Two sisters, Nisha and Meera huddled over a discussion regarding finance. Meera, the elder one, was all the time on the lookout for distinct ways to save taxes, while Nisha, the younger and carefree sibling, listened intently.
Meera said, “Nisha, have you thought about leveraging Section 80C? It is an essential thing to consider when it is about saving your tax.”
Nisha was puzzled. “Section 80 C? What is this?”
Meera said, “It is a section that permits you to deduct investments made in specific financial products from your overall income. This infers less taxable income and more funds in the pocket.”
Nisha’s eyes widened, “Tell me more!”
Meera continued, alright, “There are distinct investment choices as per Section 80C and if you plan this out strategically, you can enhance your benefits. Let’s understand.”
PPF (public provident fund)
The PPF is a long-term financial avenue highly known for its tax-free interest. With a minimum tenure of 15 years, this acts as a secure option for risk-averse investors. Contributions towards PPF qualify for deductions as per Section 80 C.
EPF (employee provident fund)
EPF is a retirement benefit scheme where both employers and employees contribute a part of their salary. Contributions towards EPF qualify for deduction as per Section 80 C, offering individuals with dual advantages of tax benefits and retirement savings.
five-year FD (fixed deposit)
Investing in FD with a lock-in equaling five years is a popular choice for tax saving. While the interest generated is taxable, the principal constituent invested qualifies for deduction as per Section 80C.
Life insurance premiums
Premiums paid for insurance policies, involving endowment and term plans, qualify for tax deductions as per Section 80 C. To get tax benefits, the sum assured must be at least ten times the annual premium.
National savings certificate (NSC)
NSC is a low-risk fixed-income investment having a fixed tenure. The interest accrued gets reinvested and qualifies for tax deductions as per Section 80C, making it an enticing choice for conservative investors.
Senior citizens savings scheme (SCSS)
Designed for individuals aged 60 and more, SCSS offers regular interest payouts. The invested money qualifies for tax deduction as per Section 80C, providing a suitable avenue for senior citizens.
Sukanya samriddhi yojana (SSY)
SSY is aimed at securing the girl child’s future. With a tenure until the girl enters the age of 21, contributions to this scheme qualify for the benefits of Section 80C.
Equity-linked savings scheme (ELSS)
ELSS is a kind of mutual fund with a three-year lock-in. It provides the twin benefits of potential capital growth and tax savings as per Section 80C, making it an extremely prudent option for long-term investors.
National pension system (NPS)
NPS is a long-term and voluntary retirement savings scheme with market-associated returns. Contribution to NPS, involving those under Section 80CCD, qualify for tax deductions, encouraging systematic planning for retirement.
Unit linked insurance plans (ULIPs)
ULIPs blend insurance with investment in capital markets. Premiums paid for ULIPs qualify for tax deductions as per Section 80C, offering individuals investment growth and insurance coverage.
Tax-saving fixed deposit
Fixed deposits having a lock-in period equaling five years from financial institutions and banks qualify for Section 80C benefits. While the interest earned is taxable, the principal constituent enjoys deductions.
Infrastructure bonds
Investing in government-approved infrastructure bonds is eligible for a deduction of Section 80C. Such bonds typically come with a lock-in period, endowing long-term investment in infrastructure developments.
Tuition fees
Section 80C permits the deduction of tuition fees paid for up to two kids in any educational course. This involves expenditures for university, college, school, or any educational institution.
Home loan principal repayment
The principal constituent of your EMIs for a home loan is eligible for deduction as per Section 80C. This incentive aims to promote home ownership and allows timely repayment of home loans.
Post office time deposit
Fixed deposits offered by the post office with a fixed tenure are eligible for Section 80C. While the interest constituent is taxable, the principal constituent invested qualifies for tax deduction.
Rajiv Gandhi equity savings scheme (RGESS)
RGESS is created for first-time equity investors, endowing a tax deduction as per Section 80CCG. It aims to promote equity investment among amateur investors.
Notified pension funds
Pension plans provided by mutual funds qualify for deduction as per Section 80C. This encourages individuals to plan out for their retirement by investing in pension funds.
Principal repayment on housing loan
The principal constituent of your home loan EMI is eligible for tax deduction as per Section 80C. This allows individuals to invest in real estate and offers tax benefits on repayments of home loans.
Tax-saving bank FDs
Fixed deposits with a lock-in equaling five years from financial institutions qualify for deduction as per Section 80C. While the interest constituent is taxable, the principal constituent invested enjoys tax benefits, making it an important choice for risk-takers.
National savings scheme (NPS)
The national savings scheme is a government-backed savings program that encourages disciplined long-term savings for retirement. Contributions to NPS, under Section 80CCD, are eligible for deduction, providing individuals with an additional avenue for retirement planning.
Fixed maturity plans (FMPs)
FMPs are close-ended debt funds that have a fixed maturity date. FMP investments with a lock-in period qualify for the benefits of Section 80 C, offering a fixed-income financial option.
Investment in ELSS (equity-linked savings scheme) through SIPs
ELSS investment can also be performed through SIPs. ELSS SIP has a lock-in of only three years and every SIP instalment qualifies for tax deductions as per Section 80C. This approach taken systematically to equity investing blends the benefits of tax savings and rupee cost averaging.
Nisha as was overwhelmed with Section 80 C options, asked, “How do I select among these?”
Meera explained, “It is based on your goals, risk appetite and repayment tenure you are comfortable with. Diversifying throughout distinct instruments is even an excellent strategy.”
So, if you are one of those eyeing on to leverage Section 80C, then considering diversifying across the above-mentioned instruments.