SECTION 80C: WHAT ARE THE VARIOUS TAX-SAVING OPTIONS AND HOW TO CLAIM DEDUCTIONS

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There’s one question that always haunt investors – how to ensure they are saving as much as they can on taxes. Every year, thousands of investors choose several tax-saving investments that help them to save tax. Did you know that there are several tax-saving investments available to investors to cater to their varying needs. Let’s understand different tax saving investment options and tax deductions under Section 80C.

  1. Equity-Linked Saving Schemes (ELSS) – ELSS mutual funds, a type of mutual funds invest a majority of their assets in equity and equity-related instruments. As ELSS funds offer tax-benefits to investors up to Rs 1.5 lac per annum, they are popularly claimed as tax saver mutual funds. These mutual funds offer investors with dual benefits of capital appreciation and tax-saving opportunities. Note that, ELSS tax saving mutual funds have a lock-in period of three years, which also happens to be one of the shortest lock-in period among other Section 80C tax saving investments.
  2. Unit-Linked Insurance Plan (ULIP) – ULIPs are tax-saving investments that offer life insurance plus investment opportunities through a single fund to investors. In essence, a part of an investor’s fund is dedicated towards their life cover and the remaining is used to invest in different types of investment that align with their investment portfolio. ULIPs allow investors to switch their portfolio between debt funds and equity funds. Just like other tax-saving investments under section 80C, the premium paid towards these investment products are eligible for tax deduction of up to Rs 1.5 lac p.a.
  3. National Savings Certificate (NSC) –NSCs are fixed-income tax-saving investments that can be opened by any bank or post office. As these investments are backed by the government of India, they ensure the safety of investment. Thus, these low-risk investment options are highly preferred by investors who have medium level of income. The interests earned on NSC schemes are added to the initial investments and these interests are also applicable for tax exemption. Investments are likely to receive the entire maturity amount on maturity of these tax-saving schemes. As there is no TDS (tax deducted at source) on these low-risk investment options’ payout, investors are required to pay applicable tax depending on their investment portfolio.
  4. Public Provident Fund (PPF)–Just like NSC, PPF are tax-saving investments that are backed up by the Government of India. These investment options offer regular and fixed rate of interest which is predetermined before investing in these schemes. These interest rates are regularly revised each year on a quarterly basis. They are highly popular among investors due to its combination of tax-saving attributes, safety, and stable returns to investors. PPF schemes have an investment horizon of fifteen years. However, they can be extended by five years at a time for n number of years. PPF schemes fall under exempt-exempt-exempt statuswhich makes them entirely tax-free. In essence, the principal amount, the interest earned on these investments, the maturity amount all are exempt from paying any tax. Other than that, these investment options are also eligible for Rs 1.5 lac tax deduction u/s 80C of the Income Tax Act, 1961.

There are other tax-saving investments under Section 80C as well. Examples include National Pension Scheme (NPS), Sukanya Samridhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), Employee Provident Fund (EPF), Bank Fixed Deposits (FD), etc. Note that the tax deduction of Rs 1.5 lac per annum is not available individually on each investments, but as a whole. As a result, you can save up to Rs 46,800 each year by investing in tax-saving investments u/s 80C provided that you belong to the highest tax slab. Happy investing!

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