Want to make your money grow and save on taxes? Well, then you should know about Section 80C of the Income Tax Act.
Out of all the provisions listed under the Income Tax Act, Section 80C is the most popular because it allows tax deductions on certain expenditures and investments. By understanding them, you can start investing your money smartly and save a significant part of your income from being taxed.
To help you out, we have listed down everything you need to know about tax saving under Section 80C as an investor.
How much can you save under Section 80C?
Individuals and Hindu Undivided Families (HUFs) can save tax under Section 80C. You can avail of a maximum deduction of Rs. 1.5 lakh every year from your gross income.
Additionally, you will save on surcharge as applicable and 4% education cess. So, an individual at a 30% income tax bracket, 12% surcharge and 4% cess can save up to Rs. 52,416 every year.
Here are some investment avenues you can choose from.
ELSS funds are diversified equity mutual funds. So, while you can claim tax deductions on the invested amount, you will have to pay capital gains tax.
If you have a moderate to high risk appetite, you can go for ELSS funds. With most AMCs, you can start with an SIP investment as low as Rs. 500. ELSS funds also have a lock-in period of 3 years.
Additional Read: 5 Points to Note Before Investing in ELSS Tax Saving Funds
If you think ELSS funds are high-risk, choose tax-saving FDs instead and claim tax deductions under 80 C on the invested amount. The interest earned is subject to taxation as with regular FDs. Tax-saving FDs have a mandatory lock-in period of 5 years.
PPF and EPF
All contributions towards PPF are eligible for tax deductions under Section 80C. You can contribute anywhere between Rs. 500 to Rs. 1.5 lakh to your PPF in one year. The maturity period is 15 years.
Similarly, the portion of your salary that goes into your EPF is tax-free. The maturity period for EPF is 5 years.
Senior citizens’ savings schemes
These are government-backed savings schemes for individuals over 60 years of age. While they have a 5-year tenure, you can extend it by 3 more years.
All investments you make under this scheme are exempt from taxation under Section 80C. However, the returns accumulated from this scheme are taxable as per your tax slab.
Exemptions are available against life insurance policies held by self, spouse, children, and members of a Hindu Undivided Family. Currently, an annual premium of up to 10% (of the policy’s total sum) is tax exempted.
Additional Read: 5 Tips to grow your wealth while saving taxes
National pension scheme
NPS helps establish a regular income for employees post-retirement. All contributions to the NPS are tax-deductible under Section 80 C.
If you want to avail of tax benefits under Section 80C, you can choose from one or more of the above. Remember that you can claim a maximum of Rs. 1.5 lakh in one financial year across all these investment instruments combined.
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