The Guide to Section 80C of Income Tax

Whether you're salaried or self-employed, it's important to consider various options to save tax. Tax deduction under section 80C is the most claimed among other tax-saving options. 

The good news is that there are several 80C investment options that work as tax-saving instruments in the market. Let's take a look at the best investment options under 80c. 

· Life Insurance Premium

The most common 80c investment option is the life insurance premium. Life insurance not only helps in tax saving but also protects your family's financial future in case of unforeseen events.

If you purchase a life insurance premium policy for yourself, your partner and your children, you can claim a tax deduction under section 80C on the premium paid for the policy. However, you won't be eligible to receive such a benefit if you buy the policy for your parents or parents-in-law. In case you hold more than a single policy, you can claim tax benefits on this 80C investment up to the limit of 1,50,000. 

· Public Provident Fund (PPF) 

Another popular investment option under 80C is the Public Provident Fund. It allows you to invest INR 500 - 1,50,000 in a financial year. 

Under the provisions of section 80C of the income tax, your taxable income will decrease by the amount invested in the fund. 

Moreover, the interest you receive is tax-free, which implies an all-around financial advantage. 

· Employee Provident Fund (EPF) 

The next 80C investment option is Employee Provident Fund, which is a benefit scheme available only for salaried employees. Here, both the employee and the employer invest a certain amount of money every month.  interest is paid regularly on the amount available in the EPF account. 

· Equity Linked Saving Scheme 

Another 80C investment option is the Equity Linked Saving Scheme. It allows you to enjoy tax-saving benefits on the amount paid towards the fund. 

This scheme offers higher returns as the money gets invested in equity funds. However, it is to be noted that equity investment is prone to market risks, so make decisions according to your risk-appetite to avoid unaffordable losses.

While there is no upper limit on the amount invested in Equity Linked Saving Scheme, you can avail income tax benefits only up to Rs 1,50,000. 

· Unit Linked Insurance Plan

Unit Linked Insurance Plan is an excellent option as it offers the dual advantage of life cover and investment benefit. 

Under section 80C of income tax, it offers a tax-saving benefit of up to INR 1.5 lakhs. Investing your money in Unit Linked Insurance Plan allows maximizing savings through various market-linked fund options. 

If you wish to get an estimate of how much insurance coverage will be enough for your family and how much you need to pay for the same, you can use a ULIP calculator. 

· Home Loan Principal Repayment 

In case you've taken a home loan from any bank or financial institution, you can avail a deduction of 1,50,000 under section 80C on the repayment of home loan principal. 

· Sukanya Samriddhi Yojana 

Sukanya Samriddhi Yojana is a scheme devised for the welfare of a girl child at the time of significant events of her life such as education and marriage. 

This scheme is eligible for tax saving under section 80C of income tax. You can open the account for 2 girl children under 10 years of age. It is an excellent investment option under section 80C.

· National Savings Certificate 

The last 80C investment option is the National Savings Certificate. The investment you make under this scheme is eligible for a tax deduction. Besides, even the interest accrued for initial 4 years is eligible for deduction. 

80C Investment for Senior Citizen 

Senior Citizens who are looking for tax-saving investments can invest in the following investment schemes:

1.  Recurring Deposits and Fixed Deposits

Recurring Deposits and Fixed Deposits are the two most preferred tax savings investment schemes, especially for senior citizens. Under Section 80C of the Income Tax Act, senior citizens can enjoy tax-free interest income of up to Rs. 50,000.

· Senior Citizens Saving Scheme 

The Senior Citizen Saving Scheme is specially devised for senior citizens of 60 years of age or above. Senior citizens who have chosen Voluntarily Retirement Scheme can opt for this scheme at 55 years. 

Any investment made under this scheme is eligible for a deduction, and the maximum limit remains 1,50,000. 

· National Pension Scheme 

National Pension Scheme encourages you to invest money in a pension account at regular intervals during the period of your employment. Senior Citizens up to the age of 70 years can invest in the National Pension Schemes.  The contribution made towards this scheme allows tax deduction under section 80CCD, a subset of 80C. However, the combined deduction under both sections cannot be more than INR 1,50,000. 

2. Tax Free Bonds 

Public sector undertakings issued bonds can be a beneficial tax saving instrument for senior citizens who look for safer investment options. The bonds can be bought through a Demat account. The interest earned on these bonds are tax-free.

80C Investment Options for Hindu Undivided Family

As Hindu Undivided Family (HUF) is considered a distinct identity in the eyes of law in India, investment options are different for HUF. Under Section 80C of Income Tax, HUF are allowed a tax exemption of Rs. 2,50,000 in a year.

Apart from that, HUF is exempted from making investments in some investment instruments.

These instruments are government’s small investment plans such as PPF (Public Provident Fund), monthly saving schemes, National Savings Certificate, and recurring deposits.

HUF can however invest in equity, Mutual Funds, Fixed Deposits, Life Insurance and Equity Linked Savings Scheme (ELSS).

The HUF tax benefits under Section 80C for these investment instruments are same as the benefits available for individuals. 

What are the Payments Eligible for Deduction Under Section 80C?

A few payments are also eligible for deduction under section 80C:

· Payment towards Life Insurance 

Needless to say, the premium paid towards a life insurance policy is one of the most popular ways to save tax. However, the exemption is only applicable if the premium is lower than 10% of the sum insured. 

· Repayment of House Loan

Tax exemption is also applicable to the repayment of a home loan taken by a person to construct or purchase a residential property. The deduction also applies to stamp duty, registration fees and transfer expenses. 

· Payment towards Children's Fees

Another payment eligible for deduction is the education fees paid for children up to Rs 1,50,000. It is applicable for tax deduction under section 80C of income tax. 

80C Investment Proof 

These investment schemes can help saving tax. For that, you have to submit investment proofs every year to ensure your employer doesn’t deduct higher taxes. Submitting proofs can be perplexing for when you are not aware of the documents required. To make it all easier for you, here’s a table you can refer to: