Best tax-efficient investment options available under Section 80C

It’s the first month of the financial year, and many people may be planning their annual 80C investments. Although there are several other deductions, which are beneficial to taxpayers, but over the years, investments made under Section 80C of the Income Tax Act 1961 have become the most popular option. most popular.

It makes it possible to reduce taxable income by constituting tax-saving instruments or by incurring eligible expenses. It allows individuals and Hindu Undivided Family (HUF) to claim a cumulative deduction of up to Rs 1.5 lakh per annum for certain specified investments they have made in a particular financial year. However, corporations, partnerships and LLPs cannot claim this deduction. Section 80C also includes subsections, namely 80CCC, 80CCD (1), 80CCD (1b) and 80CCD (2).

Section 80C allows the deduction of investments made in the Employees Provident Fund (EPF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS) and payments made for employee bonus. life insurance and the principal amount of a home loan, stamp duty and registration fees for the purchase of a property.

Investments made in Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), Unit-Linked Insurance Schemes (Ulips), Tax Saving FDs during five-year and infrastructure bonds are also eligible for the deduction. under Section 80C of the Income Tax Act 1961.

Here are some of the best tax-saving investment options available under Section 80C:

Equity-linked savings plan

ELSS are mutual funds that allow you to invest in the stock market and claim Section 80C deductions. Data shows that of the 14 ELSS schemes that have existed over the past 20 years, 13 have produced average returns of at least 13% per year. With a lock-up period of three years, ELSS funds have the shortest lock-ups among tax-saving investments.

“Investment in ELSS is considered to be the best tax saving option. These funds are specially designed to give you the dual benefits of saving taxes and getting higher returns on investment,” says Archit Gupta , founder and CEO of Cleartax, a tax portal.

Eligibility: Investor must be KYC compliant in order to invest in ELSS.

Liquidity: They have a retention period of three years.

To return to: Returns are linked to the market.

Investment limit: The minimum investment varies from one fund house to another; there is no maximum limit.

Tax treatment: Long term capital gains up to Rs 1 lakh are tax exempt. Dividends are added to aggregate income and taxed at the applicable income tax slab rate.


Five Year Tax Savings FD

Tax-saving FDs are like regular fixed deposits but come with a five-year lock-up period and tax relief under Section 80C on investments up to Rs 1.5 lakh.

Eligibility: This can be opened by resident Indians.

Liquidity: Term deposits have a lock-up period of five years.

Interest rate: The interest rate of different banks varies from 5.5 to 7.75%.

Investment limit: The minimum investment limit is Rs 1,000.

Tax treatment: Interest earned is taxable.

Public provident fund

PPFs are long-term investments backed by the Indian government. Deposits made to a PPF account are eligible for tax deductions under Section 80C.

Eligibility: It can be opened by resident Indian natural persons, and salaried and non-salaried natural persons. A HUF cannot open a PPF account.

Liquidity: PPF accounts have a lock-up period of 15 years, but can be extended for five years. Partial withdrawals are permitted after seven years.

Interest rate: Currently, the interest rate is 7.1% per annum.

Investment limit: The minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh, respectively.

Tax treatment: Interest earned is tax exempt.

PPFs are long-term investments backed by the Indian government.

Employees’ provident fund

The EPF is a pension scheme open to all employees. This amounts to 12 percent of the base salary + DA, which is deducted by an employer and paid to the EPF or other recognized provident funds.

Eligibility: Can be opened by an employee with a base salary above Rs 15,000 per month.

Liquidity: Can withdraw PF balance two months after leaving employment, provided employee does not take up employment within two months with an employer covered by PF law.

Interest rate: The interest rate on the EPF is 8.5% for the financial year 2020-21.

Investment limit: The employer and the employee must contribute at least 12% of the base salary + DA

Tax treatment: The entire EPF balance (including interest) is tax-free if withdrawn after five years of continuous service


national pension system

The NPS is a pension scheme that the Indian government has set up to provide the unorganized sector and working professionals with a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C. An additional deduction of Rs 50,000 is available for NPS contribution over and above the Section 80C limit of Rs 1.5 lakh.

Eligibility: Can be opened by any Indian citizen between the ages of 18 and 60.

Liquidity: Partial withdrawals are authorized after 10 years, but under specific conditions.

Return rate: NPS yields vary between 12 and 14%.

Investment limit: There is no limit to the maximum contribution.

Tax treatment: Employer contributions are tax exempt, subject to 10% of base salary and dearness allowance (14% in the case of central/state government employees)

NPS
The NPS is a pension scheme launched by the Government of India to provide a pension to the unorganized sector and professionals after their retirement.


Unit-linked insurance plans

Ulips are a mixture of insurance and investment. Part of the amount invested in Ulips is used to provide insurance, and the rest of the amount is invested in the stock market. Investments up to Rs 1.5 lakh in Ulips are eligible for tax relief under Section 80C. But if the annual premium exceeds Rs 2.5 lakh in a year, the proceeds from these ULIPs are taxable.

Eligibility: An investor can buy Ulip for himself, his spouse or his child.

Liquidity: Have a retention period of five years.

Return rate: The yield varies between 12 and 14 percent.

Investment limit: There is no limit to the maximum contribution.

Tax treatment: Investments and withdrawals as well as the amount at maturity are tax-free.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is one of the most popular Indian government programs. The program aims at the betterment of girls in the country.

Eligibility: Parents or guardians can open an account in the name of a girl until she reaches the age of 10.

Liquidity: Up to 50% of the deposit amount can be withdrawn early once the girl turns 18.

Interest rate: The interest rate is 7.6%.

Investment limit: Investment is limited to a maximum of Rs 1.5 lakh per financial year.

Tax treatment: Investments and withdrawals, as well as the amount at maturity are tax-free.


Payments eligible for tax savings deductions under Section 80C

Life insurance premiums

“The annual premium paid for life insurance on behalf of the taxpayer or for the taxpayer’s wife and children is a qualifying tax savings payment under Section 80C. The deduction is only valid if the premium is less than 10% of the sum insured,” explains Gupta.

Expenses for children’s school fees

School fees paid for the education of two children are eligible for tax deduction under Section 80C for an amount up to Rs 1.5 lakh. Fees can be paid at any school, college, university or educational institute located in India. Fees must be for a full-time course only.

Repayment of the mortgage

Repayment of the principal amount of a loan taken out to purchase or build residential property is eligible for a tax deduction under Section 80C. This deduction is also applicable to stamp duty, registration fees and transfer costs.

Dorothy H. Lewis