In order to encourage Savings, the Government gives Tax exemptions or Rebates you may call it on certain Financial products under Section 80C of the Income Tax Act. Not only Investments made under such schemes are referred to as 80C Investments but some expenditure which you normally incur can also give you the Tax Exemptions. It is important to know the Section correctly so that one can make best use of the options available for exemption under Income Tax Act. Deduction u/s 80C is available only to Individual or a Hindu Undivided Family (HUF).

You are Saving every year and while saving you normally have some goal in mind, e.g. to meet the expenditure on education of children, purchase of house or marriage of your children or meeting expenses for post Retired Life. Therefore, you should always look at the Investments from the angle whether it will meet your specific requirements on maturity. You should also try to diversify your savings in different instruments like Life Insurance Premium (LIC), Investment in ELSS(MF), PPF, Five-Year Bank fixed deposits, etc so that your Investments are well Balanced providing you Assured Returns over longer period of Time.

 

Under this section for the Financial Year 2016-17 (Assessment Year 2017-18), you can invest a maximum of Rs 1.50 lakhs (1 Lakh 50 Thousand) . This means that your Taxable Income gets reduced by this investment amount (up to Rs. 1.50 Lakhs), and you end up paying very little or No tax on it at all! This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1.50 Lakhs, you save tax of Rs. 46,350 yearly. Isn’t this great? 

 

Never thought of but the biggest mistake many of us do is to start looking for investment avenues only in February or March, just before the Financial Year is getting over. One should start investing right from the beginning of the Financial Year i.e right from April. This way, you would not only make informed decisions but your investment is also growing by earning interest/ dividends/bonus for the full year from April to March.

 

1. Life Insurance Premiums (LIP): Life insurance premium paid for Yourself, your Spouse or your Children is eligible for deduction u/s 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. 

2. National Savings Certificate (NSC) (VIII Issue): Investment in NSC instrument is eligible for section 80C tax benefit.

3. Provident Fund (PF) & Voluntary Provident Fund (VPF): Only employer’s PF contribution is exempt from tax, your contribution is counted towards section 80C investments. One can also contribute additional amounts through voluntary contributions (VPF). Rate of interest currently on VPF is more than 8 % per annum (p.a.) & may vary time to time. If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF.

4. Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is also one of them. Current rate of interest is more than 8 % (Compounded Yearly) & may vary time to time with a normal lockin period is 15 years. Minimum amount of contribution is Rs 500.

5. Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C  

6.  Fixed Deposit with Scheduled Bank: Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

7.  Repayment of Home Loan Principal:  Repayment/Part payment of any loan borrowed for the purpose of purchase of construction of any residential house property, the income of which is chargeable under’ Income from House Property’. The EMI that you pay every month to repay your home loan consists of two components – Principal and Interest. The principal component of the EMI qualifies for deduction under Sec 80C

8.  Registration Charges and Stamp Duty paid for a House Property: When you buy your dream home the amount you pay as stamp duty and registration of the documents of the house is eligible for deduction under section 80C.

9.  Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds is eligible for deduction Sec 80C.

10. Tuition fees deduction u/s 80C -This is an avenue most people are not even aware of. Any amount paid as tuition fee for the education of the first two children of the employee / tax payer is eligible for deduction u/s 80C of I-T Act. Most people do not avail this benefit because they are not aware of the same.