It’s the tax season. Time to file Income Tax Returns or ITR. Before filing ITR do tax planning. Tax planning is never complete without Section 80C. There are a number of investments and expenses that enjoy Section 80C benefit. Some investments under Section 80C have a short lock-in, while some others have a longer lock-in period.
You get a tax deduction up to Rs 1.5 Lakhs a year under Section 80C of the Income Tax Act. Only some investments and expenses enjoy Section 80C benefits.
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SEE ALSO: Section 80C
PPF: PPF is one of the best investments under Section 80C. This is an excellent investment for conservative investors. PPF currently offers 8% interest rate for the quarter 1st January 2019 to 31st March 2019. PPF has a lock-in of 15 years. PPF enjoys EEE tax benefits. An investment in PPF enjoys Section 80C tax benefits up to Rs 1.5 Lakhs a year. The interest earned and amount withdrawn at maturity are tax free.
Life Insurance: The premiums you pay on life insurance plans like endowment plan, term insurance plan, ULIPs, money back plans and whole life insurance enjoy tax benefits under Section 80C.
ELSS: ELSS is a tax saving mutual fund. Most of the investment is in equity. ELSS has a lock-in period of 3 years and is a great investment for those in the highest tax bracket. ELSS can save up to Rs 46,800 a year if you fall in the 30% tax bracket. This is 30% of Rs 1.5 Lakhs + 4% cess.
Some of the other investments which enjoy Section 80C benefits are NSC, SCSS, EPF, Sukanya Samriddhi Scheme and POTD among others.
1. Use old tax saving investments: You don’t need to invest fresh money to enjoy the benefits of Section 80C. Liquidate tax saving instruments which have completed the lock-in period.
Let’s say investments in the ELSS scheme have completed 3 year lock-in. Liquidate and reinvest in ELSS to save taxes under Section 80C.
2. Avail term life insurance: The premiums paid on term life insurance plans (a type of life insurance plan), enjoy tax deductions under Section 80C of the income tax act.
You pay a premium for a sum assured for a fixed time period. If a policy holder dies within the term of the plan, the nominees get the sum assured called death benefits. No money is paid to nominees if the policyholder survives the term of the plan. Insurers have the beneficial nominee who receives the death benefits on the death of the policyholder.
Why term life insurance? Your family gets the money on an unexpected demise. They use this to maintain current standards of living and pay off home loans and other dues. If you are not confident that family members can handle finances, opt for staggered payout which helps in better money management.
1. Invest in NPS:
National Pension System or NPS is an excellent investment for the youth in India. Any citizen of India between 18 to 65 years can invest in NPS. You must be KYC complaint. NPS is regulated by PFRDA.
NPS Tier 1 is the primary NPS account. You get a tax deduction up to Rs 1.5 Lakhs under Section 80C and an additional Rs 50,000 under Section 80CCD(1B). You can open Tier 2 account only after opening NPS Tier 1 account. NPS can be withdrawn at 60 years at retirement. At withdrawal 60% of corpus is tax-free. The remaining 40% must be compulsorily annuitized. Annuity payments are taxed.
2. Invest in EPF:
Invest in EPF which is a retirement benefit scheme for the salaried. You have to compulsorily make a contribution of 12% of basic salary + Dearness Allowance towards EPF. Your employer makes an equal contribution towards EPF. Only your contribution (Salaried employee’s contribution to EPF) enjoys Section 80C benefit. Any employee with basic salary greater than Rs 15,000 a month can open EPF. EPF offers interest rate of 8.65% a year. EPF balance is tax free if withdrawn after 5 continuous years of service.
SEE ALSO: Term Life Insurance Plan
3. Invest in Tax Saving Fixed Deposits:
Tax saver FD is a type of fixed deposit. It has a lock-in of 5 years and offers interest rate of 5.5% to 7.75% a year. It has a maturity period of 5 years. Interest earned from 5 year tax saver FD is taxable. Invest in tax saver FD and enjoy tax deductions up to Rs 1.5 Lakhs a year.
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