Maintaining a balance between tax savings and investments is essential to secure maximum funds for future stability. Salaried individuals always look for ways to reduce their taxable income by making wise investment decisions. The government deducts taxes on the one hand, but it also encourages savings and investments among the taxpayers. There are several tax deductions introduced from taxable income under Chapter VI A of the Income Tax Act. A well-known and widely used tax deduction is Section 80C.
Section 80C of the Income Tax Deduction Act allows individuals to avail deductions up to INR 1.5 lakhs per year from the taxpayer’s total taxable income.
In the following blog, we will understand Section 80C, its benefits, and eligibility. We will also examine how it can significantly impact financial planning and aid in both the accumulation of wealth and tax savings.
Understanding about Section 80C
Section 80C comes under the Income Tax Act of India, 1961, and it allows individuals to avail deductions up to INR 1.5 lakhs a year on certain investments from taxable income. There are several eligible options under Section 80C where you can invest your savings or spend money on eligible options to avail of deductions. These deductions help to reduce the gross total income.
There are many subsections available under this section; they are sections 80CCC, 80CCD(1), 80CCD(1B) and 80CC(2). One can claim an additional tax deduction of up to INR 50,000 under Section 80CCD(1B) along with Section 80C. Individuals who follow the old tax regime can only claim deductions under Section 80C.
Beneficial Investments Eligible under Section 80C
Some of the investments that fall under the category of section 80C are mentioned below,
1. Investment in Sukanya Samruddhi Yojana (SSY): If you have a girl child, then you can open a savings account in her name for investing till she reaches the age of 10. This scheme can be availed for two girls only and three in an exceptional case if the first two are twins. The interest rates are as high as 8.5% in Sukanya Samruddhi Yojana. All the investments in this scheme are eligible for deductions under Section 80C.
2. Employee Provident Fund (EPF) and Public Provident Fund(PPF): Contributions made in both of these accounts by the employee are eligible for tax deductions under this section. PPF is a government savings scheme that is used for long-term financial goals, and it matures after 15 years of account opening date. An EPF account can be opened by any salaried individual who earns more than INR 15,000 per month to acquire retirement benefits.
3. Premiums of Life Insurance: Any kind of premium paid for the life insurance plans taken for the spouse, children, or self by a registered IRDAI life insurer is eligible for deductions under Section 80C.
4. Equity Linked Saving Scheme Investments(ELSS): This savings scheme comes with a 3-year lock-in period and is considered a mutual fund investment scheme. ELSS has higher return benefits because it's linked with equity, and the investment amount has no limit.
5. National Savings Certificate (NSC): NSC is a government-supported scheme for employees of all sectors, including public, private, and other. Hence, it is a popular tax savings investment that falls under Section 80C deductions. The lower limit of investment can be INR 100 with an unlimited upper limit.
6. ULIP Investments: ULIP, i.e., Unit Linked Insurance Plans, is a life insurance plan that is eligible under Section 80C for tax deductions. ULIPs provide benefits of investment and insurance, where an equal part of a premium is divided towards the investment in premium and market-linked funds.
7. Repayment of Home Loan Principal Amount: An individual can claim tax deductions under Section 80C on repayment of the principal amount of up to INR 1.5 lakhs per year towards a home loan.
8. Tuition Fees: An individual who is a parent and pays tuition fees up to INR 1 lakh a year for the education of two children can claim this amount under Section 80C.
Maximising the Benefits of Section 80C
Financial planning is an important task every individual must consider for future financial stability. Hence, it is important to assess your financial situation and goals before deciding on investments and eventually making the most of Section 80C.
Make a list of all your current investments and identify additional ones to maximise benefits under Section 80C. There are several investment options available under Section 80C that can help individuals reduce their taxable income and provide long-term benefits. So evaluate now and reap the benefits later!
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