Investments and payments that are eligible for 80C deductions

 

Investments in ELSS funds

Section 80c Deductions

ELSS stands for Equity Linked Savings Scheme. These are tax-saving mutual funds that invest at least 65% of their assets in the stock markets. Investments of up to Rs 1.5 lakh in ELSS funds can earn a tax break under Section 80C. The advantage of ELSS funds is that they come with the lowest lock-in among all tax-saving investments–just 3 years. Apart from that, because of their equity exposure, ELSS funds are best placed to help you earn inflation-beating returns over the long-term. Even though these tax-saving mutual funds don’t offer guaranteed returns, the best performing ones have generated 12-15% returns over the long-term through the power of compounding interest. Additionally, since ELSS funds are equity-oriented funds, all gains on investments held for over one year are tax-free for the investor.

You can invest in a diversified portfolio of ELSS funds through our investment platform .

Investments in Public Provident Fund (PPF)

Deposits made in a PPF account are eligible for tax deductions under Section 80C. A maximum of Rs 1.5 lakh can be claimed in one financial year. PPF gives guaranteed interest that is fixed by the Finance Ministry for every financial year. The current interest from the PPF for FY2016-17 is set at 8.1% that is compounded annually. The PPF has a tenure of 15 years, after which the withdrawals are tax-free. While the PPF doesn’t allow premature withdrawals, the account holder can take loans against the corpus in their PPF account.

Additionally, an employer’s contribution to the Employee Provident Fund (EPF) account also earns a tax break under Section 80C of up to Rs 1.5 lakh.

Investments in Employee Provident Fund (EPF)

An employee’s contribution to the Employee Provident Fund (EPF) account also earns a tax break under Section 80C of up to Rs 1.5 lakh. This amounts to 12% of salary that is deducted by an employer and deposited in the EPF or other recognised provident fund. The current interest rate on the EPF is 8.8%.

Investments in Tax-saving Fixed Deposits (FD)

Tax-saving FDs are like regular fixed deposits, but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh. Different banks offer different interest on the tax-saving FDs, which range from 7-9%. The returns are guaranteed and the FDs offer 100% capital protection. But upon maturity, the interest is added to the investor’s taxable income.

Investments in National Pension System (NPS)

The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C. An additional Rs 50,000 can also be invested in the NPS for tax deductions under Section 80CCD(1B). The NPS offers different plans that the subscriber can choose as per their risk profile. But the highest exposure to equity is capped at 50%. An option to change designated pension fund managers is also allowed. However, a major disadvantage of the NPS is that the proceeds upon maturity are taxable. Furthermore, there is no guarantee of the returns that can be earned from the NPS.

Purchase of National Savings Certificates (NSC)

NSCs are eligible for tax breaks for the financial year in which they are purchased. Investments of up to Rs 1.5 lakh in NSCs can be made to save taxes under Section 80C. NSCs can be bought from designated post offices and come with a lock-in period of 5 years. The interest is compounded annually but is taxable. The current interest rate for FY2016-17 on NSC is 8.1%.

Investments in Unit Linked Insurance Plans (ULIP)

ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C. ULIPs don’t offer guaranteed returns because they are an equity market-linked product. The disadvantage of ULIPs is that they don’t offer clarity on where the investments are made and how much of the invested amount is deducted for commissions and expenses.

Investments in Sukanya Samriddhi Yojana

Deposits of up to Rs 1.5 lakh can be added to a Sukanya Samriddhi Yojana account for tax saving under Section 80C. The current interest rate for FY2016-17 on Sukanya Samriddhi Yojana deposits has been set at 8.6%. Deposits in this scheme have to be made for a girl child by the parent or guardian. The interest is compounded annually and is fully exempt from tax. The receipts upon maturity are also tax-free. The Sukanya Samriddhi Yojana account matures 21 years after opening the account. A partial withdrawal of up to 50% of the previous year’s balance is allowed after the account holder turns 18.

Investments in Senior Citizens Savings Scheme (SCSS)

The SCSS is a scheme exclusively for anyone who is over 60 years old or someone over 55 who has opted for retirement. The scheme has a maturity period of 5 years and gives 8.6% per annum. Investments of up to Rs 1.5 lakh in SCSS can be made to save taxes under Section 80C. 

AY comes after FY.
Both AY and FY begin on the 1st of April and end on the 31st of March. Income is earned in FY and taxes on that income is paid in AY. For instance if FY is 2016-17 then AY will be 2017-18.

Comparison of popular 80C investments

Investment Risk Profile Interest Guaranteed Returns Lock-in Period
ELSS funds Equity-related risk 12-15% expected No 3 years
PPF Risk-free 8.1% Yes 15 years
NPS Equity-related 8-10% expected No Till retirement
NSC Risk-free 8.1% Yes 5 years
FD Risk-free 7-9% expected Yes 5 years
ULIP Equity-related risk 8-10% expected No 5 years
Sukanya Samriddhi Risk-free 8.6% Yes 21 years
SCSS Risk-free 8.6% Yes 5 years

Other investments under Section 80C that earn a tax break:

  • 5 year deposit scheme in post office
  • Subscriptions of notified securities like NSS
  • Sum paid to National Housing Bank’s Home Loan Account Scheme
  • Contribution to notified LIC annuity plan
  • Subscription to notified bonds of National Bank for Agriculture and Rural Development

Payments eligible for tax saving deductions under Section 80C

Life insurance premium

The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.

Children’s tuition fees

The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.

Repayment of home loan

The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees and transfer expenses.

There are more ways to save taxes beyond the Section 80C deductions. Read more about the other deductions available for FY2016-17.

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