 10(10d). Investments up to 1.5 lakhs can be considered under tax exemptions. The premium paid, return offered like money back are completely exempted from taxes.
10. Five Year Post Office Time Deposits(POTD)
besides delivering your letters post office also provides schemes to invest. One such investment is POTDs, where an individual from 10 years of age can also start investing. A time deposit account from1-5 years can be created.
Under section 80c, investments up to 1.5 lakhs can be exempted from your taxable amount. Interest rates range from 5.5 to 6.7%, depending on the tenure of your deposits.
11. NABARD Rural Bonds
National bank for agricultural and rural development(NABARD) issues bonds which are also applicable to be exempted under section 80c.
Additional Tax Saving Investments Under Section 80c
- Tax benefits can be availed under home loans and health insurance policies.
- Deduction up to 50,000 can be made on home loan interest.
- The taxable amount of home loans can be reduced up to 1.5 lakhs under section 80c
- Under section 80D, premium made under health insurance can have deductions up to 25,000Rs.
- Payment made for the fees and colleges is also covered under the scheme.
Frequently Asked Questions(FAQs)
Section 80c helps an individual save taxes; the total amount up to 1.5 lakh can be deducted from the gross income. There are also some other tax saving options you can use to save taxes like section 80d, 80ccd.
Most of the schemes provide great returns and also helps you save taxes. Investing money patiently and intelligently can save you a lot of money and even secure a bright future.