7 Best Tax Savings Under Sec 80C For The Tax Planning Season

PPF

This is one of the most popular tax saving schemes, not only because you save Rs 1.5 lakhs under Sec 80C, but, also because the interest earned is completely exempt from tax.

There are very few investments where you get benefits of both. You can invest a small sum of Rs 500, while the maximum permissible limit is Rs 1.5 lakhs every year. The PPF can be opened for a period of 15 years and amounts can be withdrawn from the seventh year onwards.

This is the best possible tax saving schemes under Sec 80C, though the only worry is the large lock-in period. However, there is a loan facility that is available from the third year onwards. Interestingly, the account can be transferred from one post office to another.

Equity Linked Saving Scheme (ELSS)

The ELSS too gives you a tax benefit of upto Rs 1.5 lakhs under Sec 80c of the Income Tax Act. As the name suggests the money if invested in equities. The one advantage of the ELSS is that it is the only scheme under Sec 80C, which has a lock-in period of only three years.

However, since bulk of the money is placed in equity share returns are not certain. For example under PPF you are assured to get a certain amount based on the prevailing interest rate. However, under ELSS, while you may get tax benefit, you are unsure whether you would get the same capital employed back. So, even your capital is not protected.

On the other hand since the money is parked in shares, you may also end-up getting extra ordinary returns. 

Senior Citizens Saving Schemes

This is another saving schemes where the interest rate is simply fantastic at 8.4 per cent. Presently, banks offer you an interest rate of 6.5 per cent only. As the name suggests only senior citizens are allowed to invest in this scheme.

The interest is payable on 31st March, 30th June, 30th Sept and 31st December. Interestingly, while the scheme allows for deduction under Sec 80C, the interest is fully taxable. This means a senior citizen has to pay tax on the interest earned.

If the interest amount crosses Rs 10,000, there is a TDS that would be applicable on the said sum.

Premature closure is allowed after one year on deduction of an amount equal to 1.5 per cent of the deposit & after 2 years 1 per cent of the deposit.

Sukanya Samriddhi Accounts

If you have a girl child at home this has to be your best option. This is because like PPF the interest rate is high and the interest income is completely exempted from tax.

The account can be opened up to age of 10 years only from the date of birth of the girl child.

The account can be closed only after the girl child completes 21 years of age. An interest rate of 8.3 per cent is currently being paid and this may vary according to how the government fixes the interest rate.

The interest rate is compounded every year, so the yields are not that great.

National Saving Certificates

This is one more option that investors have where the interest rates are pretty decent. The interest rate at 7.8 per cent is much better than what banks are offering.

An amount of Rs 1.5 lakhs invested enables one to get a tax deduction under Sec 80C of the Income Tax Act. However, the interest income is not exempted from tax. There is no tax deducted at source and one has to file tax returns to show the interest component.

The certificates can be kept as collateral with the bank to take a loan. The tenure of the NSC is 5 years. 

Unit Linked Insurance Plan

The best part of the ULIP is that it offers you Sec 80C benefits, insurance benefits and also the amount earned is free from income tax.

It also offers you the advantage of investing the proceeds in equities, if you you choose to do so, or else you can go with debt.

If you die, the nominee gets 10 times of the premium paid. For example, if you are paying Rs 1 lakh as premium every year, the nominee would get a sum of Rs 10 lakhs as insurance amount.

The returns tend to be poor from the scheme, given the huge administrative, mortality costs etc. However, it does provide you insurance. 

From April 1, 2018, how your taxable income will change

Bank Tax saving FDs

These tax saving bank fixed deposits earn you an interest rate of 6.5 to 7 per cent, which is very low. 

The interest too is not exempted from tax and there is a lock-in period of 5 years for the deposit. Cannot see any great advantage here. Not the best option when compared to PPF for tax planning under Sec 80C. 

A Comparison on Tax Computation Between FY 2017-18 and FY 2018-19