Saving money is always a good idea, and when it comes to saving on taxes, it is even better. Section 80C of the Income Tax Act, 1961, allows individuals to claim deductions on their taxable income of up to Rs. 1.5 lakhs by investing in various tax-saving instruments. However, many people are not aware of the different investment options that come under Section 80C. This article aims to demystify Section 80C and provide clarity on how to save taxes by investing in India.
Understand Section 80C
Section 80C of the Income Tax Act, 1961, allows individuals to claim deductions of up to Rs. 1.5 lakhs from their taxable income. The section contains a list of various investment options that are eligible for tax deductions. Some of these options include Public Provident Fund (PPF), National Pension System (NPS), Equity Linked Savings Scheme (ELSS), Senior Citizen Saving Scheme (SCSS), Tax Saving Fixed Deposits (FD), and Unit Linked Insurance Plans (ULIP).
Invest in Public Provident Fund (PPF)
PPF is a savings scheme offered by the government of India. The scheme offers a fixed return on investment and is risk-free. Individuals can invest a minimum of Rs. 500 and a maximum of Rs. 1.5 lakhs in PPF per financial year. The interest earned on PPF is exempt from taxes, and the investment amount is also eligible for a tax deduction under Section 80C.
Invest in Equity Linked Savings Scheme (ELSS)
ELSS is a mutual fund scheme that invests primarily in the equity market. The investment has a lock-in period of three years, and the returns generated from it are tax-free. The amount invested in ELSS is also eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C.
Invest in National Pension System (NPS)
NPS is a voluntary pension scheme that is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The contributions made to NPS are eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C, and an additional deduction of Rs. 50,000 under Section 80CCD(1B) can also be claimed.
Invest in Tax Saving Fixed Deposits
Tax Saving Fixed Deposits is another investment option under Section 80C. The scheme has a lock-in period of five years, and the interest earned on the investment is taxable as per the individual’s income tax slab. However, the investment amount is eligible for a tax deduction of up to Rs. 1.5 lakhs.
Invest in Unit Linked Insurance Plans (ULIP)
ULIP is an insurance product that offers both investment and insurance benefits. The investment amount in ULIP is also eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C.
Section 80C of the Income Tax Act, 1961, provides individuals with a range of investment options that are eligible for tax deductions of up to Rs. 1.5 lakhs. Understanding these options and choosing the right investment mix can help individuals save taxes while building wealth for the future. It is always advisable to consult a financial advisor before making any investment decisions.