A Guide to Tax-Saving Options Under Section 80C

The Income Tax department allows several deductions from your taxable income under Chapter VI A of the IT Act. Among all these provisions, Section 80C creates room for up to Rs. 1.5 Lakh deduction from every taxpayer’s annual income. Read on to learn about the top investment options that enable tax savings through Section 80C. 

11 Tax-saving Options Under Section 80C Deductions List

To establish the habit of saving among the citizens, the Indian Government has included these investment options under the tax-saving column:

1. Life Insurance Premium

Based on 80C deduction policies, the premiums that you pay towards a life insurance policy are considered non-taxable. This benefit is particularly extended when the life insurance plan is owned by you, as a taxpayer. Otherwise, the plan needs to cover the family members of a Hindu Undivided Family.

At present, you can expect up to 10% of the annual assured sum for tax exemption. Nevertheless, before April 2012, insurance holders could enjoy up to 20% of the insured sum as tax deductible under Section 80C.

2. Public Provident Fund (PPF)

PPF has been one of the most preferred investment options not only because of its guaranteed returns but also due to its tax-free nature. Every Indian can start a PPF account and contribute up to Rs.1.5 Lakh within one financial year.

This directly indicates that you can claim the entire contribution for tax exemption as per the norms of the Income Tax Act. In addition, if your employer decides to voluntarily contribute towards your PPF savings then that can also be listed under tax deductible income as per Section 80C.

3. Employees Provident Fund (EPF)

The Employees Provident Fund or EPF will be a mandatory inclusion in your investment portfolio in case:

• You work in a company with more than 20 members
• Earn more than Rs.15,000 each month

Since its introduction, the employer’s contribution is considered entirely tax-exempt. Following this, in the 2021 Budget, the Union Finance Minister also declared the interest earned through mutual contributions as tax deductible. 

However, the latter rule applies only to employees who have served a company for more than 5 years.

Note: Voluntary contributions to any EPF account are also regarded as an 80C investment. Hence, they are tax-exempt.

4. Equity Linked Savings Scheme (ELSS)

ELSS schemes are a specialised group of mutual funds that are eligible for tax deductions under Section 80C. They come with a minimum lock-in period of 3 years.

Also, there's an upper limit for the exemption provision. Under no circumstances, you can claim tax benefits on ELSS contributions exceeding Rs.1.5 Lakh for a single financial year. However, the Ministry of Finance introduced certain slight changes in ELSS tax slabbing in the Union Budget 2020.

As per the new rules, you can either opt for the old tax exemption regulations under Section 80C or you may prioritise the new flat tax scheme. The older rules will be advantageous when your annual income is within Rs.9 Lakh and as a result, the tax liability is already lower. 

5. Unit Linked Insurance Plan (ULIP)

Tax deductions on one ULIP depend on the funds they select and the proportion they pick. The sole reason to invest in Unit Linked Insurance Plans is that they produce more yield compared to other traditional insurance schemes.

In recent years, many people have considered initiating ULIP investments because of the associated tax benefits under Section 80C. Even after the new tax regime has crept in, no changes have been noticed in the deductions. Thus, you can claim tax exemptions on up to Rs.1.5 Lakh worth of premiums paid in a year.

6. Tax Saver Fixed Deposits

You can opt for a tax-savings fixed deposit that features a lock-in period of 5 years. It is among the best examples of tax-saving investments other than 80C which has no such stringent eligibility criteria.

However, there's an upper limit to investing in this type of fixed deposit. You cannot put more than Rs.1.5 Lakh in a single fiscal year and there is no provision for foreclosing a tax-saving FD.

7. National Pension Scheme (NPS)

One of the most popular government-regulated pension schemes, the NPS, allows all Indians to build a corpus for their retirement life. Anyone aged between 18 and 70 can apply for a NPS account.

What’s the best part about this scheme is that you can separately avail a Rs.50,000 tax deduction under Section 80CCD(1B). This is an additional benefit besides the standard Rs.1.5 Lakh deduction under Section 80C. 

8. Home Loan Principal Repayment

The principal component of a home loan EMI isn’t subject to tax deductions under Section 80C. However, there’s a maximum limit which is Rs.1.5 Lakh in a year.

To claim this benefit, you should own the house for at least 5 years. In case this condition is not met you will again be liable to pay the tax in the same year of property sale.

9. Sukanya Samriddhi Yojana

Legal guardians or parents of a girl child (of age less than 10 years) voluntarily invest in this scheme to strategically save for their education, marriage or other requirements. The interest income from this scheme is tax deductible as per Section 80C.

10. Senior Citizens Savings Scheme

The Senior Citizens Savings Scheme or SCSS is a government-controlled plan that aims to provide fixed income to individuals after their retirement. You have to keep investing in this scheme for at least 5 years to receive the maturity amount.

While making these contributions, you can include up to Rs.1.5 Lakh under tax-deductible income. Also, when the interest exceeds Rs.50,000 per year, then TDS is deducted from the recipient.

11. National Savings Certificate

As per Section 80C investment norms, the NSC attracts multiple tax benefits. Starting with the primary amount invested, here you can claim deductions for contributions made up to Rs.1.5 Lakh each year.

Also, the cumulative interest earned on an NSC is not subject to tax as per Section 80C provisions. This is because the interest keeps on getting reinvested throughout the investment tenure.

Finally, the net applicable interest on an NSC is deducted at the end of its maturity. Therefore, the beneficiaries can experience the deferred tax advantage for 5 years.

Also Read - What are the Tax Benefits of MSME in 2024?

How Much Tax Exemption Can Be Claimed Under Section 80C?

Under Section 80C of the Income Tax Act, you can claim tax-deductible income of up to Rs.1.5 Lakh annually. These claims can be filed individually as well as on behalf of a Hindu Undivided Family.

Apart from the investments listed above, you can include the following expenses under 80C:

• Tuition fees for up to 2 children
• Amount furnished as stamp duty
• Registration fee for a property

Nevertheless, the maximum cap of deductible income cannot go beyond Rs. 1.5 Lakh for a fiscal year.

Also Read - 9 Useful Income Tax Saving Tips For Small Businesses

To Conclude

Section 80C allows various payments to be included under tax deductions. Most of them involve contributions made towards home loan repayments, life insurance policies, and child's tuition fee payments. You can refer to the specifics and adjust your investments accordingly to enjoy the maximum tax benefits.

Disclaimer

This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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