Income tax payment is the duty of all individuals, and is the tax paid on the income earned via salary, interest earned on fixed deposits and on savings account. India has a progressive income tax system, in which an individual tax bracket is in accordance with the income earned in the financial year.
Higher income earners pay more tax compare to low income earners. Income tax return is not an option but an involuntary fee enforced by the government on salaried individuals and corporations.
At the end of the day the ultimate goal of any tax payer is to reduce the gross taxable figure by way of doing investments and expenditures which qualify for deductions. One thing to keep in mind is that deductions can be claimed only from income in the financial year in which the specified investment or expenditure is made.
Section 80C has a long list of investment options which qualify for deductions and hence making it as one of the most viable option for tax savings.
The Investment Options Galore Under Section 80C
Planning an investment involves a lot of planning and judiciously choosing an income tax deduction option. The following are the many saving options under Section 80C:
- Investment in Public Provident Fund: Deposit not greater than 1.5 lakhs in a financial year is eligible for tax deduction under Section 80C. The length of PPF scheme is 15 years to begin with but can be extended for 5 years thereafter. The investor cannot make premature withdrawals but can take a loan against the corpus in the account.
- Employee Provident Fund: If an employee makes an annual contribution of up to 1.5 lakhs, then he is eligible of tax deduction under this scheme.
- Tax Saving Fixed deposit has a lock in period of 5 years and comes under the purview of tax deduction for up to 1.5 lakhs.
- ELSS or Equity linked savings scheme as it’s famously known, is a kind of tax saving mutual funds. These mutual funds invest around 65% in stock market with a low lock in period of 3 years. Also as it’s exposed to equity market, the return on investment over a period of 3 years and plus is generally in the positive. The total investment value is 1.5 lakhs.
- National Pension Scheme: It’s a scheme started by the government in order to allow unorganised sector and working professionals to have a source of pension after retirement. Although only 1.5 lakh investment can be used to avail deductions under Section 80C, an additional 50,000 can be invested in the NPS via 80CCD (1B).
- The downside is that the mature amount is taxable
- Highest exposure to equity is capped at 50%
- No guarantee of return on investment
- Investments in Senior citizens saving scheme is eligible for saving taxes under Section 80C. Citizens who are over 55 years old can opt for this scheme. This scheme has a maturity period of 5 years and has a high interest rate per annum.
- Investments of up to 1.5 lakhs in Sukanya Samriddhi Yojana are eligible for tax deductions under Section 80C. This investment scheme is only for a girl child and can be started by a guardian or the parent. The interest is fully tax free which is compounded annually. The scheme matures 21 years after its inception and a partial withdrawal of 50% of the last years balance is allowed when the account holder reach 18 years.
- National Saving certificate: Investment of up to 1.5 lakhs in NSC can be used to save tax under Section 80C. The Interest earned is taxable. They can be purchased from selected post offices and have a lock in period of five years.
Payments Are Also Eligible for Deductions for Tax Saving Under Section 80C
The following are the payments which are eligible for tax saving deductions:
- Life Insurance Premium: The premium paid by the taxpayer for himself, spouse or his children is eligible for tax saving under Section 80C. The deduction is valid only if the premium is 10% of the sum assured.
- Home Loan repayment: The principal amount taken to buy or built residential property is eligible for tax deduction. The same is applicable for stamp duty, registration fees and transfer expense.
- Childs tuition fee: A full time tuition fee of upto 1.5 lakh is eligible for tax deduction under Section 80C. It’s applicable to 2 children for the education fee paid to any school, college or university.
The above options can be really beneficial in reducing the financial burden of the Income tax return. The tax exemption options allow the tax payer to plan for investments in advance, thereby increasing the chances of good return on his hard earned money.