Monday, February 6, 2017

13 ways to Save Income Tax under Section 80C in India

It's this time of the year when most of the salaried Indian think for tax saving investments. Most of the income taxpayers know about section 80C and the 1.5 lakh tax deductions it allows into your taxable income, but do you know what are some other investment options comes under section 80C? Some of you know that investment in PPF and ELSS (Equity linked Saving Scheme) comes under Section 80C, but what else? Is there any other tax saving options which you can leverage or you might have invested in it but you are not claiming the tax benefit because you are unsure whether that is covered under section 80C or not.

In this article, I am going to show 13 ways to save tax under Section 80C. It's good to know about it because if you have already spent money on any of them than you don't need to invest additional money for tax saving purpose on PPF, ELSS or tax saving fixed deposits.

13 Tax saving investment options under Section 80C

Section 80C is the most popular income tax section for tax saving. It allows many ways to save tax by deducting amount spent, invested or contributed at different schemes. Here are 13 common ways to save tax under Section 80C umbrella.

  1. Contribution to Employee Provident Fund (EPF)
  2. Contribution to Voluntary Provident Fund (VPF)
  3. Contribution to Public Provident Fund (PPF)
  4. Superannuation
  5. Life Insurance Premium
  6. Equity Linked Saving Schemes (ELSS)
  7. National Saving Certificates from Post offices (NSC)
  8. Children Education Fees
  9. ULIP
  10. Tax Saving Fixed Deposit
  11. Housing Loan Principle Repayment
  12. Sukanya Samriddhi Yojna
  13. National Pension Scheme
Let's see each of these tax saving investment options in little bit details.

In EPF, a fixed contribution, a percentage (12%) of the employee's salary is being credited to the employee's provident fund account to the employee and an equal contribution is made to the employee's account by the employer. You can also check your EPF balance online by visiting their official site as shown here.

Voluntary PF is a provision for an employee in which the employee can increase his contribution apart from his regular contribution to his PF account. Please note that the employer's contribution is fixed and remains the same even if Akash increased his contribution to his PF account.

Public Provident Fund is similar to EPF but opened and maintained by individual itself. PPF is an instrument offered by the government of India for long-term investment and it's extremely safe, secure and backed by the Indian government. Unlike EPF, which is only for employees, anyone can open PPF account with banks. See this article to learn more about difference between PPF and EPF.

Superannuation is a retirement Benefit by the employer . It is a contribution made by employer each year on your behalf towards the group superannuation policy held by the employer.

Life Insurance Premium
You can claim the tax rebate on life insurance premium for yourself and your family. If you have bought an LIC policy or term insurance plan from any private insurance provider e.g. ICICI Lombard or Max Life or Bharti AXA then you can claim the premium of your life insurance policy to deduct from taxable income. This tax deduction also falls under section 80C umbrella.

ELSS or Equity Linked Savings Scheme is an Equity Mutual Fund. Investment in ELSS funds is eligible to be claimed as a deduction under section 80C. These funds have a 3-year lock-in period but the returns are tax-free as they come under long term gains. This is a major benefit as compared to other similar tax saving options like NSC or ULIP.

Recently I had received an email from Birla Sun life Tax saving fund, where I have some investment. They have summarized the benefits of major tax saving options in section 80C nicely as shown below. This table will help you to decide where to put your money. Despite market risk ELSS outperforms other tax saving options on returns. The good thing is NRI can also invest in ELSS as NRI cannot open new PPF account thing is NRI can also invest in ELSS as NRI cannot open new PPF account.

12 ways to Save Income Tax under Section 80C for Investment

National Savings Certificate e.g. NSC VIII issue and IX issue are eligible for deduction in the year of purchase. These can be bought from designated Post Office. Accrued Interest (which is considered reinvested) qualifies for deduction during the term of the NSCs (except the last year).

Children Edutioncation Fees
If you have children going to school, including play school, pre-nursery or nursery then you can claim their tuition fees under section 80C. As per Income tax, tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children.

ULIP (Unit Linked Insurance Plan)
ULIPS sold with life insurance cover for deduction under section 80C. Includes Contribution to Unit Linked Insurance Plan of LIC Mutual Fund e.g. Dhanraksha 1989 and contribution to Other Unit Linked Insurance Plan of UTI.

Tax Saving FD
Tax-saving fixed deposits are a special type of FD which has 5-year locking period but allow you to save up to 1 lakh rupees on taxable income. All major banks e.g. ICICI, Axis Bank, HDFC Bank, Kotak Bank, SBI, Bank of Baroda all provide tax saving fixed deposit. Just compare their interest rate and open where you find the best rate or open via net banking in your existing bank. Don't go for 0.5% extra if it's not convenient to manage. See here to learn more about fixed deposits investment.

Housing Loan repayment
Payments of installments or part payments or repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for the purpose of transfer of such property to the assessee. However, if the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income so allowed for various years shall be liable to tax in that year.

Sukanya Samriddhi Yojna
A maximum of Rs 1,50,000 can be deposited in the Sukanya Samridhi Account for a girl child. The amount deposited shall earn an interest of 9.1% (for the financial year 2014-15). This interest is fully exempt from tax. A minimum of Rs 1,000 must be deposited in a year. Receipts on maturity from the account are tax-free. To learn more see here.

National Pension System (NPS)
NPS is super special, it not only allows you to invest under section 80C but also it allows additional investment of 50,0000 INR under section 80CCD(2). Another good thing about NPS is that even NRI can invest in NPS for tax saving purpose.

If you have not exhausted your 80C Limit than you can invest up to 10% of basic salary through the employer. This is exempt from tax under section 80CCD(2).

You can also invest up to Rs 50,000 INR on your own. This is exempt from tax under section 80CCD(1B) over and above section 80C, and last but not the least You can invest 10% of basic salary or total gross income on your own. This is exempted from tax under 80CCD(1) within Rs 1.50 lacs limit under section 80C. See here to learn more about how to save more tax using NPS.

That's all about 12 tax saving investment options which allow tax deductions under section 80C. If you know any other investment option under Section 80C which is not in this list, then please suggest and I'll include it. Remember, the 1.5 lakh benefit is not just for section 80C but also clubbed with investments made under section 80CCC and 80CCD.

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