Investments and expenses under section 80C allows various tax benefits, says Harjot Singh Narula.
With just a few days to go before the end of this financial year, most of us are in a rush to save tax. Both salaried and non-salaried taxpayers are looking for tax saving investment options.
While investing, you firstly need to assess the tax benefits and the return it offers.
When it comes to tax saving, you can avail maximum tax deduction up to Rs 1.5 lakh as permissible under section 80C of the Income Tax Act, 1961.
Section 80C allows various investments and expenses to offer you tax benefits.
Let us have a look on the tax saving investments under Section 80C:
1. Life insurance
The premium you pay for your life insurance is eligible to avail tax deduction under section 80C.
The maturity payout is exempted from tax under section 10 (10 D) along with provisions stated therein.
2. Contribution to Provident Funds
When it comes to provident funds, you may invest in EPF (employees' provident fund) or PPF (Public Provident Fund) schemes or both.
Under EPF, you and your employer make an equal contribution of 12 per cent of your basic salary plus dearness allowance.
You also have the flexibility to contribute the additional amount through voluntary contributions.
The entire accumulated corpus along with interest is payable to you as a lump sum at the age of retirement.
The return on investment on EPF for the financial year 2016-2017 is 8.65 per cent per annum.
The employer's contribution is tax free and employee's contribution qualifies for tax deduction under section 80C. The interest accrued will also be tax free in nature.
PPF serves as a long term investment option having a term of 15 years, which can further be extended in a block of five years.
The return on PPF investment for the January to March quarter under financial year 2017-18 is 7.6 per cent per annum.
The amount invested is eligible to avail tax deduction under section 80C up to Rs 1.5 lakh.
Interest earned is exempt from income tax and maturity proceeds are also exempt from tax.
3. Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana account is intended to help parents fulfill their daughter's education and marriage expenses. This account can be opened by parents or legal guardians for a girl child before her 10th birthday.
There is a flexibility to open the account for two girl children only.
The interest rate is revised for each year and for FY 2016-2017, it was 8.6 per cent.
The deposits made under this scheme qualify for tax deduction under section 80C. It also offers tax-free returns.
NPS (the National Pension Scheme) enables you to accumulate the retirement corpus, which can be used to achieve financial stability during your golden years.
You can withdraw a part of the corpus as a lump sum and buy an annuity from the remaining corpus to receive a regular monthly income post retirement.
The money is invested in equity funds, corporate, and/or government bond funds and the returns are market-linked. The investment made is eligible for tax deduction under section 80C.
You can also avail additional deduction of Rs 50,000 under section 80CCD (1B).
40 per cent of the entire accumulated NPS amount is tax exempted, when used to purchase an annuity and the rest of the amount is taxable.
The pension you receive is also taxable in the year of receipt.
NSC (National Savings Certificate) is issued by the India Postal Service for five and 10 year maturity period. The certificate can be used as collateral security to get loans from banks.
The rate of interest is 7.8 per cent per annum. You can avail tax deduction under section 80C for the investments made during a financial year.
If re-invested, the interest earned also qualifies for a tax deduction under section 80C.
ELSS (Equity linked savings scheme) is a mutual fund investment, and your money is invested in the equity market with an intention to give you higher returns.
ELSS investments are eligible to avail tax deduction under section 80C of the Income Tax Act. The returns under this investment are market-linked.
POSCSS (Post Office Senior Citizen Savings Scheme) is open for those who have attained the age of 60 years.
One who has opted for VRS or superannuation with age of 55 years but less than 60 years can also open the account.
This five-year Senior Citizen Savings Scheme earns an interest at a rate of 8.4 per cent per annum. Investments made under this scheme are eligible to avail tax deduction under section 80C.
8. Bank fixed deposit
Investing in a five-year bank fixed deposit lets you enjoy tax benefits under section 80C. The interest rate will vary, depending on the bank chosen.
9. Post Office Time Deposit
Having a five-year time deposit account in post office attracts tax benefits under section 80C. This investment offers an interest rate of 7.6 per cent.
10. Expenses to avail tax deduction under section 80c
a. Home loan
If you take a home loan to build a house or own a flat, the repayment provides you tax benefits as well. The payment of principal amount is eligible for tax deduction under section 80C.
The charges levied towards stamp duty and registration of the property is also tax deductible under section 80C. The payment of interest can avail tax deduction under section 24 of the Income Tax Act.
b. Tuition fees for children
The tuition fee paid to any educational institution in India for imparting education up to two dependent children can be availed as a tax deduction under section 80C of the Income Tax Act.
Section 80C offers a long list of investments which ensures you to save tax up to Rs 1.5 lakh against the invested money.
You should also ensure that the instruments you are investing with, offers tax-free returns that will multiply your savings and help you meet the financial goals as well.
Illustration: Uttam Ghosh/Rediff.com
Harjot Singh Narula is founder & CEO, ComparePolicy