Spend, Save and Invest Smartly

Tax Deductions Under Section 80C



Section 80C, even a layman who doesn’t have thorough knowledge about Income Tax knows about this. Under Section 80C of the Income Tax Act, government gives tax benefits to certain financial products in order to encourage savings. The investments made in these products are eligible for Tax Exemption up to a limit of Rs 1 lakh. If your annual income is more than 500000 and you invest Rs. 1 lakh in this investments you save Rs 33,000 in taxes.

The concern is how many of you know about the investments that come under Section 80C. People are aware only about ULIPs; this scenario is because insurance companies are promoting their products massively to increase the sales. But understand ULIP is not the only product that offers Tax benefit under section 80C. In this article we are introducing all the investments which come under section 80C.

Generally people think about investments only in the month of February or March because they are concerned only about Tax saving, they never bother to understand the productivity of the investments. In this scenario there is a possibility of losing money that you have saved without paying tax.

For Example: Mr. X’s annual income is Rs.300000. His total tax liability is Rs. 14000. By investing Rs. 100000 in any investments that come under Sec-80C he can save Rs. 10000. But by making an investment in a wrong product he may lose more than 20000. This is where you need to concentrate.

While choosing a place to park your investment you need to be very careful because the effectiveness of investments depends on many factors such as investment objective, age, risk aversion, economic conditions etc.

Investments Comes Under Section 80C

Below given is the list of investments that falls under section 80C. This will help you to chose the best one that better suites your needs.

  • Life Insurance Premium
  • Unit Linked Insurance Plans (ULIP)
  • Equity Linked Savings Schemes (ELSS)
  • Public Provident Fund (PPF)
  • Provident Fund (Contribution by the Employee)
  • NSC - National Savings Certificate
  • Fixed Deposit for 5 years
  • Home Loan Repayment (Principal)
  • Stamp Duty and Registration Charges
  • Tuition Fee Payment
  • Post Office Time Deposit Account
  • Infrastructure Bonds
  • Senior Citizen's Savings Scheme

1. Life Insurance premium

Life insurance is an important aspect of life; it helps you to cover the uncertainty of life. Every earning person having dependents should have adequate life insurance coverage. Any contributions made as a premium of Life Insurance policies are eligible for income tax deduction under Section 80C. Apart from premium of your own policy, premium paid on behalf of your spouse or your children is also eligible for exemption under Section 80C. If you and your spouse (husband/wife) both have Life Insurance policies, and your spouse's taxable income doesn’t come under the tax bracket, you can show both of your Insurance premium and get more benefit of deduction under Section 80C. Premium in excess of 20% of sum assured is not eligible for deduction in other words; to get the full tax exemption on the premium paid your sum assured should be atleast 5 times of the premium paid.

2. ULIPs

Unit Linked Insurance Plans (ULIPS) are a combination of Life Insurance as well as mutual fund investment. Money invested in ULIPs is eligible for deduction under Section 80C. ULIPs give you life cover as well as exposure to stock market.

3. ELSS

Equity Linked Savings Schemes (ELSS) are specially designed Mutual Funds for offering you tax savings. All the investments made in ELSS are eligible for deduction under Sec 80C. Remember that not all mutual fund investments qualify for 80C deduction. All ELSS have a lock-in period of 3 years. ELSS are also knows as tax saving Mutual Funds.

4. Provident Fund (PF)

Provident Fund is the fund which is made out of the contributions made the employee along with an equal contribution by employer during the time he has worked his employers. PF calculated as a percentage of his salary, say 12% and is returned to him on his retirement with interest. Current annual interest is set at 8.5%. Any contribution made to Provident Fund can be deducted from your taxable income according to Section 80C.

5. Public Provident Fund (PPF)

You can open a Public Provident Fund (PPF) account and any amount invested in your PPF account qualifies for deduction under section 80C while the maximum investment allowed is Rs. 70000. By investing in a Public Provident Fund the increased contribution also qualifies for deduction. PPF accounts can be opened in most of the well known banks and the minimum with a minimum investment of Rs. 500.

6. National Saving Certificate (NSC)

Amount that you are investing in National Saving Certificate (NSC) is eligible for tax deduction under Section 80C. For all the investments made in National Saving Certificate there is a lock in period of 6 years. Under this scheme the initial investment plus the total interest accrued is also eligible for deduction.

7. Fixed deposits

Any amount invested in Fixed Deposits with a term greater than or equal to 5 years is eligible for tax exemption under section 80C. This is a recent amendment and is one of the best risk free saving options where you can save money as well as get benefit of Section 80C.

8. Home Loan Repayment (Principal)

Repayment of Home Loan Principal is also eligible for deduction under section 80C. If you have bought a new house and have a housing loan for that, you can get benefited from Section 80C deduction. Here the point to note is that Equated Monthly Installment (EMI) of housing loan has two components – ‘Principal’ and ‘Interest’. Only the principal part is exempted under Section 80C. Even the interest part is eligible for tax deduction but not under Section 80C, it is under Section 24.

9. Stamp Duty and Registration Charges

Stamp duty charges and registration charges paid while purchasing new house is eligible for tax deduction under Section 80C.

10. Tution Fees

Amount paid as tution fees for education of one or two of your children are exempt from Income Tax and you can claim the deduction under Section 80C.

11. Post Office Time Deposit Account

A Post-Office Time Deposit Account is a banking service offered by Department of post it is similar to a Bank Fixed Deposit. One can open this account in any post office in the country. Interest on Post Office Time Deposit Account is free from tax.

12. Infrastructure Bonds

Infrastructure Bonds are popularly called as Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds is also exempt from tax under Sec 80C.

13. Senior Citizen's Savings Scheme

Senior Citizens Savings Scheme (SCSS) is a Government of India Product. It is one of the safest investment options. An Individual who attained the age of 60 can open this account. Under this scheme there is lock in period of 5 years, on the option of depositor it can be extended for another 3 years. This scheme offers 9% interest to the depositors. Interest earned from the investments is not exempt from tax.

Financial Planning
Tax Planning
Investment Planning