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4 Secure Investments To Claim Tax Benefits Under Section 80C

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For the quarter of (January-March) of the fiscal year, salaried persons across India whose income comes under the taxable slab are required to disclose their actual expenditure facts to their employers. Which means that we are in the last quarter of the 2020-21 fiscal year and currently most of among us are undoubtedly searching for investments that will fetch tax benefits. When it comes for tax saving investments a plethora of strategies are waiting for us to fetch tax liabilities under section 80C of the Income Tax Act. Section 80C covers countless investments from which you can seek tax benefits on the income earned. This is up to a cap of Rs 1.5 lakh in a financial year, though. Thus, below are the top tax saving strategies that can be taken into consideration while planning for tax savings:

 

Public Provident Fund (PPF)

Public Provident Fund (PPF)

If you are searching for a secure long-term investment Public Provident Fund or PPF can be a good bet as you will get guaranteed returns against the capital deposited. It comes with a lock-in period of 15 years and even the interest you receive in a PPF account is tax-free under section 80C. Currently, the interest rate on PPF is 7.1 percent after the government held the interest rates on small savings schemes namely PPF and NSC untouched for the January-March quarter. At any public sector or private sector bank or post office a PPF account can be opened. In a financial year, you can deposit a minimum of Rs 500 and a maximum of Rs 1.50,000. In addition, the contribution can be made in lump-sum or in instalments.

National Savings Certificate (NSC)
 

National Savings Certificate (NSC)

With a short tenure of 5 years and assured interest rate National Savings Certificate (NSC) of post office can also be taken into consideration when you are going to invest for tax benefits. With a relatively higher interest rate than a fixed deposit of most of the banks as of now this certificate can be purchased at the nearby post office. Interest earned from NSC can also allow you to reap tax benefits up to a limit of Rs 1.5 lakh under Section 80C. Presently, according to the details available on the India Post portal, the interest rate applicable on NSC is 6.8 per cent, which is compounded annually but payable at maturity.

National Pension System (NPS)

National Pension System (NPS)

The National Pension Scheme, or NPS, is a kind of government's voluntary pension savings tool. This initiative is applicable to all public, private and even unorganized employees and allows subscribers to make a fixed contribution to ensure their retirement in the form of a pension benefit. NPS enables individuals to invest during their careers before the retirement age in a pension scheme. A certain proportion of the overall corpus can be withdrawn by investors upon retirement. The outstanding balance of the corpus will be provided to the NPS subscriber as a monthly pension following retirement. As of the date of submission of their application, those applying for NPS must be between 18 and 65 years of age. Under NPS-for your and for the employer's contribution, there is a tax benefit of up to Rs.1.5 lakh. The self-contribution, which is inclusive of Section 80C, includes 80CCD(1). The overall exemption that can be claimed under 80CCD(1) is 10% of the salary (Basic+DA) but not higher than the limit specified. This cap is 20 percent of gross income for the self-employed taxpayer, Section 80CCD(2) comprises the NPS contribution by the employer. The overall amount liable to be deducted shall be the lowest of the following:

  • Employer's actual contribution towards NPS
  • 10% of salary (Basic+DA)

Under section 80CCD(1B), you can claim any additional self-contribution (up to Rs 50,000) as an NPS tax saving. Accordingly, the scheme enables a tax allowance of up to Rs 2 lakh in full.

5-Year FDs Of Banks

5-Year FDs Of Banks

With a short tenure of 5 years and assured returns, a tax saving FD is another bet here. An individual can claim tax deductions under Section 80C up to Rs 1.5 lakh by investing in a five-year FD. At any public sector or private sector bank in India one can open a tax saver FD account. It should also be remembered that, although this investment vehicle will provide the individual with a tax advantage, at the time of maturity, the tax deducted at source (TDS) from the interest on these FDs is applicable. Considering the prevailing bank-to-bank interest-rate condition, some small financial banks are still offering higher interest rates on tax saving FDs compared to other tax-saving instruments.

Maximum tax gain that can be availed by a tax saver

Maximum tax gain that can be availed by a tax saver

You can minimize your taxable income by Rs. 4,75,000 (details below) for FY 2019-2020 (AY 2020-21.), assuming that you optimize your tax benefits using investments and voluntary expenditure.

SectionOverall Deduction
Standard deduction Rs 50,000
Section 80C Rs 1.5 lakh
Section 80CCD(1B) NPS Rs 50,000
Section 80D Rs 25,000
Section 24(b) Rs 2 lakhs
Total Rs 4.75 lakhs

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