Investment Options Eligible for Deduction Under Section 80C of the Income Tax Act

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Individuals can decrease their tax burden by investing in tax saving instruments. While investing, if tax breaks are taken into account, you can easily distinguish between tax planning and financial planning. There are several ways to save taxes, but most salaried individuals prefer to claim deductions that are eligible under Section 80C. Under Section 80C of IT Act, 1961 HUFs and individuals can declare tax deduction up to INR 1, 50, 000 from gross income for few listed payments and investments.

Some Investments are Under Section 80C

Life Insurance

Any premium paid for a life insurance policy can let you avail tax benefits under Section 80C. You can claim this deduction for the premiums paid for life insurance policies of self, dependent children, spouse, or any HUF (Hindu Undivided Family) member.

Sukanya Samriddhi Yojana

The government’s scheme for the welfare of girl child, Sukanya Samriddhi Yojana is a great investment from the tax saving point of view. As per Section 80C, the legal guardian or parent of a girl, who has still not completed ten years of age, can open the Sukanya Samriddhi account on behalf of the girl. Any parent who has two daughters can open this savings account (1 account for each daughter). It can be further extended to a third girl child in case of twin sisters.  

The interest here is compounded yearly and is totally tax-exempt. The receipts issued on maturity are also completely tax-free. The ‘Sukanya Samriddhi’ account matures after 21 years from the date of account opening.  You can make up to 50% partial withdrawal from the preceding year’s balance only when the account holder attains 18 years of age.

Public Provident Fund

Contributions made towards PPF (Public Provident Fund) are entitled to tax deductions under Indian IT Act Section 80C. Public Provident Fund accounts have an upper deposit limit of INR1, 50, 000 every year. Hence you can claim the entire 80C discount for your PPF investment. The amount that you invest in your PPF account is under a lock-in period of fifteen years. You can make partial withdrawals post seven years. Minimum investment limit is INR 500 while the upper limit is INR 1.5 lakh per year.

Employee Provident Fund

This is a retirement benefits scheme for employees who draw a basic salary of INR 15,000 every month. The contribution is equivalent to 12 percent of basic salary plus DA, which is deducted and deposited by the employer towards EPF or other recognized provident fund organization. The contribution needs to be equally made by both the employer and employee. If the employee withdraws the available balance from their EPF account after being in service for five years, then the amount is completely tax-free.

The contributions made towards recognized EPF by a salaried worker fetches tax deduction under section 80C. However, any contribution made by an employer cannot be claimed as a tax advantage to the employee.

Equity Linked Saving Scheme

Investments made in ELSS or equity-linked savings scheme are entitled to income tax deduction under Section 80C. However, a critical point about ELSS is the provision of a mandatory three years lock-in period from the investment date. If you consider investing in an equity-linked savings scheme, ensure that you plan a long term investment, like a span of 5-7 years. Equity schemes are best suited for creating wealth over a prolonged period. The interest rates are higher than NPS, PPF, or FD.

Five Year Bank Deposit

Most banks and financial institutions provide tax saver fixed deposits that are qualified for tax deductions as per Section 80C. The pre-requisite linked with such tax-saving FDs is the mandatory lock-in period of five years. You cannot make any pre-mature withdrawals under this form of investment. The interests you earn on such saving deposits are taxable, and the amount is deducted at the source. The minimum investment amount is INR 1000, and the interest rate may vary from 5.5% - 7.75%. Tax-saving FDs offer guaranteed returns and 100 percent capital protection. On maturity, interest earned is added to the taxable income of the investor.

Stamp Duty and Registration Charges

When you decide to buy a property, a major expense incur is the registration charge and stamp duty. To provide a sigh of relief to taxpayers, the government has incorporated this expenditure under Section 80C of IT Act, 1961. An individual can claim this deduction once the construction of the property is completed and it has been legally handed over to the owner.

Senior Citizens Savings Scheme

This scheme is applicable for the country’s senior citizens, and any investment made is entitled to a deduction under 80C of Indian IT Act. Only individuals who have attained the age of 60 years or more can participate in this savings scheme, which has a duration of five years. Those individuals who have opted for the Voluntary Retirement Scheme (VRS) can invest in this scheme after reaching 55 years of age.

National Savings Certificate

In a move to encourage taxpayers to make more investments towards NSC scheme (National Savings Certificate), the Indian government has made such investments tax deductible under Section 80C. However, any interest received on NSC investment is subjected to tax. But if you reinvest this interest to the scheme, then you can again claim deduction under Section 80C. The NSC interest rate is the same as PPF, tax-saver fixed deposits, and additional fixed income instruments. You can buy NSCs from respective post offices and go ahead with your investment. They have lock-in tenure of 5 years, and the interest is compounded every year.

Home Loan Principal Repayment

The repayment of the principal amount of your home loan is entitled to a tax deduction as per Section 80C. To avail of this tax benefit, your property construction must be completed. If the owner transfers this property before the completion of 5 years of possession, he won't get any tax benefits. Moreover, the amount previously claimed as a deduction will become taxable from the year the property gets transferred.

ULIPs

ULIPs have a compulsory lock-in of five years. Hence an individual can avail tax benefit only if the assured sum is minimum ten times the yearly premium paid. The rate of return earned on ULIP investment falls between 12-14%. Any investment or withdrawal made is tax-free and so is the maturity amount.

National Pension Scheme

According to Section 80CCD (1), any investment to an upper limit of INR1.5 lakh made towards NPS (National Pension Scheme) is entitled to IT deduction. But, you need to keep in mind that the total deduction amount under sections 80C, 80CCC, and 80CCD (1) should not exceed INR1.5 lakh. Further, you can contribute up to INR 50,000 in National Pension Scheme, which qualifies for deduction as per Section 80CCD (1B) of the Indian IT Act, 1961. You can claim this deduction in addition to INR1.5 lakh, permissible under Section 80 CCD (1).

The NPS provides a range of plans to choose from, and you can opt for the one that best suits your risk profile. However, the maximum exposure to equity cannot be more than 50% in any of the plans.

Payments For Children’s Education

The tuition fee, which is paid by the parent for the education of their children (up to two) are qualified for tax deduction under Section 80C. You can claim a deduction for up to INR 1.5 lakh. The payment can be made to any school, educational institute, college, or a university situated within India. The tuition fees paid must be only for a full-time course.

Sub-Sections of 80C

Section 80CCC

Tax deduction of INR 1, 50, 000 is allowed. Any payments made towards annuity plans or pension plans of various insurance companies are eligible for deduction.

Section 80CCD

Tax deduction of INR 1, 50, 000 is allowed. Any contribution made towards the Central Government’s Pension Scheme is tax exempted. This deduction is only available to individuals and not members of the Hindu Undivided Family.

Section 80CCF

Tax deduction of INR 20,000 is allowed. Any investment made in long-duration infrastructure bonds approved by the government is tax exempted.

Section 80CCG

Tax deduction of INR 25,000 is allowed. Any Investments made towards equity savings scheme approved by the government can be claimed for a tax deduction.

Hope this gives you a better idea about investment options that are eligible for deduction under Section 80C. Make a sound and reliable investment for a better future.

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