Visualise this:
With each fiscal year, you resist doing tax-saving activities, realising at the end of the year that you now have to invest to save taxes. Upon realising this, you decide to visit or call your bank but get befuddled by the host of tax-saving products offered. Moreover, being a non-finance person, you find it challenging to understand the different financial jargons.
Does this seem too relatable? Well, fret not because you won’t be the only one who gets inundated with such information. However, it is of utmost importance for you to comprehend the nitty-gritty of tax planning, as this assists in saving a substantial amount of your income.
All this brings us to the discussion about Section 80C which is the most common deduction available under the Income Tax Act. Here is how it works and helps an individual save tax in a financial year.
The Provision Most Valued by Taxpayers
The Government of India levies taxes on incomes generated in the country per the regulations under the Income Tax Act, 1961. This tax is imposed on individuals, Hindu Undivided Families (HUF), firms, companies, LLPs, a body of individuals, or other artificial juridical people. However, the Income Tax Act also puts forth specific tax exemptions to reduce these liabilities, which aid taxpayers to save a substantial amount on their income tax payments. These exemptions fall under Section 80C of the Act.
Under this section, you get multiple instruments to avail a collective tax saving of a sizable quantum. With the provisions for savings under 80C, you can save up to ₹1,50,000 + ₹50,000 from various schemes. However, do note, the tax deductions under Section 80C are applicable only for individuals or members of HUF and are not open to companies, partnerships, or other corporate bodies.
10 Tax-saving Deductions Under Section 80C
Section 80C of the Income Tax Act enables you to reduce your taxable income by ₹1.5 lacs in a financial year by offering options to invest your money in different tax-saving instruments. Consider this, for an income of ₹10 lacs, the income tax you would pay amounts to ~₹1.17 lacs. However, if you opt for investment under 80C tax-saving instruments mentioned in the following section, your reduced taxable income would be ₹8.5 lacs, cutting down your income tax liability to ₹85,800. Now, you can comprehend how significant a savings of ₹31,200 is!
Following are the 10 instruments which qualify for deductions under 80C. They differ considerably in risk, returns, and maturity, hence, you should choose the one that suits your needs the best.
- Equity Linked Saving Scheme (ELSS)
- National Pension Scheme (NPS)
- Life Insurance Premiums
- Public Provident Fund (PPF)
- Five-Year Bank Deposit
- Unit-Linked Insurance Plans (ULIPs)
- Employees’ Provident Fund (EPF)
- Sukanya Samriddhi Yojana
- Senior Citizens Savings Scheme
- National Savings Certificate
Payments Eligible For Tax-Saving Under Section 80C
Apart from the tax-saving investments , there are a few payments that qualify for tax saving deductions under Section 80C. To understand these options, ask yourself the following questions:
1.Do you own a Life Insurance Policy?
If yes, the annual premium paid for your life insurance or in the name of your wife and children is an eligible tax-saving payment under Section 80C. However, it is valid only if the premium amounts to less than 10% of the sum assured. For instance, if you pay a premium of ₹1,00,000 on a life insurance policy with a sum assured of ₹5,00,000, you will be eligible to claim a deduction of ₹50,000 (10% of ₹5,00,000), and not for the entire premium of ₹1,00,000.
2.Do you have children pursuing education?
If yes, the tuition fee (up to ₹1.5 lacs) for two of your children falls in the 80C deduction list. The fee can be paid for a full-time course from any school, college, university or educational institute situated in India.
3. Do you need to repay a home loan?
If yes, the repayment of the principal of loans taken to buy or construct a residential property qualifies for an 80C deduction.
In a nutshell, no matter what you earn, you can save a considerable amount by strategically planning your investment. With the above-mentioned tax-saving investments and deductions under Section 80C, you can explore endless possibilities payment can be significantly reduced. So, before filing your income tax returns , double-check the provisions to get the most out of your 80C deductions.
