There are a lot of schemes to reduce taxes. But, tax planning is usually not the priority for many people. Investing in the first quarter of the fiscal year is best. This gives you the time to make wise plans. You also get the advantage of the best returns from most tax-saving investments.
Most experts agree that the 80C investment scheme is an ideal way for it. This article will discuss the best income tax saving options under this section. But before we get into that, let’s briefly discuss Section 80C.
Section 80C is a clause in the Income Tax Act of India about various investments and expenditures that are exempted from Income Tax. With these deductions, you can save income tax up to ₹1.5 lakh per year. Section 80C investment exemptions for Fixed Income products are:
- Public Provident Fund
- Provident Fund
- National Saving Certificate
- NHB deposit scheme
- Tax Saver Bank Fixed Deposits for 5 years
- Post Office Time Deposit for 5 years
- Senior Citizen Saving Scheme
Save Income tax on these market-linked products
- LIC premium
- New Pension Scheme
- Atal Pension Yojana
- Sukanya Samriddhi Yojna
- Equity Linked Savings Scheme
- Unit Linked Insurance Plan
- Pension Plans from Insurance Companies
Exempted expenditures are:
- Tuition fee for 2 children
- Home Loan Principal Payment
- Stamp duty and registration cost of the House
Understand Some Tax Saving Options Under 80C
Public Provident Fund:
Every three months, the interest rate on the PPF balance is reset. Despite this, its risk factor is fairly low. You are allowed partial withdrawals after seven financial years. But you can make only one withdrawal per year
- Interest Rate: It changes every three months. Currently, it’s set at 7.10%.
- Limit for Investment: You can invest in a range of Rs. 500 to Rs. 1.5 lakh annually.
- Maturity Period: PPF has a maturity period of 15 years. It can be extended by 5 years.
- Tax Benefits: The interests and returns are tax-free.
- Eligibility: Resident Indians, salaried and non-salaried people can open the account. HUFs (Hindu United Families) are not eligible for PPF accounts.
Unit Linked Insurance Plans:
Besides tax savings, ULIP enables people to earn substantial returns on their capital over long periods. To put it simply, this 80c investment exemption provides insurance as well as tax benefits. The current ULIPs by insurance firms come with no premium allocation or administration fees. This improves returns for investors.
- Return Rate: It ranges from 12% – 14%. Returns are tax-exempted under Section 10(10D) of the IT Act.
- Interest Rates: Due to the connection with the market, the interest rates of ULIPs vary a lot.
- Investment Limits: There are no such defined limits for ULIP investments.
- Eligibility: You can obtain ULIPs for yourself, your life partner, or your children.
- Taxes: If you pay an insurance premium of ₹ 2.5 lakh or more in any year, then the maturity amount will be taxable. This also applies if you buy multiple ULIP plans and pay more than ₹ 2.5 lakh.
- Maturity Period: ULIPs have a 5-year lock-in period.
ELSS (Equity – Linked Saving Scheme) Mutual Funds:
The ELSS is an excellent 80C investment option. You can benefit from tax advantages on the amount given to the fund.
Since the money is put in equity funds, it gives better returns. Remember that equity investments are subject to market dangers. It is advised to choose your investments wisely. This will prevent losses that can’t be recovered. Despite some risks, ELSS is still the most popular tax-saving investment.
- Maturity Period: ELSSs have the lowest lock-in period of them. It is fixed at a maximum of 3 years.
- Interest Rate: They don’t have fixed interest rates due to market changes.
- Tax Deduction and Return Rates: You can avail of tax deductions up to Rs. 1.5 lakh. The return rate for ELSS is the highest among all schemes under 80C. Over a decade, it has provided a return of nearly 12%.
- Investment Limit: There is no upper limit on ELSS investment.
- Eligibility: Salaried individuals and HUFs can invest in ELSS.
Tax Saving Fixed Deposits (FDs):
They provide tax-free income as an investing strategy. This plan is ideal if you prefer low risks and wish to save money over the long term. Individuals who invest in bank FDs receive a guaranteed return on their money. They also get investment security. Their money is locked in for the entire term.
- Maturity Period: The lock-in period for Tax-Saving FDs is 5 years. Premature withdrawal isn’t allowed in this case.
- Interest Rate: It usually varies from 6.5- 7.65%.
- Tax Reduction: Only the interest earned on them is taxable. You can get income tax deductions up to ₹ 1,50,000 annually under Section 80C of the IT Act, 1961.
- Eligibility: Only resident Indians can avail of them.
Sukanya Samriddhi Yojana:
The Indian government launched it under the “Beti Bachao Beti Padhao” campaign. Its goal is to give financial support for the well-being of girls. It is focused on their education, employment, and overall betterment.
- Investment Limit: Maximum limit for investment is ₹ 1.5 lakh per year. The least amount you can pay annually is ₹ 250.
- Eligibility: The SSY account can be set up by the parents of the girl. It must be done before she turns 10 years old.
- Maturity Period: The lock-in period for an SSY account is 21 years. Premature withdrawal of up to 50% is allowed. But, it can be done only after the girl becomes an adult.
- Tax benefits: Under 80C, there is no tax on the annually compounded interest. The same goes for the sum received when the account expires.
- Interest Rate: The interest rate for the SSY scheme is 7.60%
The article above has explained the best tax saving schemes under Section 80C. All of them differ from each other in terms of:
You need to be thorough with the policy terms of these instruments. This way, you can make an informed choice for a tax deduction. It is prudent to seek help from a financial advisor for this. Piramal Finance will provide you with some of the best financial tips and guides. It’ll be our sincere pleasure to help you out.