All About Section 80C Income Tax Act
Among the various tax-saving options, most individuals prefer to claim tax deduction under Section 80C of the Income Tax Act, 1961. Section 80C allows individuals and HUFs (Hindu Undivided Families) to claim a tax deduction of up to Rs. 1, 50,000 from their gross total income for certain investments, payments, and other issues.
Investment in Tax Saving Mutual Fund or ELSS is considered to be the best tax saving option. These funds are specially designed to provide dual benefits to you as customers for saving taxes and getting higher returns on every investment of yours. Investing in ELSS can provide you savings up to Rs 46,800 in terms of taxes. It also delivers historically higher returns than FD, PPF or NPS; also the interest earned here is partially taxable.
Other investment options that might be beneficial include the following:
Tax Saving Fixed Deposits
EPF- Employee Provident Fund
NPS- National Pension Scheme
PPF- Public Provident Fund
ULIP- Unit Linked Insurance Plans
Out of which some of the above are discussed below.
Investing in Tax Saving FDs:
Tax-saving FDs are basically regular fixed deposits that offer a lock-in period of 5 years and a tax break under the Income Tax act under Section 80C on investments of up to Rs 1.5 lakh. Before going deep into the scheme a view at the eligibility criteria for investing in the Tax Saving FDs
Eligibility: You are eligible to invest in the above investing scheme if you are Resident Indian individual.
Liquidity: liquidity is offered in terms of Fixed Deposits with a lock-in period of 5 years.
Interest Rates: FD interest rate across different banks ranges from 5.5% to 7.75%
Limit for Investments: Minimum investment limit is Rs 1000.
Tax Treatment: Interest earned in taxable.
Investments in PPF (Public Provident Fund):
PPFs are long term investment backups offered by the government of India. Deposits made in a PPF account are completely valid for tax deductions under the act of Section 80C.
Eligibility: Resident Indian individuals, salaried and non-salaried individuals are completely eligible for investing. A Hindu Undivided Family cannot open a PPF account in their name.
Liquidity: PPF accounts have a lock-in period of 15 years, but the time period can be further be extended to 5 years. Partial withdrawals are allowed after 7 years.
Interest Rate: Current Interest Rate is 8.0 percent per annum
Investment Limits: Minimum and maximum investment limit ranges from Rs 500 to Rs 1.5 lakh respectively.
Tax Treatment: Interest credited is tax-free.
Investing in Employee Provident Fund (EPF):
EPF is an after retirement scheme that is available to all salaried employees. This varies to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognized PF.
Eligibility: An employee with a basic salary greater than 15,000 per month are eligible for the scheme.
Liquidity: PF balance can be withdrawn after two months of job resignation who does not take up any kind of job within two months with an employer falling under the PF Act.
Interest Rate: Rate on the EPF is 8.55 percent.
Investing Limits: Both employer and the employees need to contribute a minimum 12 percent of their Basic Pay + Daily Allowance.
Treatment of Tax: The entire PF balance along with the interest rates is tax-free if withdrawn after continuous service of 5 years
Investments in NPS (National Pension System):
The NPS is a pension scheme for retired officials that has been started by the Government of India to allow the unorganized sector and working professionals to have a pension after their work tenure is over. Investments ranging to Rs 1.5 lakh can be utilized to avail tax deductions under the Section 80C act.
Eligibility: Every Indian citizen between the age of 18 and 60 is eligible for this scheme.
Liquidity: Partial withdrawals are only allowed after 15 years but under desired circumstances.
Interest Rate: Returns rate on the NPS varies between 12 percent-14 percent.
Investment Limit: there is as such no limit for the maximum contributions.
Tax Treatment: Employer contributions are free of tax
Investments in Unit-linked Insurance Plans (ULIP):
ULIPs are a culmination of investments and insurance. A small part of the invested amount in ULIPs is utilized to give insurance and rest amount is invested in the stock markets. Investments not more than Rs 1.5 lakh in ULIPs are made eligible for tax breaks under the Section 80C act.
Eligibility: An investor can buy ULIP for himself, spouse or child
Liquidity: Interest rate varies as it is market linked
Return Rates: Return rates on the ULIP ranges from 12 percent to 14 percent.
Investment Limits: There is as such no maximum limit for contributions.
Tax Treatment: Investments, withdrawals & maturity amount are tax-free.
Investing in Tax Saving FDs:
Tax-saving FDs are more of regular fixed deposits but they usually come with a lock-in time slot of five years and tax break under the Section 80C act on investments less than Rs 1.5 lakh.
Eligibility: Resident Indian individuals are eligible for investing in taxing Saving FDs.
Liquidity: Fixed Deposits have a lock-in period of 5 years.
The Rate of Interest: FD interest rates across different banks ranges from 5.5% to 7.75 percent.
Investment Limit: Minimum investment limit is Rs 1000.
Tax Treatment: Interest earned in taxable.
Investments in Public Provident Fund (PPF):
PPFs are long term investments introduced by the Indian Government. Deposits made in a PPF account are eligible for tax deductions under Section 80C.
Eligibility: Resident Indian individuals, salaried and non-salaried individuals are eligible for investing in the PPFs. A HUF
cannot open a PPF account.
Liquidity: PPF account has a lock-in period of 15 years, but can be further extended by five years. Partial withdrawals are allowed after seven years.
Interest Rates: Currently the interest rate is 8.0 percent per annum.
Investment Limits: Minimum and maximum investment limits range between Rs 500 to Rs 1.5 lakh respectively.
Tax Treatment: Interest earned is tax-free.
Investments in Employee Provident Fund (EPF):
EPF is a post-retirement benefits scheme which is available to all salaried individuals. This amounts to 12 percent of the basic salary + DA, that is deducted by an employer and deposited in the EPF or other some other recognized PF.
Eligibility: Can be opened by an employee with a basic salary greater than 15,000 per month
Liquidity: Can withdraw PF balance after two months of leaving a particular job and does not take up employment within two months with an employer under the PF Act.
The Rate of Interest: the Interest rate on the EPF is 8.55 percent.
Investment Limit: Both employer and employee have to contribute a minimum of 12% of Basic Pay + D.A.
Tax Treatment: Entire PF balance (including interest) is tax-free if withdrawn after continuous service of 5 years
Investments in the National Pension System (NPS):
The National Pension Scheme is a pension scheme that was started by the Government of India for the unorganized sector and working professionals to avail a certain amount in the form of pension after their reach their retirement phase. Investments for less than Rs 1.5 lakh can be used to avail tax deductions under Section 80C.
Criteria for Eligibility: Can be opened by every Indian citizen between the age of 18 and 60.
Liquidity: Partial withdrawal can be after 15 years but under special conditions.
Return Rates: Returns rate on the NPS varies from 12 to 14 percent.
Investment Limit: There is no limit on maximum contribution.
Tax Treatment: Employer contributions are tax-free.
Investments in ULIP (Unit-linked Insurance Plans):
ULIPs are a culmination of investments and insurance. A part of the amount to be invested in ULIPs is taken into consideration to provide insurance whereas the rest amount is invested in the stock market. Investments less than Rs 1.5 lakh in ULIPs are eligible for tax breaks under the Section 80C act.
Eligibility: An investor can buy ULIP for himself, his wife or his child.
Liquidity: Interest rate varies as it is market linked
Return Rates: Return rate on the ULIP varies between 12% – 14%
Investment Limit: There is as such no limit set for the maximum contribution.
Tax Treatment: Withdrawals, investments & maturity amount are all tax-free.
Investing in Sukanya Samriddhi Yojana:
The Sukanya Samriddhi Yojana is a very popular scheme which is being run by the Government of India. The scheme is currently working with a vision to create better and advanced facilities for the girl child in India.
Eligibility: Parents or guardians can open a bank account in the name of their girl child till she reaches 10 years.
The Rate of Interest: the Interest rate on Sukanya Samriddhi Yojana is 8.5 percent.
Liquidity: Up to 50 percent of the deposit amount can be withdrawn once the girl reaches the age of 18 years.
Investment Limits: Investment is limited to a maximum of Rs. 1.5 lakhs for a single financial year.
Tax Treatment: Investments, withdrawals & maturity amount are tax-free.
