Have you started your financial planning for the next financial year already? If yes, Section 80C could be one of the many ways to invest your money to save income tax.
For most of us, when it’s time to plan our financial investments for the year, we choose investment instruments that fall under Section 80C of the Income Tax Act, 1961. But what exactly does this section entail and what you must know? Read on to find out.
What is Section 80C?
As per the Income Tax Act, 1961, Section 80C allows you to claim tax deductions up to Rs 1.5 lakh per annum. Under this section, you can invest in a number of savings schemes to claim tax benefits and deductions on your taxable income.
What tax deductions can I claim under Section 80C?
Listed below are the various investment instruments eligible for tax deductions under Section 80C of the Income Tax Act:
1. Provident Fund:
PF or EPF (Employee Provident Fund) is a scheme where a part of your monthly salary is deducted and invested towards this scheme. An employer has to contribute towards this scheme on your behalf too, however, that amount is exempt from tax. You can claim a tax deduction on the total PF amount contributed by you each year. VPF or Voluntary Provident Fund is another investment option you can undertake for your retirement planning which is considered eligible for tax deductions.
2. Public Provident Fund (PPF):
PPF accounts have a deposit limit of Rs 1,50,000 per year, so all deposits you make to your PPF account can be claimed as deductions under Section 80C. The money in your PPF account stays locked-in for 15 years. You can make partial withdrawals after 7 years from the date of opening the account.
Equity Linked Saving Schemes are the type of mutual funds that are specifically designed for the purpose of tax saving. By investing in ELSS, you can claim tax deductions of up to Rs. 1.5 Lakh per year. An important point you must know about ELSS is that they have a mandatory lock-in period of 3 years from the date of investment. These schemes are a great way to grow your wealth over a period of time.
4. Five Year Bank Deposit:
Banks offer tax saving fixed deposits where investors can claim tax deductions under Section 80C of the Income Tax Act. The important aspect of Tax Saving FDs that you must know is that these funds have a lock-in period of 5 years. Premature withdrawals are not allowed.
5. Stamp Duty and Registration Charges:
When you consider buying a property, one of the expenses that you should also account for is the stamp duty and registration charges. However, to give taxpayers some relief, the government has made these expenses eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You can only claim this deduction once the property construction is complete and you have legal possession of the house.
6. Senior Citizens Savings Scheme:
Investments in Senior Citizens Saving Schemes have a tenure of 5 years. Citizens over the age of 60 can invest in these schemes and claim tax deductions.
7. National Savings Certificate:
This is one of the most popular investment instruments available to Indian citizens. It’s a government scheme designed to encourage taxpayers to invest their money in National Savings Certificate scheme. The interest you earn on NSC is taxed. However, if you reinvest this interest, it becomes eligible for tax deduction.
8. Home Loan Principal Repayment:
If you’ve taken a home loan and are paying regular premium towards its repayment, you can claim tax deduction on the principal amount of your home loan under Section 80C.
9. Life Insurance premiums:
If you have taken Life Insurance policies for yourself, your spouse or your children, you can claim tax deductions on the premiums you pay towards the said policy. In case you have multiple policies from different entities, you can club all those and claim deductions.
10. Sukanya Samriddhi Scheme:
Parents of a girl child can invest in this scheme and claim a tax deduction on their investment.
When is the right time to invest to claim these tax deductions? According to tax experts, the beginning of a financial year is the best time to start investing your money, in order to save on Income Tax. This will not just help you plan your finances better but also will earn you great returns on your investment all through the year.
With so many options available under Section 80C of the Income Tax Act, choose the ones that fit your financial goals and help you make the most of your investment. An informed decision is after all the best decision!