Various sections of the Income Tax Act offer deductions that can help lower one’s total income tax liability. The most popular way of saving tax is through Section 80C of the Income Tax Act. A total of Rs.1.5 lakh can be claimed in deductions after clubbing together Section 80C, 80CCC and Section 80CCD(1) of the Income Tax Act.
Under Section 80C, here are the tax-saving instruments one can opt for to reduce their income tax liability
1. Employee Provident Fund
Section 80C offers deductions for an employee’s contribution to the Employee Provident Fund. EPF is a retirement benefit scheme for salaried employees. The interest on EPF is a high rate of 8.65%. An EPF account can be opened by anyone with a basic salary of more than Rs. 15,000 per month.
2. Investment in National Savings Certificate (NCS)
NSC has a maturity period of five years and an interest rate of 8%. The yearly interest is compounded i.e reinvested in the account. The investment amount can be as low as Rs.100 with no upper limit.
3. Premium paid for Life Insurance policy
Premium paid for life insurance policy for self, spouse, or children is eligible for Section 80C deductions. The policy can be an LIC policy or a policy from any insurer registered under the IRDAI. The deduction is valid only if the premium is less than 10% of the sum assured.
4. Payment for Children’s Tuition
Tuition fees paid for education of up to two children are tax-deductible as per Section 80C, which means that a couple can together claim a deduction for up to 4 children. The fees can be for any school, college, or university in India.
5. Home loan principal repayment
Home loan repayment has two parts- interest and principal amount, of which repayment of principal is eligible for Section 80C deduction. Payments made to authorities such as the Delhi Development Authority for buying a house allotted under a specific scheme also qualify for this deduction.
6. Amount invested in Sukanya Samriddhi Yojana (SSY)
Investments made towards the Sukanya Samriddhi Yojana are eligible for deductions under Section 80C of the Income Tax Act. The Sukanya Samriddhi Yojana is a savings account scheme which can be opened in the name of a girl child till she reaches the age of 10. An account can be opened for no more than two girls (three in case the first two are twins). With the SSY, one can avail high interest rates of up to 8.5% .
7. Investment in ULIPs
Unit Linked Insurance Plans (ULIPs) offer two-pronged benefits of both insurance and investment. While part of one’s premium is invested in insurance, the other portion is invested in market-linked funds. Premiums paid toward ULIPs taken in the name of self, spouse, or child are eligible for deduction as per Section 80C of the Income Tax Act.
8. Investment in ELSS
Equity Linked Savings Schemes are mutual funds designed for tax-saving. They come with a lock-in period of 3 years. They are equity-linked and hence have chances of higher returns (along with higher risk). There is no limit on the amount that can be invested in ELSS. Returns above the Rs. 1 lakh threshold are subject to a 10% LTCG (Long-Term Capital Gains) tax.
9. 5-year Deposit Scheme
Any fixed deposit or term deposit held with a scheduled bank for a period of 5 years, or a Five Year Post Office Time Deposit is deductible as per Section 80C of the Income Tax Act.
10. Deposit in Senior Citizens Saving Scheme
An individual aged more than 60, or more than 55 and retired under Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme can open an SCSS account. The current quarterly interest rate is 8.6%.
11. Pension Fund contribution (Fund should be notified and set up by UTI or Mutual Fund)
Contributions towards a pension fund offered by a mutual fund or by the UTI (Unit Trust of India) are also tax-deductible.
Deductions under subsections of Section 80C
An amount paid towards an annuity plan to a life insurance company is tax-deductible. However, the fund has to be mentioned in Section 10(23AAB).
a. Section 80CCD(1)- Employee Contribution
Tax can be deducted on the amount deposited in a pension account. The maximum deduction would be the lesser of 10% of the salary (for salaried employees) or 20% of the gross total income (for self-employed individuals) or Rs. 1.5 lakh.
a. Section 80CCD(1B) - Self Contribution
This section provides an added deduction of upto Rs.50,000 on a deposit in the NPS (National Pension Scheme) or Atal Pension Yojana account.
b. Section 80CCD(2) - Employer’s Contribution
An additional deduction can be claimed on employer’s contribution to the pension account for upto 10% of the salary. There is no deduction limit.
Section 80C offers a whole host of deductions to eligible taxpayers. One can claim deductions under Section 80C as well as earn high benefits by investing in Canara HSBC Oriental Bank of Commerce’s Invest 4G ULIP. The Invest 4G ULIP also offers a variety of additional benefits like 7 different funds and 4 different portfolio management options to choose from, return of mortality charges, partial withdrawals and loyalty additions to investors.