Section 80C: Must know Tax Savings Investment options
Life is expensive, and there's no hiding from that fact. "Money saved is money earned," and this needs to be done in every possible way. Saving taxes is another smart way of accumulating this money, and a few sections of the Income Tax Act of 1961 propose various investment options to do the same. And today we are going to discuss Investments under a very popular section for tax-saving, i.e., "Section 80C of the Income Tax Act, 1961."
As a common practice, ‘Savings and Investing’ isn’t on everyone’s priority list. However, some might prioritize investing to build their dream house, purchase their dream car, or pre-plan for their child's higher education. An investment made prudently can build a corpus to secure future finances. A concrete financial strategy is thus of the utmost importance. Let your money beat the clock and work for you. Saving on taxes is another prudent way of saving money.
For the majority, filing taxes is a tedious task and a tangled task. Nevertheless, the right investments can pave the way to needed corpus accumulation as well as tax-saving. So, if you are looking for a list of investment plans that can build you a corpus while saving you taxes under Section 80C, then this blog is for you.
The Guide to Section 80C
Every Indian citizen is required by law to pay a fair amount of tax. However, this does not imply that you must pay the entire sum. You can minimise your tax-due every year by using Section 80C of the Income Tax Act, 1961, as given by the government.
A tax deduction under this section is a tax break that enables you save on your hard-earned money. It covers specific investment and payment choices that can help you save up to Rs 1.5 lakhs on your taxable income. However, the investment must be made within the relevant financial year, even though the deduction is claimed at the time of submitting your income tax return.
A salaried employee who works in an organised sector and is working on a payroll contributes 12% of his basic salary to the EPF (Employee Provident Fund) directly by the employer. If you are a businessman who owns a private enterprise, then you can open a PPF (Public Provident Fund) account and get the right insight on how much you should contribute to investments. PPF has been further explained in this blog.
Also, if an individual wishes to contribute more to the EPF than the specified amount, he or she can always choose VPF (Voluntary Provident Fund). However, you must notify your employer, HR, or Admin beforehand in order to add the additional amount via a VPF account and contribute as much as your budget allows. One important aspect that has to be noted is that the funds shared in the VPF account provide the same interest rate as those provided in the EPF. This additional VPF acts as a kind of retirement fund. However, one can withdraw it before maturity for major life issues such as hospital bills, your daughter's wedding, etc.
Here are the other investment options that can be explored to save tax under section 80C of Income Tax Act.
Balancing your financial goals? Here’s a solution
1. ELSS (Equity- Linked Savings Scheme)
ELSS mutual funds are the only financial schemes that can give you a tax rebate while allowing you to earn money (through equity market investment). ELSS mutual funds are a great option for both those looking for long-term investments and those who have a low-risk appetite. This includes investments up to Rs 1.5 lakhs handled by ELSS Mutual funds, which are tax-deductible. Mutual Funds are launched by Asset Management Companies, and your investments are managed by a professional fund manager. In addition, all mutual fund schemes are regulated by SEBI (Securities and Exchange Board of India).
While there are many investment options in the market with good returns, ELSS is recommended by experts for starters. The Equity Linked saving scheme investments have a minimum lock-in period of just 3 years as compared to many other investments has a lock-in period of 5 years or more. You can invest in a lump sum as well as through a SIP in an ELSS. It is a tax-efficient investment that provides an opportunity for wealth creation and may even provide inflation-beating returns.
The National Pension Scheme (NPS) is an Indian government-run programme for subscribers. The scheme was exclusively open to government employees, but it was expanded to include all Indian citizens in 2009 to provide retirement benefits. On average, NPS offers a 9–12% interest rate per annum, on the contributions made for the current fiscal year. A NPS investment enjoys EXEMPT-EXEMPT-EXEMPT status, meaning the corpus is tax-free at the time of maturity and all of the pension withdrawals are tax-free at the time of withdrawal.
Currently, any Indian citizen between the ages of 18 - 75 can open an NPS account and can avail a tax benefit of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. You can additionally save tax by investing upto Rs. 50,000 per financial year under section 80 CCD1(b).
3. Unit-Linked Insurance Plans
ULIP stands for Unit-Linked Insurance Plan. A ULIP is a blend of insurance and investment protection into a single investment plan. A portion of your money is invested in equities, debt, or other securities when you buy a ULIP. The premium paid for ULIP is tax-deductible under Section 80C of the Income Tax Act, 1961. A ULIP does not offer a fixed rate of interest. As maturity proceeds or death benefits are determined by market conditions, the amounts you receive or the amounts your dependents receive will change over time.
Rebalance as you like. Swap as you need to. And rest assured that it's all protected from any unforeseen emergencies, with a partial window of withdrawals after the 5 year lock-in period. Your money, your choice.
4. Public Provident Fund
A PPF is a government-sponsored investment plan that allows for long-term savings. Contributions made are tax-deductible, and the lock-in period is 15 years under Section 80C of the Income Tax Act. A partial withdrawal is allowed after the first six years, and a tax deduction of Rs 1.5 lakh is permitted under PPF.
The PPF account is easy to open through any post office or public or private sector bank, as specified by the government of India. The interest rate offered by PPF in the year 2000 was 12% per annum, but presently for the financial years 2021-22, the interest rate offered is 7.10% per annum. Risk-averse investors usually like PPF because of the centrally backed support.
5. The Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana is a government savings scheme aimed at promoting the development of girl child. You can open an SSY account in post offices and specific public and private banks all over the country to help parents meet future expenses like education costs and marriage expenses. This one’s exclusively for girls, so that they may enjoy financial independence in the future.
Parents or guardians can open an account in a girl's name until she hits the age of ten. Once the girl child becomes an adult and attains the age of 18, she can withdraw up to 50% of the deposit amount prematurely. The rate of interest offered for Sukanya Samriddhi Yojana for the current financial year is 7.6% per annum. A maximum investment of Rs. 1.5 lacs. Can be invested in one financial year.
6. National Savings Certificate
A National Savings Certificate is an investment certificate that is issued by the post office. The NSC scheme offers a guaranteed return on investment and also offers savings in income tax. Under this tax saving section, you can claim up to Rs 1.5 lakh as part of a government-backed tax-saving scheme. The rate of interest offered under NSC for the current financial year is 6.8% per annum and this remains same for the next 5 years from when you last purchased the certificate. Aside from rare and exceptional circumstances, including death, liquidation, or bankruptcy, it cannot be redeemed before five years have passed.
7. Tax-Saving Fixed Deposit
Tax-saving FDs are favoured by risk-averse investors seeking assured profits. Fixed-income investments (FDs) have fixed gains since they pay the same interest rate during their entire term. However, all interest gained on the fixed deposits is fully taxed.
Investing prudently in various sections of the Income Tax Act (1961) can lead to perpetual growth. However, to understand every tax-saving option more clearly, one should always consult with an expert who can tailor it to suit their needs perfectly.
