A COMPLETE GUIDE TO INVESTING AND IT REBATES UNDER SECTION 80C

Tax Savings Under 80C

The concept of choosing the best tax saving investments depend on individual’s future financial plans. This article primarily focuses on providing directive regarding investment and IT rebates under Section 80C.  Historical data shows investment in ELSS Fund/ Tax Saving Mutual Fund to be the most profitable in terms of savings.  These investments are drawn up on lines of dual purposes i.e. saving hefty taxes and realizing good investment returns.

  • Investment in ELSS can save you taxes up to Rs. 46,800
  • Shortest lock-in period of just 3 years
  • Delivers better returns over other investment options
  • Only partial interest is chargeable to tax
  • Option to invest monthly

Some other payments for saving taxes under Sec 80C of the IT Act 1961 can be named as under:

Life Insurance Premium:

Payments for Life Insurance Premium- The annual payment made for life insurance policy in the name of the taxpayer or the taxpayer’s family members can be admissible as an eligible tax-saving amount under 80C. The eligible amount needs to be less than 10% of the assured sum.

Children Tuition Fees:

Payment for Children’s tuition fees- The tuition fees paid for two children is legibly admissible for tax deduction under Section 80C upto 1.5 lakhs. The fees amount can be dedicated to any school, college, university or education center for a full time course of study situated in India.

Repayment of Home Loan:

Repayment of Home Loan- The payments done to give back a loan amount to buy or construct a house can be taken as exemption for tax purposes under Section 80C. This deduction can also include registration, stamp fees and transfer expenditure.

Investments in Tax Saving FDs:

For a clearer description, you can take a look for the tax saving instruments under:

Tax-saving fixed deposits are alike fixed deposits where the lock-in period is about 5 years and the tax break up under Section 80C is upto 1.5 lacs.

  • All Indian residents can open a tax saving FD.
  • A lock in period of 5 years
  • The FD rate of interest falls between 5.5% to 7.75% & this interest is chargeable to tax.
  • Investment Threshold for investment should be atleast Rs 1000

Investments in PPF (Public Provident Fund):

Deposits under PPF are backed by the Government of India and are eligible for tax deductions under Section 80C.

A PPF can be opened by any Indian resident whether salaried or non-salaried. Infact, a HUF cannot open a PPF account. This is tailor made for individuals only.

A PPF sustains a lock in period of 15 years and can be further increased to 5 years. Only partial withdrawal is permitted after 7 years.

Current rate of interest is 8.0% per annum.

The minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.

Tax treatment earned is tax-free.

Investments in EPF (Employee Provident Fund)

An EPF is a long term retirement benefit available to all salaried individuals.  This is equal to 12% of basic salary + DA (dearly allowance) which is deducted and deposited in the EPF fund.

It can be opened by an individual with a salary greater than 15,000 per month.

Anyone can withdraw PF amount after 2 months of quitting their job and when a new job has not yet been found.

The designated interest rate on EPF is about 8.55%.

The investment amount is contributed in the same proportion by the employee and employer to a minimum of 12%.

The PF amount is completely tax free and can be taken out after 5 consistent years of service.

Investments in NPS (National Pension System)

The National Pension Scheme was launched by the Government to boost the unorganized sector and motivate individuals to avail retirement benefits. Here again, the amount of investments can be upto 1.5 lacs as tax deduction.

Any individual between the age group of 18-60 can take up this option with no contribution limit

Withdrawals can be partially done after 15 years’ subject to conditions

The rate of return varies between 12-14%

Employer contributions are tax-free

Investments in ULIP (Unit linked Insurance Plans)

Unit linked Insurance Plans are a blend of insurance and investment. A proportion of the contribution can be used for insurance and the remaining for stock markets. The eligible amount stays fixed at 1.5 lacs for tax break up.

An individual can invest in an ULIP for self or family & there’s no investment threshold

Here, the interest rate is in sync with the market

The rate of interest lies between 12% – 14%

All investment amounts are tax free

Investments in Sukanya Samriddhi Yojana

Sukanya Samriddhi Scheme is recently becoming a trendsetter with its uptrend in the market.  The Government of India will focus mostly on uplifting a girl child.

The legal guardian or parents can open this account in the name of the girl child.

This is quite liquid in nature. A sum upto 50% of the amount can be prematurely withdrawn after the girl child attains 18 years of age.

The rate of interest is fixed at 8.5%.

An investment upto 1.5 lacs can be invested in full one financial year.

All deposits and withdrawals are tax free.

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