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Most of us want to save our money. Now, there are many plans and policies that help us save for our future as well as for the rainy days. Careful planning can help us save in our taxable income as well. Various schemes and expenditures fall under Section 80C and by putting your money in them, you can decrease the taxable income.

Section 80C is like a concession given in the income tax. The Income Tax Act, 1961, allows the taxpayer to limit their taxable income by a maximum of INR 1.5 lakh. In simple words, it means that a taxpayer who falls in the highest bracket of 30% can save up to INR 46,350 in a financial year by investing INR 1.5 lakh in 80C investments. Section 80C provides income tax benefits by offering certain investment options to the taxpayer that fetch good returns, and they can also be used to claim as a deduction during the calculation of the taxable income.

Income tax benefits through Section 80C cannot just be claimed through investments alone, but certain defined expenditure can also be claimed by the taxpayer. Here are 4 expenditures under Section 80C that can help you save tax:

1. Section 80C deduction on Investment in Provident Fund (PF)

Employees’ Provident Fund – EPF is a compulsory retirement saving scheme for the salaried people. In simple words, an amount of 12% of your salary is taken away by the employer/company on a monthly basis. The same amount is deposited by the employer/company into the Employees’ Provident Fund. It should be remembered that under Section 80C you can avail the income tax benefits only on the amount that you are contributing.

Voluntary Provident Fund – The EPF is 12% but if you wish to increase your contribution and are ready to take home a lesser salary, you have the option of doing so. This extra contribution made by you is called Voluntary Provident Fund. Under the Section 80C, the Voluntary Provident Fund is also entitled for deduction.

Public Provident Fund – One of the most popular income tax benefits is the Public Provident Fund. PPF is an investment scheme provided by the government and is entitled to deduction under the Section 80C. The investment that you wish to make can be as small as INR 500 to as big as 1.5 lakhs annually. Another feature of the PPF is that interest, which is compounded yearly, is tax-free. The lock-in period of the investment is 15 years. The rate of interest which is 7.6 % is assured but not fixed as it is subject to revision by the finance ministry.

2. Section 80C deduction on Investment in Life Insurance Premiums

Life insurance plans are an envelope of protection that we use to cover ourselves as well as our family members with. Investing in life insurance policies not only provides an insurance cover but it also helps in making use of the income tax benefits. Both, term life insurance plans and the unit linked insurance plans are eligible under Section 80C. It should be noted here that if someone else, be it your parents, siblings or relatives, is paying the premium then the amount is not acceptable for deduction under Section 80C. But if in case you have more than one life insurance policy, in the name of your spouse or your children and where the premium is being paid by you, you can include them in the deductions. If you are from a Hindu Undivided Family (HUF) and are paying the insurance premium for any other member or members of the family, then also you can claim deduction. The private, but registered companies that offer life insurance policies are also covered under Section 80C.

3. Equity Linked Saving Schemes Mutual Funds

As the name suggests, the Equity Linked Saving Schemes Mutual Funds, better known as ELSS Mutual Funds are saving schemes in the form of open-ended mutual funds. These schemes have been made to help you avail the income tax benefits and do some tax savings. ELSS mutual funds not only help you by saving your tax money, but they also help your money grow with minimum risk involved. They come with a minimum lock-in period of 3 years, and thus the investment made is eligible under Section 80C.

The three-year lock-in period is probably one of the lowest time periods under Section 80C, but despite that they provide the maximum returns as compared to the other options available in Section 80C. This short-term lock-in period of ELSS mutual funds make it very popular among the young taxpayers. It should be kept in mind that although there isn’t any upper limit when it comes to the amount that can be invested in ELSS, but the income tax benefit would be available only for an amount of INR 1.5 lakh.

4. Home Loan Principal Payment

The government of India has always encouraged the citizens to invest in a ‘house’. One way to do that has been by making the home loan eligible for a tax deduction under Section 80C. Many schemes and policies are being run by the government to make buying a house affordable and accessible. We know that when we take a loan, it consists of two parts – the principal amount and the interest amount. The principal amount that you pay in a financial year (April 1- March 31) can be stated as a deduction from the GTI that is the gross total income before evaluating the net taxable income. This can also help in bringing down the big and bulky EMIs.

What needs to be kept in mind is that during the early years of repaying of loan, the share of interest in the total EMI is far more than the principal. It is only after a while that the principal component becomes more than the interest. Also, remember that the home loan Principal Payment allows the deduction only for the purchasing as well as for construction of your house. If you have taken a loan for renovation of the house, it will not be eligible.

The Bottom Line

You must have heard, “A penny saved is a penny earned”, and this is exactly how can save money for the future! Being aware of the different products and policies that help you in reducing your taxable income is the key to maximizing your savings.


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June 2024