Section 80C of the Income Tax Act allows us to have certain investments and expenditure which can be exempt from tax. We can plan our investments such that we can invest in appropriate investment options specified in this section and avail maximum tax benefit. Rs.1,50,000 is the maximum investment amount that can get us tax exemption in one year.
Public Provident Fund is a safe long-term investment option backed by the government. It is suitable for all as the minimum yearly investment is Rs.500 and the maximum is Rs. 1,00,000.
It is easy to open a PPF account as it can be opened in many of the nationalised banks and requires only Rs.100. PPF can be used to take a loan and is a high safety investment option.
It gives an interest rate of 8.75%
It is not liquid
The interest rate might go down in the future
Employee Provident Fund (EPF) is a voluntary investment avenue for salaried people. The amount is deducted from the salary every month.
There is no limit on the amount that you can invest.
It is easy to maintain.
It gives an interest rate of 8.75% and you can save a big sum if you continue for a long time. The amount got at the end will be tax-free
Returns are not market linked which might be a disadvantage if the markets are doing well.
It is not liquid.
Equity Linked Savings Schemes are tax planning mutual funds that invest in the market. There are many types of tax planning mutual funds depending on the stocks they invest in. There is a lock-in period of 3 years.
They usually give higher returns when the markets do well compared to other schemes. They are non-taxable
There is risk/volatility involved as the funds invest in stocks.
You can invest in Fixed deposits in banks for interest. There are fixed deposits for durations ranging from 7 days to 5 years.
It is a safe form of investment if you invest in reputed banks. It is hassle free to maintain.
You can take a loan against FDs in some banks
It is illiquid. The returns are taxable and therefore not the most lucrative.
Insurance companies offer pension plans and you can avail of tax exemption if you invest in them. You pay premiums and the corpus will pay out a pension to you post retirement.
Capital is protected. You will have a steady flow of income post retirement.
Investment is costly.
Returns are not high as compared to ELSS or retirement funds from Mutual funds.
You cannot invest beyond the age of 60.
National Savings Certificate (NSC) is a 5-year savings investment option. A minimum investment of Rs.100 is required and there is no upper limit on the amount.
It is available easily. Interest rate is 8.50%. It can be offered as collateral for loan. If the interest is invested back in NSC, it is eligible for tax exemption.
The returns are taxable as per the tax slab that you fall under.
These are tax-free or tax saving bonds issued by government enterprises. They are long-term investments with a fixed interest rate and maturity period.
The interest rate ranges from 8%-9%.
It has low risk.
They have a lock-in period. The interest earned is taxable as per the tax slab that you fall under if it is a tax saving bond. If it is a tax-free bond, interest income is not taxable.
Life Insurance policies
If you buy a life insurance policy for self, spouse or children, the you will spend an amount used to purchase. The yearly premium can be included in Section 80C for deduction
The life insurance plan is a good cover for the family in case of unfortunate events.
One can avail of a loan against the insurance policy.
Traditional life covers are only covered in this. Insurance policies should be bought as a cover for emergencies and unfortunate events. There are plans that are better suited for this purpose like term plans.
Home Loan –Principal Amount
If you take a home loan, the EMI that you pay has 2 parts – Principal and Interest. The principal amount qualifies for deduction under Sec 80C.
The amount invested creates a valuable asset and at the same time helps in saving tax payment.
Buying a house is a big financial decision and one has to be careful in choosing the right property at the right time.
You can also read – last minute tax guide
Most of us rush to make last minute investments just before filing the returns. This is incorrect and can lead us to making investments without thinking on all aspects. We should make the investment plan at the beginning of the year and start making investments from the beginning. This will allow us to have a proper investment strategy that can be fine tuned throughout the year and will also get interest from the beginning of the year.