For the tax-paying population, 80C investments play vital role in lowering their taxable income while earning returns on their investments. You can choose from PPF, ELSS, Bank FDs, NPS and ULIPs as these are some of the best 80C investment options available in India.
Let’s learn all about 80C investments including their features, limit and benefits in this post.
What is 80C?
80C is that section of the Income Tax Act, 1961, under which rules for claiming deduction up to Rs 1.5 lakhs in respect of life insurance premium (e.g. ULIP), deferred annuity (e.g. NPS), contributions to provident fund (PPF, EPF) and subscription to certain equity shares (e.g. ELSS), etc. are given. Deductions for investments in bank FDs are also included in 80C. (Source)
Investing in any of the listed options under section 80C can help you claim tax deductions up to Rs 1.5 lakhs and save maximum Rs 46,800 of taxes in a financial year. That said, you can save Rs 50,000 additionally
Did You Know?
You can claim 80C tax deduction on paying tuition fees to any university, college, school or other educational institution situated within India.
Best 80C Investments in India
The following are some of the most popular 80C investment options available for the taxpayers of India:
- ELSS Funds (Lock-In Period: 3 years)
ELSS or Equity-Linked Savings Scheme Funds are funds where you can claim income tax deductions of up to Rs 1.5 lakhs and can save up to Rs 46,800 of taxes in a financial year. ELSS has the highest profit potential in the 80C investment options. It comes with a lock-in period of 3 years.
Gains on ELSS are tax-free for up to Rs 1 lakh. 10% income tax is charged on the incremental gain thereafter.
- PPF (Lock-In Period: 15 years)
PPF or Public Provident Fund is a government-backed savings scheme where you can again save up to Rs 1.5 lakhs by claiming income tax deductions and reducing your taxable income. It has a lock-in period of 15 years.
PPF maturity amount (interest + amount deposited) is entirely tax-free.
- NPS (Lock-In Period: till the investor attains 60 years of age)
NPS or National Pension Scheme is a government-backed deferred annuity retirement plan. Here your money will be locked in till 60 years of age.
- Bank FD (Lock-In Period: 5 years)
Bank FD or fixed deposit is a fixed-tenure investment scheme where you will get guaranteed returns at fixed FD rates. If you invest in a 5-year FD, you can claim Rs 1.5 lakhs of the deposit amount as 80C tax deduction.
- ULIPs (Lock-In Period: 5 years)
ULIP or a Unit-Linked Insurance Scheme is an insurance plan which gives the benefit of investment as well. Part of your premium goes towards your life cover while the remaining amount is used for investments in market-related options.
Your money will be locked for a minimum of 5 years and you’d be able to claim Rs 1.5 lakhs/FY as deduction in taxable income.
Did You Know?
You can claim 80C income tax deductions up to Rs 1.5 lakh/FY on repayment of home loan. It includes part-payment too.
80C Investments: Eligibility Criteria
Section 80C covers individuals and HUFs or Hindu Undivided Families only. Furthermore, this clause applies to both Indian residents and non-resident Indians.
That said, partners, firms, and other corporate organisations are not eligible for the 80C investments tax deductions. You must file an income tax return by July 31st to be eligible for tax deductions under this provision.
How to reduce taxable income with 80C investments?
80C tax deduction reduces your taxable income by Rs 1.5 lakhs in a financial year. The money you invest in listed savings or investment schemes can be claimed as tax deduction u/s 80C of Income Tax Act, ’61.
Consider the following example to understand how 80C investment options can help reduce your taxable income:
80C Investments: Example
Suppose your gross taxable income for the financial year is Rs. 7.5 lakhs. You invest Rs. 2 lakhs in PPF and Rs. 50,000 in a bank fixed deposit and claim Rs 1.5 lakhs from this as 80C deductions. Your new taxable income would be Rs 6 lakhs (Rs 7.5 lakhs – Rs 1.5 lakhs).
80C Investments: FAQs
Section 80C of the income tax code allows a resident person or Hindu Undivided Family to obtain a tax deduction. Furthermore, NRIs are entitled to tax benefits under this clause.
Yes, section 80C of the Internal Revenue Code includes all forms of life insurance premiums, including personal accident insurance and those paid in the event of an accident.
Companies, partnerships, and corporate entities are not eligible for the section 80C tax exemption.
While many tax-saving techniques are available, an individual may only claim a maximum of INR 1,50,000 every financial year.
Tax Savings FD allows a fixed deposits account which offers tax deduction under Section 80C. Yes, it comes under Section 80C.
ULIP provides tax benefits under section 80C. ULIP has a period of 5 years where you can withdraw at any given point.
Yes, deductions of up to Rs 1.5 lakh can be made on the prior investments in national savings certificate.
Sukanya Samriddhi Yojana comes under many tax benefits, one of them being Section 80C. 50% of the total corpus can be withdrawn for the purpose of girl’s marriage or higher education. Other withdrawals are not permitted.
Deduction under chapter VI A consists of life insurance premium, provident fund contribution with maximum deduction of Rs. 1,50,000.