Individuals who are looking to save tax can make an investment under 80C of the Income Tax Act. This is one of the most preferred investment avenues among salaried and other individuals. Under the income tax act, it allows the deduction of up to Rs 1.5 lakh from the gross taxable income of the taxpayer.
Individual taxpayers and Hindu Undivided Families are eligible under Section 80C. While, Corporate bodies, partnership firms, and other businesses are not eligible for tax deductions under Section 80C.
The right time to make an investment is at the beginning of the financial year, as this does not only mean that you are making educated investments but also ensures that you earn interest for the entire year from April to March.
Subsections under Section 80C
Section 80C gives a detailed set of deductions for which a person is entitled and which have contributed to the development of appropriate sub-sections to provide clarification for taxpayers.
Investment in Provident Funds such as EPF, PPF, payment of premiums for life insurance, Equity Linked Saving Schemes, payment of the principal amount of a home loan, SSY, NSC, SCSS, etc.
Payment made towards pension plans, the tax advantage is only applicable to premiums in the form of a premium in respect of any LIC annuity plan or any other insurer.
The goal of this section is to foster the habit of savings among individuals and to provide them with an opportunity to invest in pension schemes notified by the Central Government. National Pension System, Atal Pension Yojana, etc
Section 80CCF, available to all Hindu Undivided Families and Persons, includes provisions for tax refunds on long-term infrastructure bond subscriptions notified by the government. Under this clause, one can demand a maximum deduction of Rs 20,000.
A maximum deduction of Rs 25,000 per year is allowed by section 80CCG of the Income Tax Act, with specified individual residents being eligible for this deduction. Deductions are allowed for contributions in equity savings schemes reported by the government, subject to a cap of 50 percent of the amount invested.
Comparing Investments Under 80C of Income Tax Act
|Tax Saving Investment options Under Section 80C||Risk Profile||Interest (in %)||Guaranteed Return||Lock-in Time (in years)|
|Tax Saving FDs||Risk free||7 %- 9 % approx||Yes||5|
|ELSS||Equity oriented||12% - 15 % approx||No||3|
|NPS||Equity oriented||8% - 10 % approx||No||Up Till retirement|
|ULIP||Equity oriented||8 %-10 % approx||No||5|
|Sukanya Samriddhi Yojna||Risk free||8.60%||Yes||21|
*Interest rates as on February 2021
Payments eligible for tax saving deductions under Section 80C
Life Insurance Premium
A qualified tax-saving allowance under Section 80C is the monthly premium paid for life insurance in the name of the taxpayer or the taxpayer's wife and children.
Children's tuition fees
Under section 80C, the tuition fee charged for the education of two children is liable for a tax deduction of up to Rs 1.5 lakh.
Repayment of Home Loan
Under Section 80C, the payment of the balance of a loan taken for the purchase or building of a residential property is liable for tax deductions. This deduction also extends to stamp duties, payments for registration, and transfer charges.
Under this section, contributions made to individual organizations NGOs are eligible for tax exemption.
Public Provident Fund
Under Section 80C, any contribution to the Public Provident Fund (PPF) may be submitted for tax-deductible. Under this Income Tax Act, Public Provident Funds come with a cumulative savings cap of Rs.1,50,000, enabling an investor to assert the whole amount deposited as an exemption.
Unit Linked Insurance Plans
Thanks to the tax benefits provided under Section 80C of the Income Tax Act 1961, the Unit Linked Insurance Plans (ULIPS) have become particularly common in recent years. Investors will benefit from tax deductions of up to Rs 1.5 lakh under the 80C of income tax provisions.
National Savings Certificate
Investors are not expected to comply with any restriction on the cumulative amount invested in the financial year towards NSC; however, according to Section 80C, only a maximum of Rs.1.5 lakh would be entitled to exemption per financial year.
Tax Saving FD
These FDs have a five-year lock-in period and give a cumulative tax exemption of Rs.1.5 lakh (on the principal amount). Returns of those instruments shall, however, be eligible for taxes.
Under Section 80C of the Income Tax Act, 1961, the return received from the Employee Provident Fund (EPF), plus interest, are eligible for a tax exemption. It is only available for an employee who has continued their work for a period of 5 years.
Equity-Linked Saving Scheme
Equity Linked Saving Schemes, or ELSS shall come under the exemption category of Section 80C up to the absolute cap (Rs.1.5 lakh). These investment plans come with a compulsory lock-in term of 3 years.
Senior Citizens Savings Scheme
Any Senior Citizens Saving Scheme (or SCSS) investment is eligible for a tax exemption up to the maximum allotted cap of 80C, i.e. Rs 1.5 lakh.
Sukanya Samriddhi Yojana
This account must be opened by parents or legal guardians of a girl child who is not over 10 years of age, and parents of 2 or more girls (only in the case of twins) can also participate in this scheme.