What is Section 80C?
Everyone aims at saving income taxes. Thus, a provision has been provided in the constitution for a taxpayer to save taxes under Section 80C. This section is a part of the Income Tax Act which states that there are provisions for an eligible tax-paying individual or a Hindu Undivided Family to claim deductions up to a maximum of1.5 Lakhs.
What is Tax Deduction?
First, let us familiarize with the concept of Tax Deductions. Tax deduction means reducing the amount of your income that is liable to taxation. Thus there are many investment schemes under which tax deductions can be claimed. This can include charitable donations, education, insurances and Fixed Deposits for tax saving. Section 80C for tax saving is basically a method the government has used to involve the citizens in the important curriculums like social welfare(charitable funds) and save their monetary assets.
Important Tax Deductions That Can Be Availed Under Section 80C:
Under Section 80C, the government has given a relaxation in Income Taxes for certain causes that is necessary for the development and welfare of the society. They include education and a provision for senior citizens. Thus, some payments made by an individual of a Hindu Undivided Family that are liable to tax deductions. They are:
- Tuition fees paid for the education of 2 children.
- Investing in National Infrastructure Companies or purchasing real estate for residential purposes. On investment in Infrastructure Bonds, a certain rate of interest is offered by the company annually.
- If an individual is a senior citizen( 60 and above) and has invested in any scheme, the return rates are higher. This comes under Senior Citizen Savings Scheme.
- Any financial payments made for the purpose of Life Insurance for self, spouse, and children.
- Under the Sukanya Samriddhi Account Scheme, if the account holder is a girl-child of a family, then an interest rate of 9.1% per annum is applicable on depositing an amount of 1.5 Lakhs annually.
- The annual premium that is paid for a Health Insurance Policy for self or family is liable to tax deductions under 80C.
- Payment for Deferred Annuity Plan
- Deferred Annuity payable by Government
- Contribution towards PPF
- Contribution towards Provident Fund set up by Central Government
- Contribution to Recognised Provident Fund, Superannuation fund
- Subscription to any security or deposit notified by Indian Government.
- Subscription to saving certificates.
- Contribution for Unit Linked Insurance Plan 1971
- Contribution for ULIP of LIC Mutual Fund
- Subscription to units of notified mutual funds
- Contribution to notified pension funds of mutual fund
- Pension fund set up by National Housing Bank
- Subscription to equity shares or debentures as approved for infrastructure.
- Subscription to any units of mutual fund as approved by Central Board of Direct Taxes
- Term Deposit for a fixed period of not less than five years with a scheduled bank.
- Rural Bond of NABARD
- 5 Year deposit in an account under the P.O Time Deposit Rules 1981
Tax Saving Through Investments:
There are certain investment schemes that help to save tax and are legal under Section 80C. The popular investment options are:
PPF Stands for Public Provident Fund. The return rates vary every financial year and are decided by the government. An account can be opened with a minimal charge of 500INR. An annual deposit of 1.5 lakhs has to be made for a tenure of 15 years to be an active account holder. In the case of an emergency, a withdrawal can be made from the 7th year onwards. But the funds cannot be completely withdrawn before maturity.
Tax Saving Fixed Deposits
Tax Saving FD’s are deposits whose maturity period is 5 year. The money that is in this Fixed Deposit account is kept locked and cannot be withdrawn before maturity.
National Pension System
The government of India has introduced the NPS system to keep providing funds to working individuals after retirement. This scheme also ensures saving tax by investing up to 1.5 Lakhs.
Employee Provident Fund
The EPF account is formed by deducting 12% of the salary of any employee and depositing it as EPF. This account matures annually and provides returns as per the set return rates of the present financial year.
Investment In Mutual Funds
There is a scheme under mutual funds known as Equity Linked Saving Scheme (ELSS). This scheme is liable to tax deductions. ELSS is an open-ended scheme which comes with a lock period of 3 years. Thus a long term investment can be made under this scheme, which will ensure good return rates after maturity.