There’s a famous saying by the great scientist Albert Einstein, “The Hardest Thing in the World to Understand Is Income Taxes.” Fortunately, saving on taxes is not difficult if you do tax planning. One of the pillars of tax planning is the Section 80C. What is Section 80C?
You are eligible for a deduction under Section 80C up to a maximum of Rs 1.5 Lakhs a year, if you invest in certain tax saving instruments. Section 80C can be a boon for salaried persons to save tax. Yes, Section 80C helps salaried persons save tax not only on investments, but also on specified expenditures. But there’s something important…You must invest/spend the eligible amount, within that financial year….
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Let’s take a look at some of the popular investments which enjoy the Section 80C deduction, and help the salaried save taxes.
1. EPF helps save tax under Section 80C
An amount of 12% of your basic salary, is compulsorily deducted by your employer. This amount is deposited in an account in your name, called the employee provident fund (EPF). Your employer makes an equal contribution (contributes the same amount as you have contributed), to this account.
Only your contribution to the EPF and not the employers, enjoys the deduction under Section 80C. EPF offers an interest of 8.55% for FY 2017-18. EPF also invests a part of the Corpus in the stock markets through ETFs.
You are eligible for a deduction under Section 80C, if you invest in the PPF. The minimum amount you can invest is Rs 500 with the maximum being Rs 1.5 Lakhs a year.
PPF has a lock-in of 15 years. PPF enjoys the EEE benefit, where the amount invested enjoys the Section 80C deduction, up to a maximum of Rs 1.5 Lakhs. The interest earned on the PPF and the amount withdrawn at maturity, is tax-free.
The premiums paid on a life insurance plan for yourself/spouse/children, enjoys the Section 80C deduction, up to Rs 1.5 Lakhs a year. You enjoy this deduction on all life insurance plans like term life insurance plan, endowment life insurance plan, ULIP and even the money back plan.
4. Principal Repayment on Home Loan enjoys Section 80C
You have worked hard, saved and invested to buy the dream home. It’s now time to save taxes. If you avail a home loan, the EMI (Principal) repayments enjoy a tax deduction under Section 80C.
You will have to submit a certificate from the bank, showing the Principal paid on the home loan from April 2017 to March 2018, to claim the Section 80C tax deduction in FY 2017-18.
5. ELSS gives you Section 80C benefits
ELSS is a tax-saver mutual fund scheme. The money you invest in ELSS up to Rs 1.5 Lakhs a year, enjoys the Section 80C benefit. ELSS invests most of your money in stocks and this means you can get higher returns than most investments. ELSS is not for the faint-hearted as you get high returns only at high risk.
To enjoy the high returns of equity, you need to stay invested for at least 3 years. ELSS has a compulsory 3-year lock-in. This means the chances of getting high returns from ELSS are quite high.
6. Paying tuition fees gives Section 80C benefits
Your children’s school/college fees can save you tax. You can claim a deduction under Section 80C, up to a maximum amount of Rs 1.5 Lakhs a year, for tuition fees for children’s school/college.
Tuition fees paid for school/college/university or an education institution, be it Private or Government and based in India, enjoys the Section 80C benefit. Education must be full-time and includes play-school activities, pre-nursery and nursery classes. Be Wise, Get Rich.
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