Complete investments, expenditures than can be claim under Section 80C
However we already know the deduction available under section 80C of the Income tax Act, 1961. The maximum amount of deduction that can be claimed under section 80C is Rs 150000 for FY 2015-16. The section have many investment options to the taxpayer that not only generate returns for him but can also be minimized total taxable income.
Most of people invest in traditional plan like LIC, PPF, Tax ELSS etc. in order to avail this deduction, but there are other options too which are worth considering. Deduction under Section 80C is not only available for investments but also for specified expenditures made by the tax-payer. In order to claim the deduction for a particular financial year you need to invest or spend the deductible amount in that financial year.
Here are some different investments and expenditures which can be claimed as deduction by the taxpayer under Section 80C.
Provident Fund (PF) & Voluntary Provident Fund (VPF)
A part of your salary is deducted by your employer and contributed to PF monthly .The total amount deducted annually can be claimed by you as deduction while computing your taxable income. An employee can increase this contribution upto 20% of his/her basic salary if he is willing to get a less take-home salary. This additional contribution is called VPF and is also eligible for deduction under Section 80C. The interest earned up to 9.5 per cent is tax-free and anything over and above it will be taxed as your salary income.
So if you don’t want to get into complications of choosing and buying the most appropriate investment option to avail tax benefits, then you can simply increase your VPF to make it equivalent to Rs 150000.
Public Provident Fund (PPF)
PPF is a scheme provided by the government and the investment in it is eligible for deduction under Section 80C. You can invest as low as Rs 500 and as high as Rs 150000 in a financial year. The current rate of interest is 8.10 per cent tax-free (compounded yearly) and the normal maturity period is 15 years. A point worth noting is that the interest rate is assured but not fixed.
Life insurance Premiums
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that the premium paid by you for your parents (father/ mother/ both) or your in-laws is not eligible for deduction under Section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insura ..
Equity Linked Savings Scheme (ELSS)
There are some mutual fund (MF) schemes specially created to offer you tax savings and these are called Equity Linked Savings Scheme (ELSS). The investments that you make in ELSS are eligible for deduction under Section 80C. This is one of the best ways to grow your money and enjoy tax benefit simultaneously as the return generated by ELSS is much more than those generated by other investment products.
Home Loan Principal Repayment
The Equated Monthly Installment (EMI) that you pay to repay your Home Loan consists of two components – Principal and Interest. The principal qualifies for deduction under Section 80C. Even the interest can save you significant income tax, but that would be under Section 24 and section 80EE of the Income Tax Act.
So if you have an outstanding home loan in your name, then the repayment of the principal amount made by you in a financial year can be claimed as deduction under Section 80C and you need not invest in other products specifically to avail tax benefits.
Infrastructure Bonds
Also popularly called Infra Bonds, these are issued by infrastructure companies, not the government. The amount invested in these Bonds can also be included in Section 80C deduction.
Five-year Bank Fixed Deposits (FDs)
Any term deposit with a tenure of at least five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable.
Senior Citizen Savings Scheme 2004 (SCSS)
This scheme, as the name suggests, is meant only for senior citizens.
Any individual in the 60 or above age group can open an account under this scheme. An individual above 55 but less than 60, and having retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme, can also open an account under this scheme, but such an account must be opened within three months of the retirement date.
If you are retired defence personnel, then you can open this account without any age limit, provided you fulfill other specified conditions.
Any investment in this account would be eligible as deduction under Section 80C. The current annual rate of interest offered under this scheme is 8.6 per cent payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest and alsoFive-year Post Office Time Deposit (POTD) Scheme
POTDs are similar to bank fixed deposits. They are available for different time durations like one, two, three and five years but only five-year POT qualifies for tax-saving under section 80C. The interest rates offered by them is compounded quarterly, but paid annually.
Please note that the interest earned is entirely taxable.
NABARD Rural Bonds
The NABARD Rural Bonds issued by NABARD (National Bank for Agriculture and Rural Development) also qualify for deduction under section 80C. These bonds are tax-free and also offer decent interest rates.
Unit linked Insurance Plan (Ulip)
An insurance product which covers life insurance and also provides the benefits of equity investments, Ulips have attracted the attention of investors and tax-savers because of their multiple advantages -life cover, tax-saving and also helping you grow your money by giving decent returns in the long-term.
Payment of Tuition Fees
Paying your kids’ school fees is an expenditure which can’t be ignored. Now imagine that the amount paid by you as tuition fees (excluding development fee of donation amount), whether at the time of admission or thereafter, is eligible as deduction to you and will help you save tax.
Please note that the fees should be paid to a school, college, or university in India only.