Budget 2021 update: In case the employee’s PF contribution was deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.
Section 80 C: Best Tax Saving Investment option under Sec 80C
Section 80C :Investment in ELSS Fund or Tax Saving Mutual Fund is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes and getting higher returns on investment.
Invest in ELSS and save upto Rs 46,800 in taxes
Lowest locking period of 3 years
Delivered historically higher returns than FD, PPF or NPS
Interest earned is partially taxable
Other Investment Options under Sec 80C
Tax Saving Fixed deposits
PPF – Public Provident Fund
EPF – Employee provident fund
NPS – National Pension System
NSC – National Savings Certificate
ULIP – Unit linked Insurance Plans
Payments for saving taxes under Sec 80C
Investments in Tax Saving FDs
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.
Eligibility : Can be opened by Resident Indian individuals.
Liquidity: Fixed Deposits have lock-in period of 5 years.
Rate of Interest : FD interest rate across different banks ranges from 5.5% to 7.75%
Investment Limit: Minimum investment limit is Rs 1000.
Tax Treatment : Interest earned in taxable.
Investments in PPF (Public Provident Fund)
PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.
Eligibility : Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.
Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.
Rate of Interest : Current interest rate is 7.1% p.a.
Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.
Tax Treatment : Interest earned is tax-free.
Investments in EPF (Employee Provident Fund)
EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognised provident funds.
Eligibility : Can be opened by employee with basic salary greater than 15,000 /month.
Liquidity: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act.
Rate of Interest : Interest rate on the EPF is 8.5% for the financial year 2020-21.
Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.
Tax Treatment :Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years. However, if EPF /VPF contribution is above Rs. 2.5 lakh in any year, the interest earned on such excess contribution is now taxable, however, the limit is increased to Rs 5 lakh where the employer has not contributed to the fund (i.e. for government employees).
Investments in NPS (National Pension System)
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. Additional Rs 50,000 deduction is available for NPS contribution over and above Section 80C limit of Rs 1.5 lakh.
Eligibility : Can be opened by every Indian citizen between the age of 18 and 60.
Liquidity: Partial withdrawals are allowed after 10 years but under special conditions.
Rate of Returns : Returns rate on the NPS varies between 12% – 14%.
Investment Limit: No limit on maximum contribution.
Tax Treatment : Employer contributions are tax-free, subject to 10% of the basic salary and dearness allowance (14% in case of Central/state government employees).
Investments in ULIP (Unit linked Insurance Plans)
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.
Eligibility : An investor can buy ULIP for self or spouse or child.
Liquidity: Interest rate varies as it is market linked.
Rate of Returns : Return rate on the ULIP varies between 12% – 14%.
Investment Limit: No limit on maximum contribution.
Tax Treatment : Investment and withdrawals & maturity amount are tax-free. But if the annual premium exceeds Rs 2.5 lakh in any year during the term of the policy, then proceeds of such ULIPs shall be taxable.
Investments in Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana/Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country
Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years
Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 7.6%
Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year
Tax Treatment : Investment and withdrawals & maturity amount are tax-free
Payments eligible for tax saving deductions under Section 80C
Payments in LIC – 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.
Payments in Children’s tution 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.
- Lowest lock-in of 3 years
- Option to invest monthly
- Interest earned are tax-free
- Higher Interest rates than NPS
FAQs (Frequently Asked Questions)
- 80D- for medical insurance premium for self, spouse & dependent parents.
- Section 80EE – Deduction for interest payment of home loan for first home owners
- Section 24- Interest deduction for housing loan upto Rs 2 lakh
- Section 80EEB- interest deduction for vehicle loan for purchase of electric vehicle
- 80G- donations to charitable institutions.
- 80GG-if your income does not include HRA component, you can claim rent deduction under 80GG
- Section 80TTA- deduction upto Rs 10,000 for interest received in saving bank account.
- Section 54 -54F – Capital gain exemption for capital gains.