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How To Save Tax Under Section 80C?

Section 80C of the Income Tax Act came into effect on 1 April 2006. It basically allows certain expenditures and investments to be exempt from tax. If you plan your investments well and spread them intelligently across different investments such as PPF, NSC, etc., you can claim deductions up to Rs.1.5 lakh, thereby lowering your tax liability.

Deductions On Investments Under Section 80C Of The Income Tax Act

Here are the various investments you can make to save tax under Section 80C of the Income Tax Act:

  • Provident Fund: Provident Fund is automatically subtracted from your monthly salary. An employee and his/her employer both contribute towards PF. While the contribution made by the employer is exempt from tax, the contribution made by the employee is eligible for deductions under Section 80C of the Income Tax Act. Employees are also allowed to make voluntary contributions towards the Provident Fund Account. Voluntary Provident Fund or VPF as it is called, is also eligible for tax deductions under Section 80C of the Income Tax Act.

  • Public Provident Fund: Public Provident Fund is a popular investment instrument as it offers assured returns. Interest is compounded on an annual basis and the maturity period of the scheme is 15 years. The least that you can contribute towards PPF is Rs.500 and the maximum contribution allowed is Rs.1.5 lakh. The amount you contribute towards PPF is eligible for tax deductions under Section 80C of the Income Tax Act.

  • Premium payments towards life insurance: If you have purchased a life insurance policy for yourself, your children or your spouse, the premiums you pay towards it are eligible for deductions under Section 80C of the Income Tax Act. In case you have multiple life insurance policies from different insurance providers, you can club all the premiums and claim deductions up to Rs.1.5 lakh p.a.

 

  • Equity Linked Savings Scheme (ELSS): Certain mutual fund schemes have been designed especially for the purpose of tax savings. Equity Linked Savings Schemes, or ELSSs as they are generally called, allow investors to claim tax deductions to the extent of Rs.1.5 lakh under Section 80C of the Income Tax Act.

  • National Savings Certificate: National Savings Certificate or NSC as it is known in its abbreviated form, is one of the most popular tax-saving instruments available to Indian citizens. The maturity period of the scheme is five years and 10 years. The interest in this scheme is compounded semi-annually. The minimum amount of money that you can invest in this certificate is Rs.100 and there is no maximum limit on the amount of investment you can make in NSC. The amount you invest in National Savings Certificate is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum of Rs.1.5 lakh per financial year.

  • Sukanya Samriddhi Scheme: Individuals can open a Sukanya Samriddhi account for a girl child anytime from the date of her birth to the day she turns 10 years old. The minimum amount that you can invest in the Sukanya Samriddhi scheme is Rs.1,000 and the maximum is limited to Rs.1.5 lakh in a financial year. The interest in this account is calculated on an annual basis and compounded on an annual basis too. The interest you accrue through this scheme is eligible for tax deductions under Section 80C of the Income Tax Act.

  • Unit Linked Insurance Plans (ULIPs): These insurance plans offer coverage to the policyholder and provide substantial returns in the long term. One of the main reasons why these plans have become so popular in recent times is the fact that they not only help in saving money, but also provide tax benefits under Section 80C of the Income Tax Act.

Conclusion

Most people tend to start making investments towards the end of a financial year just to claim tax deductions. Tax experts suggest that investments are best when made at the start of a financial year as doing so would not only mean that you are making informed decisions, but also ensuring that you earn the interest for the whole year from April to March.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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