How to save Income Tax u/s 80C?

List of various financial instrument and payment that are eligible for deduction under section 80C.Check out their lock-in period which will help you to save tax u/s 80C.

by oneka5 Updated: 10 Apr, 2022, 14:41 IST
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Many people at the end of the financial year search for tax saving instruments. The deadline for filing tax returns is near and many may wonder how they can save tax. The best way to save tax is under Section 80C of the income tax act.

In this article we will look at the best way to save income tax under 80C.

Let us start by first understanding what exactly is under section 80C?

80C also includes section 80CCC and 80CCD. You can claim the amount as a deduction from your total taxable income for the previous year (PY) if you wish to use your income in other financial instruments including u/s 80C. It is for those individuals who opt for Tax regime in a financial year.

In Simpler words it basically allows certain expenditures and investments to be exempted from tax u/s 80C.

Let’s understand this with an example, let's assume you earned a gross income of Rs.10,00,000 and you invested Rs.1,00,000 in any instruments under section 80C then your taxable income will be deducted to Rs.9,00,000 for the previous year.

How much can be claimed u/s 80C?

You can claim a deduction of up to Rs.1,50,000.But there is also an option for increasing this amount of deduction by an additional Rs.50,000.

here is how you can do it

80CCD (1) and 80CCD (2) is refers to contribution by employer and employee here is how you can do it -

1. Deductible in the year contribution is made, up to 10% of the salary

2. Additional Deduction of Rs.50,000 over and above 80C limit

Please note - This additional deduction of Rs.50,000 is under National Pension Scheme And Contribution in Atal Pension Yojana is also eligible for it.

When should you start investing to claim deduction under 80C?

Many people at the end of the financial year start making investments. Many financial experts suggest that this investment should be made at the start of the financial year. By doing this you can earn interest for the whole year i.e. from April to March.

How long should you stay invested?

Staying invested for the long term has many benefits. It helps you in understanding the market cycle better, which you can then use to your advantage by taking profits or implementing an appropriate investment strategy to reduce risk based on your age, financial goals, and risk appetite. Different Investment instruments have different time limits that an individual should follow to avoid reversal of deduction. You can also stay invested in this instrument after the completion of the lock-in period.

The exact period of staying invested in these tools depends on an individual's income, saving plans and age.

There are 2 ways in which you can avail tax deduction u/s 80C

1. Investment Activities

2. Spending Activities

Investment activities list. Let’s take a look at it.

Investment Instrument

Minimum lock-in period

National Pension Scheme

Till retirement or an individual reaches 60 years of age

Public Provident Fund (PPF)

15 years

Equity Linked Saving Scheme (ELSS)

3 years

Fixed Deposit

5 years

Unit Linked Insurance Plan (ULIP)

5 years

National Saving Certificate

5 years

Senior Citizen Saving scheme

5 years

Time Deposit in post office/Bank

5 years

Sukanya Samriddhi Yojana

15 years

(partial withdrawal allowed when she reached 18 years)

Note - The Maturity Period of Sukanya Samriddhi Yojana is 21 years.

National Pension Scheme

The NPS is a scheme established by the Indian government to provide a pension to the unorganized sector and working professionals after they retire.

Public Provident Fund (PPF)

It is a popular investment instrument because it provides guaranteed returns. The interest is compounded annually, and the scheme has a 15-year maturity time. The minimum contribution to a PPF account is Rs.500, and the highest contribution is Rs.1.5 lakh. Section 80C of the Income Tax Act allows you to deduct the amount you contribute to your PPF. The interest earned is tax-free

Equity-linked saving scheme (ELSS)

Certain mutual fund schemes are specifically designed to help you save money on taxes. Under Section 80C of the Income Tax Act, equity-linked savings schemes, or ELSSs as they are commonly known, allow investors to claim tax deductions up to Rs.1.5 lakh.

Fixed Deposit

Tax-saving FDs are similar to normal fixed deposits, except they have a 5-year lock-in term and a Section 80C tax break on investments up to Rs.1.5 lakh. The minimum investment made in Fixed Deposit should be Rs.1000.And also the interest earned is taxed.

Unit Linked Insurance Plan (ULIP)

This plan is a mixture of insurance and investment. A part of the amount invested is also insurance and the remaining amount is invested in the stock market. This insurance plan provides substantial returns in the long term.

National Saving Certificate

It is one of the most popular tax-saving tools for Indian citizens. It is a fixed Income saving scheme that an individual can open in any post office branch. This scheme is compounded semi-annually. The minimum amount to invest is Rs.100, there is no maximum limit on investment.

Senior citizen saving scheme

It is the best option for senior citizens to invest in. The returns are lucrative as compared to other investment schemes. Individuals who are above the age of 60 years are eligible for this scheme.

Term Deposit in Post Office

Term deposits in post offices are like Fixed deposits in banks. The interest which you get from this deposit is only eligible for deduction u/s 80C.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana scheme was launched by Prime Minister Narendra Modi under the "Beti Bachao Beti Padhao" Campaign.

Individuals can open a Sukanya Samriddhi Scheme from the date the girl was a girl till she attends the age of 10. The minimum amount you can invest is Rs.1000.After the age of 18, the girl can make a partial withdrawal. The investments made, withdrawals and the maturity amount are tax-free.

Term life Insurance Plan

A term insurance plan, as the name suggests, is an insurance policy that lasts for a set period of time. It provides you with a large sum assured at a low premium rate. If the policyholder dies during the term of the policy, the sum assured is paid to their nominee.

Life Insurance Premium Paid

If you buy a life insurance policy for yourself, your children, or your spouse, the premiums you pay are deductible under Section 80C of the Income Tax Act. If you have multiple life insurance policies with different insurance providers, you can combine all of your premiums and claim deductions up to Rs.1.5 lakh per year.

Spending activities include:-

1. Tuition fee for 2 children

2. Stamp duty and registration cost of a house - this is valid for only at the time of purchase of a house

3. Home loan principal payment

Frequently Asked Questions on Section 80C
  1. Are 80C and 80CCC the same?

Section 80C allows you to deduct up to 1.5 lakh from your taxable income for various investments. Section 80CCC, on the other hand, allows a person to deduct up to 1.5 lakh per year for contributions paid to specified pension plans. As a result, Section 80CCE limits the overall exemption ceiling to a maximum of 1.5 lakh per year.

2. Is the Rs.1.5 lakh limit meant to suggest that I can invest Rs.1.5 lakhs in multiple instruments and claim benefits?

No, the limit of Rs.1.5 lakh means that you can claim the maximum benefit of Rs.1.5 lakh after taking into account all of your 80C assets.

3. Who is eligible for an 80C deduction?

Individual and Hindu undivided family (HUF)

4. What is the definition of a senior citizen for the senior citizen savings scheme?

A senior citizen under this system is someone who is more than 60 years old or has taken voluntary retirement under a specialized retirement scheme and is more than 55 years old but less than 60 years old.

5. How much should I invest to save tax?

Make a 1.5 lakh investment under Section 80C to save tax. Purchase medical insurance and claim a deduction of up to 25,000 (Rs.50,000 for Senior citizens) for premiums paid under Section 80D. Additionally, a contribution of up to Rs.50,000 to an NPS could result in additional tax savings under Section 80CCD (1B).

6. Is the interest earned through these instruments also eligible for tax deductions under 80C?

No, In most circumstances, interest earned is taxed under other sections, except in the case of NSCs, where if the interest is reinvested, it qualifies for an 80c deduction in the year it is reinvested.

7. Can a company or a firm take the benefit of Section 80C?

No, Only individual and Hindu Undivided Family(HUF) are eligible

8. Under EPF schemes is the entire contribution eligible for deduction under 80C?

No, In EPF half the amount is paid by the employer which is not eligible for deduction but the contribution made by the employee is eligible. EPF Interest rate is tax-free.

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Deal Captain Deal Captain

Well compiled info, KG for your efforts, will certainly help lot of members

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