How to Make Best Use of Section 80C

Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act. However, it is important to know the Section in to so that one can make best use of the options available for exemption under income tax Act. One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions. Here are some tips for you : -

    1. Home Loan :
      • There is a provision that the payment made for repayment of the principal amount (not interest payment) of the Home Loan is eligible for a deduction under Section 80C if you have taken a home loan and you fulfill certain conditions.
    2. Payment towards Education Fee of the children :
      • Most of the young couples and middle aged income tax payee incur quite high payments towards the education fees of their children. The expenditure incurred on education fees is also eligible for a deduction under Income Tax Act, Thus, if you are incurring expnediture towards educatin fee of your children, please check whether these are eligible for deduction under the IT Act.
    3. Payment towards Provident Fund :
      • Salaried income tax payee are usually have a forced saving which are eligible for deduction under section 80C. A fixed percentage of basic salary (ranges from 8.33% 12%) is deducted by your employer towards the Employees Provident Fund (EPF). Some employers allow higher deduction towards EPF. Thus, you should first of all check the total amount that is expected to be deducted towards EPF during the financial year. The total amount deducted from your salary will be eligible for investments under Section 80C.
    4. Interest on National Saving Certificates :
      • In case you have purchased NSCs during some earlier years, then the accrued interest as per the tables released by authorities is eligible for deductions under Section 80C.
  • Always Check the Lock-In Period of the Investments
    • Tax saving investments have a minimum lock-in period i.e. the period during which withdrawals are usually not allowed. If the same are withdrawn, these will be taxable in the year of withdrawal. For example, National Savings Certificates (NSC) have a lock-in period of six years, Public Provident Fund (PPF) has a lock-in of 15 years, Equity Linked Saving Schemes (ELSS) have a lock-in period of three years. Insurance policies have even greater period of lock in.
  • Always Check Whether the investment you intend to make will meet your goals :
    • You are saving every year and while saving you normally have some goal in mind, e.g. to meet the expenditure on education of children, purchase of a vehicle or house or marriage of your children. Therefore, you should always look at the investments from the angle whether it will meet your specific requirements on maturity. You should also try to diversify your savings in different instruments.
    • For instance, if you have already invested a fair portion of your money in equity (shares and mutual funds that invest in shares), avoid an ELSS. Opting for an ELSS means a huge portion of your investments will be in equity and that may not be what you want.
  • Background to Section 80C in the Income Tax Act OR KNOW EVERYTHING ABOUT SECTION 80C OF INCOME TAX ACT - INDIA:
    • Earlier there used to be Section 88 providing certain tax benefits. However, now Section 80C has replaced the old Section 88. However, the investment mix available in Section 88 has remained more or less the same. The new section 80C became effective w.e.f. 1st April, 2006. Moreover, earlier section 80CCC on pension scheme contributions has also been merged with the new 80C. However, unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.
    • The total limit under this section is Rs 1.5 lakh. Most of the lower and medium Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act.
    • A review of the various options for savings under section indicates you can not only save tax by investing your savings in specified investment options, but also on certain types of expenditure which you have to normally incur. Therefore, it is necessary to understand the full section so that in case you are short of funds, you can claim tax benefits even for certain expenditure incurred by you.
    • There are many small savings schemes like NSC, PPF Tax Saving FDR and other pension plans which are eligible under this Section. Moreover, the payments towards the principal amount of housing loan are also eligible for an income deduction. Similarly, there is provision wherein the payments made towards education fees for children are also eligible for an income deduction
    • Sec 80C of the Income Tax Act states that qualifying investments, up to a maximum of Rs.1.5 Lakh, are deductible from your income. Thus, it means actually your income gets reduced by this investment amount (up to Rs.1.5 Lakh), and you end up paying no tax on it at all!
    • As the benefits under Section 80C are available across all income levels, thus, people who are in the highest tax bracket of 30%, save higher tax.
  • Saving Scheme Sec. under which Tax Benefit available Return Tax benefits for earnings Lock in Period
    • National Saving Certificates Section 80C 8.00% Nil 6 years
    • Equity Linked Savings Schemes (ELSS) Section 80C Varies from year to year Dividend is tax free 3 years
    • Life Insurance Policies Section 80C Varies from year to year Varies from scheme to scheme Varies from scheme to scheme
    • Unit Linked Insurance Plan (ULIP) Section 80C Varies from year to year Varies from scheme to scheme Varies from scheme to scheme (15 to 20 years)
    • Infrastructure Bonds Section 80C 5% to 6% Nil 3 to 5 years
    • Contribution to EPF / GPF Section 80C 8.50% Interest earned is tax free Till retirement (loans are permitted)
    • Public Provident Fund (PPF) Section 80C 8.00% Interest earned is tax free 15 years and extendable. Withdrawals allowed after 7 years.
    • Interest accrued in respect of NSC VIII issue Section 80C 8.00% Nil Till maturity of NSCs
    • Tuition Fees including admission fees or college fees paid for full time education of any two children of the assessee. Section 80C Not applicable Not applicable Not applicable
    • Repayment of Housing Loan (Principal) Section 80C Not applicable Not applicable Not applicable
    • Bank Fixed Deposits (from financial year 2006-07) Section 80C Varies (around 6.00%) Nil 5 Years
    • Senior Citizens Savings Scheme 2004 (from financial year 2007-08) Section 80C
    • Post Office Time Deposit Account (from financial 2007-08) Section 80C


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