It is close to the financial year end and people may be scrambling to save tax as best as they can.The most utilised tax saving section is 80 C, which has a limit of Rs. 150,000 p.a. for the financial year. If Investments are (or in some cases expenses) are made in instruments which are eligible then investors gets a deduction from their taxable income and thereby reduce their tax liability. A word of caution, all investments have to be made before 31st march, i.e. before the end of the financial year.
A short guide to Investments eligible for deduction u/s 80C listed below.
Investments in Public Provident Fund (PPF)
A maximum of Rs 150000 can be deposited in PPF and claimed as a deduction in one financial year. PPF carries an assured interest; current interest is at 8% that is compounded annually. The PPF has a tenure of 15 years, after which the withdrawals and interest are tax-free.
PPF is sort of illiquid and allows partial withdrawals after the account has completed 6 years. The withdrawal can be a maximum of 50% of the closing amount at the end of the 4th year. The depositor can take loans against the corpus after 3 years in their PPF account.
PPF allows a minimum investment of Rs 500; deposits can be made in lump sum or in a maximum of 12 instalments.
Investments in ELSS funds
ELSS stands for Equity Linked Savings Scheme of mutual funds. These are equity oriented mutual funds with at least 65% of their assets in equities. Investments of up to Rs 1.5 lakh in ELSS funds can earn a tax break under Section 80C. Once invested in ELSS there is a lockin of three years and investors cannot withdraw funds from them.
ELSS can save tax and grow your savings more rapidly at times when capital markets are in good stead and are likely to give good returns.
Investment in National Savings Certificates (NSC)
NSCs are eligible for tax breaks up to Rs 100000 under Section 80C. NSCs can be bought from designated post offices and come with a lock-in period of 5 years.
The interest is compounded annually but is taxable, but without TDS. The current interest rate for FY2016-17 on NSC is 8.1%.
Investments in Tax-saving Fixed Deposits (FD)
Like a regular fixed deposit, there are specific FDs with banks which are eligible for tax savings. They come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 150000.Interest on them will be taxable and subject to tax deduction at source. Rate of interest varies depending on the time of investment and the investor should check at different banks to get the best possible rate.
Investments in Senior Citizens Savings Scheme (SCSS)
For investors above 60 years of age or for anyone above 55 who has opted for retirement can invest in SCSS.The scheme has a maturity period of 5 years and currently gives 8.5% per annum. Interest is paid out quarterly, is taxable and subject to tax deduction at source. Investments of up to Rs 1.5 lakh in SCSS can be made to save taxes under Section 80C.
Maximum deposit in SCSS is Rs. 15 lakhs.
Investments in Sukanya Samriddhi Yojana
This is deposit made in the name of the girl child,made by the parent or guardian. Deposits up to Rs 150000 added to a Sukanya Samriddhi Yojana account for eligibility for tax saving under Section 80C. The current interest rate for on Sukanya Samriddhi Yojana deposits has been set at 8.5%..
The interest is compounded annually and is fully exempt from tax. The receipts upon maturity are also tax-free. The Sukanya Samriddhi Yojana account matures 21 years after opening the account. A partial withdrawal of up to 50% of the previous year’s balance is allowed after the account holder turns 18 and premature withdrawal possible under special circumstances.
Life Insurance premium
The annual premium paid for life insurance in the name of the taxpayer or his spouse and children is an eligible tax-saving payment under Section 80C up to Rs150000. The deduction is valid only if the premium is less than 10% of the sum assured. Investments in Unit linked Insurance plans also eligible up to Rs.150000 u/s 80C.
Repayment of home loan
The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C upto Rs. 150000. This deduction is also applicable on stamp duty, registration fees and transfer expenses.
Children’s tuition fees
Tuition fee paid for the education of two children in India is eligible for tax deduction under Section 80C of up to Rs 150000. The fee can be paid to any school, college, university or educational institute for a full time course.
Some other options..
- Taxpayers contribution to the Employee Provident Fund (EPF)
- Investments in National Pension System (NPS)
- 5 year time deposit scheme in post office
- Contribution to a notified LIC annuity plan
- Subscriptions of notified securities like NSS
- Sum paid to National Housing Bank’s Home Loan Account Scheme
- Subscription to notified bonds of National Bank for Agriculture and Rural Development
Although caution is taken while researching the data it is advisable to check with your tax consultant before investing.