All Investments Option under section 80C of Income Tax Act.

What is u/s 80c of Income Tax Act?

The most widely used option to save income tax is section 80C of the Income Tax Act. As per this section, if an individual or Hindu Undivided Families (HUFs) invests in or spends on specified avenues then up to Rs 1.5 lakh, as per the current laws, of this investment/expenditure can be claimed as a deduction from gross total income before calculating tax payable on it in a financial year. The deduction can be claimed only from income in the financial year in which the specified investment/expend 

By claiming this deduction, a person can reduce his/her gross taxable income and thereby the total tax payable by him/her. For example, if your gross total earnings say, for a financial year is Rs 6.5 lakh and if you invest Rs 1.5 lakh in notified schemes which allows you to claim this tax benefit, then your net taxable income will come down to Rs 5 lakh and you would have to pay tax on this amount.

Apart from investment in specified avenues, certain specified expenditures also qualify as deductions from gross total income under section 80C.

Here's a list of different investments and expenditures which can be claimed as deduction by the taxpayer under section 80C for the current financial year, i.e., FY17-18. 

Employees' Provident Fund (PF) & Voluntary Provident Fund (VPF)

A part of your salary is deducted monthly as your contribution towards EPF. The total amount deducted annually can be claimed by you as deduction while computing your total taxable income. However, you must check with your employer how much interest is earned on the corpus during the financial year. Interest earned above the limit of 9.5 per cent is taxable in the hands of the employee. Similarly, if the contribution by your employer is more than 12 per cent of your salary, then the excess is taxable in your hands.

An employee can increase this contribution if he is willing to get a less take-home salary. This additional contribution is called VPF and is also eligible for deduction under Section 80C. The rules for both EPF and VPF are the same. 

If you don't want to get into the dilemma of choosing and buying the most appropriate investment option to avail tax benefits, then you can simply increase your VPF so that the EPF and VPF contributions total up to Rs 150000. The interest earned and maturity amount is tax exempt. The government is yet to announce the interest rate on EPF for the FY 2017-18 

Public Provident Fund (PPF) 

PPF is a scheme provided by the government and the investment in it is eligible for deduction under Section 80C. You can invest as low as Rs 500 and as high as Rs 1.5 lakh in a financial year. The interest on PPF is currently tax-free (compounded yearly) and the maturity period is 15 years. A point worth noting is that the interest rate is assured but not fixed. The rate is subject to revision every quarter. Government has reduced the interest rate by 0.2 per cent. The interest rate effective for January-March 2018 quarter is 7.6 per cent.

Life Insurance Premiums

Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that the premium paid by you for your parents (father/ mother/ both) or your in-laws is not eligible for deduction under Section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included.

It is not necessary to have the insurance policy from Life Insurance Corporation (LIC), even insurance bought from private players (registered under Insurance Regulatory and Development Authority of India or IRDAI) are be considered here. 

Equity Linked Savings Scheme (ELSS)

There are some mutual fund (MF) schemes specially created to offer you tax savings and these are called Equity Linked Savings Scheme (ELSS). The investments that you make in ELSS are eligible for deduction under Section 80C. ELSS has the potential of earning higher returns compared to other tax-saving investments as it is equity-linked, but this means that it comes with higher risk. There is no limit on the amount that can be invested in any of these schemes, but the tax benefit is available only for Rs 1.5 lakh.

ELSS comes with a lock-in period of 3 years and it is the lowest among all the options available under section 80C.

Sukanya Samriddhi Account

In this scheme, you can open an account on behalf of your minor daughter till the age of 10. Any amount deposited in this account would be eligible for deduction under Section 80C. Further, this account can be opened for a maximum of two girls and in case of twins this facility will be extended to the third child as well. There are other conditions attached to this investment.

The amount has to be deposited in this account for 15 years. The account will be mature after 21 years, which means that you don't have to deposit anything between the 16th and 21st year.

The minimum annual deposit is Rs 1000, which can go up to Rs 150000.

Interest rate on new deposits is subject to revision every quarter. The government has revised the interest on the scheme to 8.1 per cent for the quarter January-March 2018. 

National Savings Certificate (NSC)

NSC is a tax-saving instrument with a maturity period of five years. A person can purchase an NSC for as low as Rs 100 with no limit on the investment amount. Any investments in NSC are eligible for deduction under Section 80C. This interest is compounded half yearly and is taxable. However, this being a cumulative scheme (i.e., interest is not paid to the investor but instead accumulates in the account), each year's interest is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Section 80C, thereby making it tax-free. Only the final year's interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the previous years and the capital amount. The interest on new issue of these certificates is revised quarterly by the government.

So in a nutshell, the interest earned every year, except the last one, is tax-free. Currently, it is offering the interest rate of 7.6 per cent.

Five-year Bank Fixed Deposits (FDs)

Any term deposit with a tenure of at least five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable. However, while investing for FY 2017-18, one must keep in mind that the interest rates have come down drastically as compared to previous years

Senior Citizen Savings Scheme 2004 (SCSS)

This scheme, as the name suggests, is meant only for senior citizens.

Any individual in the 60 or above age group can open an account under this scheme. An individual above 55 but less than 60, and having retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme, can also open an account under this scheme, but such an account must be opened within three months of the retirement date.

If you are a retired defence personnel, then there is a bad news for you. As per the new rules effective from October 3, 2017, retired defence personnel can invest only if he is 50 years of age. Earlier, retired defence personnel could invest in this scheme irrespective of age, provided they met other specified conditions.

Any investment in this account would be eligible as deduction under Section 80C subject to the limit under this section. The current annual rate of interest offered under this scheme is 8.3 per cent payable quarterly. Please note the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won't earn any further interest and also the interest earned is subject to tax. Interest on this scheme is also reset every quarter by the government for new accounts opened under the scheme.

Five-year Post Office Time Deposit (POTD) Scheme

POTDs are similar to bank fixed deposits. They are available for different time durations like one, two, three and five years but only five-year POTD qualifies for tax-saving under section 80C. The interest on these is compounded quarterly, but paid annually. The interest rate is reviewed by the government every quarter. Currently, they are offering 6.9 per cent a year as decided by the government for January-March.

Please note that the interest earned is entirely taxable.  

Home Loan Principal Repayment

he equated monthly installment (EMI) that you pay to repay your home loan consists of two components - Principal and Interest. The principal qualifies for deduction under Section 80C. Even the interest can save you significant income tax, but that would be under Section 24 and section 80EE of the Income Tax Act.

So if you have an outstanding home loan in your name, then the repayment of the principal amount made by you in a financial year can be claimed as deduction under Section 80C and you need not invest in other tax-saving products only to avail tax benefits, if the Section 80C limit is fully utilised in home loan repayment.

Further, any payment made to development authorities like Delhi Development Authority (DDA) in order to purchase a house (which has been allotted to you in a scheme made in this regard) also qualifies as deduction under section 80C.

NABARD Rural Bonds

The bonds issued by NABARD (National Bank for Agriculture and Rural Development) also qualify for deduction under section 80C. However, the availability of these bonds for investment depends on the government notifying the same. In recent years, these have not been available for section 80C investment.

Unit linked Insurance Plan (Ulip) 

An insurance product which covers life insurance and also provides the benefits of equity investments, Ulips offer life cover, tax-saving and also help you grow your money over the long-term. However, unlike PF or ELSS, higher charges are associated with investment in ULIPs due to the life cover element. Also, there are certain conditions associated with ULIPs as it is a life insurance policy as compared to other tax savers  

Payment of Tuition Fees

Paying your kids' school fees is an expenditure which can't be ignored. Now imagine that the amount paid by you as tuition fees (excluding development fee of donation amount), whether at the time of admission or thereafter, is eligible as deduction to you and will help you save tax.

Please note that the fees should be paid to a school, college, or university in India only.

Contributions to National Pension System (NPS)

Any contribution made by an individual (whether employed or not) to the National Pension Scheme is also allowed as deduction to the individual under section 80CCD. Also note that the combined deduction under section 80C and 80CCD cannot exceed Rs 1.5 lakh.

However, if one contributes an additional Rs 50,000 to NPS (over and above the combined limit of Rs 1.5 lakh) it can be claimed as deduction under section 80CCD(1B) i.e. total deduction that can be claimed for contributions to NPS is Rs 1.5 lakh plus Rs 50,000 under two different sections of the Income Tax Act.

Any contributions made to the APY scheme are also eligible for tax deduction under section 80CCD. Therefore, additional NPS and APY contributions can offer you maximum tax deduction of Rs 50,000. 

Points to remember about claiming deduction under section 80C are as follows.

Investments/expenditures under section 80C cannot be claimed as a deduction from the capital gains portion, if any, of your income. This means that if your income comprises only of capital gains then you cannot use Section 80C to save tax on that income.

Amount of tax saved by using section 80C depends on the tax slab in which the income was falling. For example, if the income deducted from gross total income before tax calculation was in the 30% plus 3% cess bracket then that would the amount of tax saved.

Let us say, if your gross total income for the year is say, Rs 12 lakh, then by taking a deduction of Rs 1.5 lakh under section 80C, you reduce your net taxable income to Rs 10.5 lakh. This would bring down your tax liability by Rs 46,350.

If a person's income is already below the minimum exemption limit, currently at Rs 2.5 lakh for individuals below 60 years of age, then he/she would not be saving any tax via investments/expenditures under section 80C as his income is not liable for any tax. 

Disclaimer: Mutual Fund investments are subject to market risk,please read the offer documents carefully before investment. 

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