It's time to file your income tax returns and like every year, this year, ITR filing process has made you realise you need to save tax. There are many deductions that Indian tax Payers can avail. These are covered under various sections that govern ITR filing, such as:
- Section 80C
- Section 80CCC
- Section 80CCD Pension Contribution
- Section 80TTA (Savings Account)
- Section 80GG (House Rent Paid)
- Section 80E (Interest in Education loan)
- Section 80EE (Interested in home loan)
- Section 80CCGRGESS
- Section 80D
- Section 80DD
- Section 80DDB
- Section 80G
- Section 80GGC
- Section 80GGB
The most popular one is Section 80C because it offers a tax deduction of Rs.1,50,000 from your total taxable income. So, if you're filing an ITR for FY2017-2018 or FY2018-2019, you should definitely try to make the most of these deductions.
Tax Savings Schemes Under Section 80C
Section 80C is a provision in the Income Tax Act, 1961, that allows taxpayers to reduce taxable income by up to Rs. 1.5 lakh. So, if you're in the highest tax bracket of 30% you can save up to Rs. 46,350 in a financial year by investing Rs. 1.5 lakh in 80C investment instruments.
Section 80C is applicable for individuals or Hindu Undivided Families (HUFs) and only on certain specific expenditures.
If you're seeking deductions under Section 80C you should look at:
- Life Insurance
- Unit Linked Investment Plans (ULIP)
- Contribution to Public Provident Fund (PPF)
- Contribution to Employee Provident Fund (EPF)
- National Savings Certificate
- Equity Linked Saving Scheme (ELSS mutual fund)
- Senior Citizen Savings Scheme (SCSS)
- 5-year Post Office Term Deposits
- 5-year bank Fixed Deposits
- Home Loan EMIs
Life insurance premiums are deductible under section 80C. So, if you pay Life Insurance Premiums for yourself, your spouse or your children it will contribute to the total deduction of Rs. 1,50,000 available to you under Section 80C. You can buy multiple Life Insurance Policies and the premiums being paid for all of these can be combined to save tax under Section 80C.
Unit Linked Investment Plans (ULIP)
A ULIP is an insurance-based product that covers life insurance and also offers benefits of equity investments for growing wealth over the long term. However, ULIPs bring higher charges when compared to PF contributions and ELSS as it is a life insurance-based product.
Employee Provident Fund
Under this option, a small part of your monthly salary is deducted as your contribution towards EPF. The entire annual amount deducted through an EPF cam be used as a deduction under Section 80C.
The rules for both EPF and VPF (Voluntary Provident Fund) are the same. Although it isn't the best way to invest if growing wealth is your ultimate goal. You can get free advice on this, from a Cube Wealth coach by emailing us at firstname.lastname@example.org
To note: Check how much interest nos earned in your total EPF Corpus in a financial year because interest earned above the permissible limit of 9.5% is taxable in your hands. If the contribution made via EPF by your employer is more than 12% of your total salary then it is also taxable in your hands.
National Savings Certificate (NSC)
The NSC has a maturity period of 5 years and can be invested in with as little as Rs.100. The money you invest through a National Savings Certificate is eligible for deduction under Section 80C but the interest earned on it is taxable.
The annual interest is reinvested in the scheme as this is a cumulative scheme. You can earn 8% interest through NSC investments.
Equity Linked Saving Scheme (ELSS)
An ELSS Scheme is a Mutual Fund Scheme that is equity-linked and also offer tax deductions. This is one of the best ways to save tax as the lock-in period is just 3 years (the lowest among all 80C savings tools).
The returns you can get through an ELSS is also the highest of the lot. However, you should always consult a Wealth Coach before investing in an ELSS Scheme as the risk is also higher. If you need free expert advice for such an investment and can Download the Cube Wealth App and chat with our wealth experts for free.
Senior Citizen Savings Scheme (SCSS)
If you're 60 or above you can open an account under the Senior Citizen Savings Scheme. If you're over 55 but under 60 but have retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme you can also benefit from the Senior Citizen Savings Scheme.
You will, however, have to make your account within 3 months from your date of retirement. The current annual interest rate under the SCSS is 8.7% paid out each quarter.
5-year Post Office Term Deposits
This scheme is another great way to save tax under Section 80C. A Post Office Term Deposit is similar to a Bank Fixed Deposit and is available for 2, 3 & 5-year duration options. However only the 5 Year POTD is eligible for tax deduction under Section 80C. The deposit offers 7.8% interest compounded quarterly and is paid out annually.
5-year Bank Fixed Deposits
A simple 5-Year Bank Fixed Deposit is also great for tax deduction under Section 80C. The interest paid out on this will depend on the bank you choose and the payout can be customised as per your preference. The interest earned on this will be deductible.
Home Loan EMIs
If you take a home loan and are paying a regular EMI for it the Income Tax Act allows you to get deductions under Section 80C. These deductions are applicable to the repayment of the loan principal amount. To save income tax on the interest you can avail befits under Section 24 and section 80EE of the Income Tax Act.
Besides these, there are schemes like the Sukanya Samriddhi Account etcetera that are applicable to certain specific scenarios. We've covered the ways most regular individuals can save tax under Section 80C. If you want more assistance on this you can speak to a Cube Wealth Coach for free by downloading the Cube Wealth App.
Section 80c Limits
- There are certain limitations to savings under section 80C of the Income Tax Act 1961.
- Offers income tax deduction of maximum Rs.1.5 lakhs
- Not applicable on life insurance policy purchased for parents or anyone besides you, your spouse and your child. It is, however, applicable for a Hindu Undivided Family.
- You must pay a premium for at least 2 years or else tax rebate for the previous year will be revoked.
- A loan taken for a child's education is not covered under Section 80C.
- The tax deduction is applicable only for the fees paid for 2 children - if you have more, tough luck!
- Not applicable if higher education loans are taken for self or spouse.
- ELSS investments done through SIP are covered under 80C but each monthly investment has a lock-in of 3-Years.
FAQs (Frequently Asked Questions)
Who can claim deduction under section 80c?
An individual taxpaying citizen of India or a HUF (Hindu Undivided Family).
Is PF a part of 80c?
Yes, PF is a part of 80C. However, you can't claim deductions under 80C for your employer's contribution.
Is FD covered under 80c?
Yes, a Fixed Deposit of 5 years is covered under Section 80C.
How can I invest to save tax?
Contact email@example.com for free advice on how to invest before tax saving and wealth creation.
How can I reduce my taxable income?
You can reduce up to Rs. 1,50,000 of your income by making investments under Section 80C of the income tax act. This includes all the methods mentioned in this story.