Check S.I.P. Tax Benefits Under Section 80C

Nobody likes paying taxes, this is a reality that is not even harsh. What if we told you there is a way in which you can not only save taxes but do it while investing your money and making it grow as well? Sounds too good to be true? It is not. Read on to find more details.

Section 80C Tax Deductions

A Systematic Investment Plan (S.I.P.) is a method of investing your money wherein you invest a specified amount of money in an investment scheme at regular intervals. Under Section 80C of the Indian Tax Act, 1961, if you invest your money in investments that are eligible for tax deduction under the section, the amount you have invested will be deducted from your total taxable income for the year. Of course, not every investment scheme is eligible for deduction. So, what are the investments eligible for this tax benefit? Let’s discuss.

Eligible SIP Investments Under Section 80C

As mentioned earlier, not all investments are eligible for tax deductions. Following is a list of all the investments that are eligible for tax saving under Section 80C of the Indian Income Tax Act, 1961.

1. Public Provident Fund (P.P.F.)

P.P.F. is a long-term retirement savings option. It has a minimum lock-in period of 15 years, extendable in multiples of 5 years. There is a guaranteed interest rate (currently 7.1%) and the gains earned are tax-free.

2. Employee Provident Fund (E.P.F.)

Money accumulated in E.P.F. is also eligible for tax deduction at the end of the year. E.P.F. earns a guaranteed interest notified at the beginning of the financial year and it is currently 8.25%. It has a lock-in period of 5 years and the gains on E.P.F. are also tax-free.

3. National Savings Certificate (N.S.C.)

N.S.C. is a fixed-income investment with a lock-in period of 5 years. The money invested in N.S.C.s are eligible for tax deductions under Section 80C and currently, a 7.7% interest rate is being offered on investments. However, the gains earned on them are added to your income and hence, are not tax-free.

4. Sukanya Samriddhi Yojana (S.S.Y.)

S.S.Y. was launched under the Beti Bachao, Beti Padhao Campaign in 2015, as a government-backed savings scheme for the welfare of girl child. It can be opened for a girl child before she turns 10 years of age and the money invested in it is eligible for tax deduction under article 80C. It is a fixed-income investment scheme and offers an interest rate of 8.2%. The interest earned on S.S.Y. is also tax-free.

5. 5 Year Tax Saving Fixed Deposit

These are bank deposits for a 5-year term and their savings (only up to ₹1.5 Lakhs in a financial year) are eligible for tax deductions. Although the tax offered on such Fixed Deposits varies from bank to bank, it typically ranges from 5.5% to 7.75%. Since the gains on these deposits are added to your income, they are not tax-free. 

6. Senior Citizens Saving Schemes (S.C.S.S.)

S.C.S.S. is a fixed-income investment scheme for individuals who are at least 60 years of age. It has a lock-in period of 5 years and can be extended only once by 3 years. The interest rate offered on S.C.S.S. is 8.2% currently. 

7. Equity Linked Saving Scheme (E.L.S.S.)

E.L.S.S. is a Mutual Fund Scheme investing at least 80% of its pooled funds in equities and money invested in E.L.S.S. is eligible for tax deduction under Section 80C. As the scheme predominantly invests in equities, there is no guaranteed return, rather it depends on the market. The lock-in period is 3 years 

8. National Pension System (N.P.S.)

N.P.S. is a voluntary retirement scheme to create a pool with which to draw your pension, available to all Indian citizens between the ages of 18 and 65 years old. Investments under Tier 1 of the N.P.S. are eligible for tax deductions under Section 80C of the Indian Tax Act. Although, like other schemes, the maximum investment that can be made for which tax deduction can be claimed is ₹1,50,000 per year, in N.P.S., an additional deduction for investments up to ₹50,000 per year can be claimed under Section 80CCD (1B). Thus, the maximum limit for which tax deduction can be claimed under N.P.S. is ₹2,00,000 per year. On top of that, the gains earned on N.P.S. as well as the final sum created as pension are all tax-free. 

9. Life Insurance Premiums, Pension Plans and U.L.I.P.s

Money paid as premium towards these insurance schemes on behalf of yourself, your spouse and your children is also a payment for which tax deductions can be claimed under Section 80C. Further, the gains earned are also tax-free under Section 10(10)D if the premium is under 10% of the sum assured. In case the premium is more than 10% of the sum assured, a deduction equal to only up to 10% of the sum assured can be claimed under section 80C. 

10. Repayment of Home Loan

Money paid towards the repayment of the principal amount of a home loan is also eligible for tax deduction under Section 80C including money paid towards stamp duty and registration. 

11. Children’s Fees

Money paid for admission of your children (up to 2 children) to full-time courses in Indian schools, colleges or universities can be claimed for tax deduction under Section 80C.

12. Infrastructure Bonds

If you invest in government-approved infrastructure bonds, you can claim tax deductions under Section 80C sub Section 80CCF. The deduction limit is up to ₹20,000/year and applicable on long-term bonds with a minimum tenure of 10 years and a lock-in period of 5 years. It fetches an interest income as per a fixed interest rate, but the gains are not tax-free. 

Maximum Deduction Limit Under Section 80C

As you might have understood already, the maximum limit for which tax deduction can be claimed is ₹1,50,000 per financial year. However, only under the National Pension Scheme, an additional tax deduction for investments up to ₹50,000 per year can be claimed under Section 80CCD (1B),  making the total limit ₹2,00,000 per year, but

How S.I.P. Investments Qualify for Tax Benefits

As we have mentioned, S.I.P. Investments in Mutual Funds can be qualified for tax savings under Section 80C of the Indian Income Tax Act, 1961 if the Mutual Fund is an Equity Linked Saving Scheme. These invest at least 80% of their fund corpus in equities and have a minimum lock-in period of 3 years. They bear a higher risk than the other eligible schemes, as they do not invest majorly in fixed-income securities, but at the same time offer a comparatively higher return too.

Advantages of S.I.P. Investments For Tax Saving

Investing in E.L.S.S. brings twice the benefit. Investing your money makes it grow while the money invested in the financial year (as long as it is within 1.5 Lakh per year) is deducted from the year’s taxable income.

How To Claim Tax Deductions For S.I.P. Investments

• Documents: The necessary documents are mainly your proof of investment. This includes receipts, certificates, bank statements etc.
  Another required document is a PAN Card. Form -16 may be required too.

• Calculating Deductions: Calculate the total amount of money spent/invested in all the eligible avenues discussed above. Remember, the maximum limit is ₹1.5 Lakh per year with N.P.S. being the only exception.

• Claim Deductions: While filing your income tax return for the financial year, declare your eligible investments and expenses in the relevant sections.

Frequently Asked Questions

Ques 1. Who is eligible for tax benefits under Section 80C of the Income Tax Act?

Ans. Individuals, both Indian Residents and N.R.I.s, Senior Citizens, and Hindu Undivided Families.

Ques 2. Can I invest in different avenues and still claim tax benefits under Section 80C?

Ans. Yes. The sum of all investments made within the financial year is eligible for tax deductions, as long as it is invested/spent in the avenues we have mentioned above and is within the limit of ₹1.50,000.

Ques 3. When are these tax deductions claimed?

Ans. You can claim the tax benefits under Section 80C at the end of the financial year while filing your Income Tax Returns.

Ques 4. Are life insurance premiums paid to private insurance aggregators also eligible for tax benefits under Section 80C?

Ans. Yes. As long as the insurance aggregator is recognised by IRDAI (Insurance Regulatory and Development Authority of India), premiums paid towards the life insurance issued by them are eligible for tax benefits under Section 80C.