When it comes to income tax saving, the most commonly used section for claiming tax exemption is section 80C of Income Tax Act of India. This section of Income Tax Act allows maximum deduction of up to Rs1, 50,000 and can be used by both salaried individuals and taxpayers of all categories regardless of their source of income.
A tax deduction is permissible for investments from total taxable income in a specific instrument and this exemption can be claimed by a taxpayer under section 80C. There are various tax saving instruments by which tax benefits under this section can be availed.
Let’s take a look at the top 10 investment options under section 80C.
- Equity Linked Mutual Fund-
Equity linked mutual fund helps save on taxes under section 80C of Income Tax Act. However, other fund options of mutual fund do not allow any tax deduction. The equity linked mutual fund comes with a lock-in period of 3 years, and the investments made in these funds are eligible for tax deduction under the above-mentioned section. In equity linked saving scheme, the money is invested in equity and equity related instruments, which provide a good investment return over a long period of time.
- Life Insurance-
Life insurance plans not only provide financial protection to the family of the insured but also offer tax benefit under section 80C of Income Tax Act, 1961. The tax exemption is applicable on the premium paid for the policy and is permissible up to the maximum limit of Rs 1.5 lakh. This means that if you make a total investment of Rs 2 Lakh towards the life insurance policy then up to Rs 1.5 lakh of the invested amount can qualify for tax benefit.
Remember that the tax exemption of the premium paid is applicable only if the premium is paid by the insured and not by a family member.
- Fixed Deposit-
Almost all the banks offer tax exemption on the amount deposited in fixed deposits. Fixed deposits come with a lock-in period of 5 years and have a maturity period of 5 years to 10 years. The limit of the investment can range from Rs 1 lakh to Rs1.5 lakh, as determined by the bank. But, it is important to note that not all fixed deposit investment is eligible for tax deduction. Only tax saving fixed deposits ones are.
- Provident Fund-
Investments can be made in different types of provident funds. The Public Provident Fund (PPF) has a yearly limit of of Rs1.5 lakh and a maturity period of 15 years. Two other well-known provident funds are EPF and VPF. EPF is Employee Provident Fund where the contribution towards the fund is made by both employers and the employees. Whereas, in Voluntary Provident Fund (VPF), the employee has the freedom to contribute more than the employer. Irrespective of the type of provident fund, the contribution made towards this fund is eligible for tax deduction under section 80C of Income Tax Act, 1961.
- National Saving Certificate-
A National Saving Certificate is one of the best ways to ensure the return on investment as it is a profitable combination of attractive interest rates, tax benefits and safe investment avenues. The investment made in the national saving certificate comes under section 80C of Income Tax Act and is eligible for tax deduction. Under NSC, you can increase the investment amount without purchasing any additional certification as the interest earned in the NSC account is compounded and can be reinvested.
- Senior Citizen saving Scheme-
Keeping in mind the senior section of the society, the Senior Citizen Saving Scheme was introduced by the Govt. of India in order to secure the future of a person after retirement. In this scheme, the investment can only be made by senior citizens, and it provides quarterly interest payout instead of compounded interest. The investment made under this scheme is also eligible for tax deduction under section 80C of Income Tax Act, 1961.
- Health Insurance –
Health insurance protects and supports you and your family in case of any health debacle or a mishap. It not only covers all the medical expenses in the hour of need, but also helps you to save on taxes as the premium paid towards health insurance policy is eligible for tax exemption under section 80C. Whether you invest in health insurance policy for an individual or pick a family floater, the annual premium paid by you can be applicable for tax benefit.
- Post Office Time Deposit-
Post office deposits are similar to fixed deposits and are applicable for tax exemption under section 80C of Income tax Act. A Post Office Deposit comes with tenure of 5 years and also provide attractive interest rate of 8% per annum but this interest rate can change from time to time
- Home Loan Payments-
The EMI of home loan consists of two major components: the principal and the interest. Under section 80C, tax benefit can be claimed on the principal paid. Tax exemption on the basis of home loans can be claimed under section 24 of Income Tax Act.
- Sukanya Smariddhi Account-
This special account was introduced by the government of India in 2015 and is especially dedicated to the girl child. In this account, the parents are allowed to deposit up to Rs 1.5 lakh per year. This yearly deposit earns a maximum interest of 9.1% annually. The amount invested in Sukanya Samriddhi Account is eligible for tax deduction under section 80C of Income Tax Act, 1961.
So, these are the top 10 investment options that not only work as a great investment instrument to achieve the short and long term goals of life but also provide tax exemption under the section 80C.
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