31st March is nearly upon us and taxpayers are in a hurry to complete investments that can help them claim tax benefits this financial year. One popular option is to claim tax exemption under section 80C of the Income Tax Act. Year 2014 saw the maximum limit of investment under section 80C rise to Rs.1,50,000 giving all tax payers something to smile about.

There are a number of tax saving instruments that are covered by section 80C. The most popular ones include Bank Fixed Deposits, National Savings Certificates (NSC), Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), Repayment of Housing Loan (principal amount) Public Provident Fund (PPF), Voluntary Provident Fund (VPF) and Insurance Preimum (most popular Online Term Plans). Each of these schemes have varying amounts of flexibility, lock-in periods, safety and returns. Moreover, in some cases like Bank FDs, the interest accrued is not exempt from tax. Thus, before investing in any option under section 80C, one must diligently weigh out this options. While to a layman, these financial nuances might sound like a lot of jargon, taking the right decision can actually end up saving you a lot of money (especially so, if you fall in the 20%-30% tax bracket).

We have listed down the best options to invest under section 80C that a taxpayer can avail before 31st March this year. Anybody who has forgotten to claim the benefits of this provision of the Income Tax Act can still take the right decision by reading through our article.

1. Online Term Plan: In terms of flexibility and cheapest preimum, online term plans are a prudent decision on the part of the smart investor. To simplify, a term insurance policy is an insurance policy that is in force for a fixed term (usually defined in number of years). During the agreed term, the policy holder will pay a fixed preimum amount for a specified period (i.e. Policy term) and If he/she dies within the insurance term, the next of kin is eligible for the full amount (sum assured) of death benefits as outlined in the policy agreement.

Premiums paid for the term plans are tax exempt under section 80C of the Income Tax Act. Moreover, there is no maturity amount on online term plans because of very less preimum. Online term plans usually cost lower than their physical counterparts and as since there is no insurance agent involved, you can rest assured that no part of your premium is being diverted into the agent’s commission.

Let us list down a few key benefits of online term plans:

  1. For a very less premium, most insurance companies provide a high amount of sum assured.
  2. Multiple premium payment options are available, which include single pay, limited payment as well as regular pay.
  3. Regular pay plans can be monthly, quarterly, semi-annual or annual.
  4. Medical tests are usually not required for a sum assured less then Rs.35 lacs and with age of less then 40 years.
  5. Rebates are available for people opting for higher sum assured amounts.

Most key players in the market like Future Generali, HDFC life, ICICI and SBI offer online term insurance policies that can benefit their customers. At present Future Generali Life Insurance and HDFC Standard Life is provding cheapest insurance in most of the age and sum assured combination but we suggest to go through all the terms and conditions before buying any online term plan.

The online term plans can be bought very conveniently without having to go through the hassle of physical paperwork. Future Generali Life Insurance provide an online premium calculator as well so that you can form a fair idea of the involved costs.

You can check out the FG Online term plan at the following location:  http://goo.gl/wwz0H0

Also, you can check out the HDFC Standard Life Plan here – http://goo.gl/SSo0mQ

2. National Pension Scheme (NPS): NPS is one of the most convenient tax schemes to subscribe for. In fact, a National Pension Scheme can be activated within 30 minutes. With the NPS, you can choose from a large number of investment options and also have the freedom to choose a Pension Fund Manager of PFM. You can also switch from one investment plan to the other and even change your PFM and thus enjoy returns which are linked to the market. The key benefits of the NPS are as follows:

  1. Simplicity: Opening an NPS account entitles you to a Permanent Retirement Account Number (PRAN) that remains same throughout your life. Opening a NPS account is also very simple and can be done in little under 30 minutes.
  2. Flexibility: The subscriber under the National Pension Scheme is free to choose between two options: auto as well as active choice of distribution. Thus, you can have the choice to decide how much of your money is invested in corporate, glit and equity.
  3. Portability: Unlike many other current pension plans, the NPS is portable across all jobs and all locations, since your Permanent Retirement Account Number (PRAN) remains the same. Thus, you do not have to go through the hassle of transferring your pension account every time you move or change jobs.
  4. Regulation: The best feature about NPS is the transparency of the investment norms. Since the NPS is regulated by the PFRDA, you can rest assured that your money is in safe hands.

For opening an NPS account, you can navigate to enps.nsdl.com for registering yourself to get the NPS account opened in 30 mins. If the Bank you’re holding your account in is empanelled with National Securities Depository Ltd (NDSL) (Right now they have 17 banks empanelled), you can apply online for NPS, and KYC process will be taken care by your bank.

For investor whose Aadhar card is linked to their bank account, this process is as simple as receiving OTP on registered mobile number for validation. Once the registration is done and KYC is processed by bank, PRAN (Permanent Retirement Account Number) will be alloted, which can be used to Invest in the scheme.

3. Equity Linked Savings Scheme (ELSS): In terms of flexibility, high returns, transparency and portability, ELSS is one of the best options available for investment under section 80C of the Income Tax Act. This is the only option available in market which can beat the inflation in long run. Moreover, the lock in period is just 3 years which is considerably lower than other tax saving instruments covered by 80C. ELSS Mutual Funds are basically nothing other than mutual fund schemes that invest 65% to 100% in equity and equity related instruments which are then notified to be eligible for tax benefits. Although an element of market risk is involved, ELSS is a great option for moderate-risk investors looking for tax saving options.

If you choose SIP route to invest in ELSS Fund then there may be chance to get more returns. Investor who took SIP route in the past 5 years have made more money then lumpsum.

The major benefits of ELSS MFs are as follows:

  1. Low Lock-in periods: ELSS MFs have a lock in period of 3 years. This means that you get to enjoy long-term benefits of your investment without having to wait for 5 years which is the locking period of other tax saving options like bank FDs and NSC.
  2. Tax-free Returns: Guess what? The returns from ELSS Mutual Funds are tax free. This is a major incentive for investing in ELSS MFs.
  3. Higher Returns: Axis Long Term Equity Fund give hightest return of 24% p.a. in past three years in this category. Average tax free return(CAGR) as on 18th March 2016 in this category are 17.01% (in 3 years), 11.85% (In 5 Years) and 9.79% (In 10 years).

4. Rajiv Gandhi Equity Tax Savings Scheme (RGESS): Another tax saving scheme for small investors, the RGESS was announced in the 2012 budget. You need to be a first time investor in the stock-market and earn less than 12 lakhs a year to be eligible for taking part in the RGESS scheme. A maximum tax deduction of 50,000 INR can be claimed under section 80C.

The main benefits of this scheme are listed below:

  1. The Rs.50,000 deduction can be availed under section 80CCG, which is well and above the deduction currently available under section 80C.
  2. Low lock in period. Lock-in period of RGESS is lower than even ELSS MFs.

Fail to Submit proof to HR

Don’t worry if you failed to submit the proof to HR of your investments, you can easily incorporate the same at the time of filing of Income Tax Return and claim refund from Income Tax department.

We know that without proper knowledge of the different tax saving schemes available, the task might seem very difficult, and that’s why it’s much more than beneficial to take help from Financial Advisor. Though, with this article we believe we have covered the basic knowledge required to save taxes this financial year. Make the smart decision. Happy investing!

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Category : Income Tax (20867)
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Tags : Section 80C (120)
  • Ruchit Sheth

    I think so even NPS deduction is over and above the limit of INR 150,000 in 80C

  • Ameya Vaze

    Sir,What is the reason why SIP investments into mutual funds earn more return than the 1 time investments?

  • VIPAN SHARMA

    Sir, tuition fee education loan ( abroad) illegible in 80c section

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