Year end is approaching and the time has come to get all our investments in place and submit requisite proofs to our employers so that appropriate tax deduction happens. Section 80 C provides us the option to invest upto 1 lac rupees which gets deducted from our taxable Income.
Deductions allowed over and above Section 80C
Under Section 80 CCF of the I.T. Act, an investor in such infrastructure bonds will be entitled to tax deduction of investments of up to Rs 20,000.
You could claim Rs. 15000 as deductible on health insurance under Section 80 (D), if you purchase health policy covering your Parents, you can claim additional Rs. 20000.
What is Section 80 C ?
No matter what tax bracket you fall under, Section 80 C of the Income Tax Act acts as a saviour, outlining deductions that can be made from your taxable income.
- Section 80 C allows certain investments and expenditures to be exempted from tax.
- You need to invest in the instruments specified under this Section and deduct that amount from your gross income. You are liable to pay tax only on the income derived after this deduction.
- Investments up to a maximum of Rs 1,00,000 only are set for deduction for any tax bracket.
What are Tax saving options available ?
| Tax-saving options under Section 80C |
|---|
| Provident Fund (PF) contribution |
| Public Provident Fund (PPF) up to Rs 70,000 in a year |
| Premium for Life insurance policy or Unit-linked Insurance Plan |
| Tax saving Fixed deposits with Banks |
| Equity Linked Saving Schemes (ELSS)of mutual funds |
| Infrastructure bonds |
| National Savings Certificate (NSC) |
| Senior Citizens Saving Scheme |
| Post Office Five Year Term Deposit Account |
| Payment towards principal amount of home loan |
| Pension Plans |
| Note: An additional deduction of Rs 15,000 under Section 80D has been allowed to an individual who pays medical insurance premium for his/her parent(s). |
Other deductions:
In 2008, Senior Citizens Saving Scheme 2004 and the Post Office Five Year Term Deposit Account have also been brought under the purview of this Section an additional deduction of Rs 15,000 allowed under Section 80 D to individuals paying medical insurance premium for his/her parent(s).What are Equity Linked Saving Schemes?Equity linked savings schemes (ELSS) are mutual funds that help you gain the twin advantage of earning equity-linked returns with the additional benefit of saving tax. ELSS have a lock-in period of 3 years, which encourages long term investing among investors and gives ample time for the fund manager to manage a portfolio of stocks that can outperform over a period of time.
Why is the Equity Linked Savings Scheme a winner ?Over a longer horizon, it has ben witnessed that equities outperform most other asset classes in terms of returns.
Advantages of ELSS
- Investments in equity delivers higher returns over a longer period, surpassing returns from other tax saving instruments
- A lock-in of 3 years ensures you stay invested for a longer period, thus allowing your money to grow over a period of time.
- ELSS will endeavour to provide higher returns with tax-efficiency
- One has the option of investing small amounts of Rs 500 each month in ELSS through Systematic Investment Plans (SIPs)
| Comparison of risk and returns vis-a-vis other tax saving instruments | ||||||
|---|---|---|---|---|---|---|
| Instruments | Lock-in Period (years) | Risk Level | Returns ( per cent per annum) CAGR | Minimum investment (Rs) | Maximum investment (Rs) | Tax status on returns |
| Public Provident Fund (PPF) | 15 | Low | 8 | 500 | 70,000 | Tax free |
| National Savings Certificate (NSC) | 6 | Low | 8 | 100 | 1,00,000 | Taxable |
| Bank Fixed deposits | 5 | Low | 11 | 10,000 | 1,00,000 | Taxable |
| Equity Linked Savings Schemes (ELSS) | 3 | High | Market linked | 500 | 1,00,000 | Tax free |
| Unit Linked Insurance Policy (ULIP) | 3 | High | Market linked | 10,000 (as annual premium) | 1,00,000 | Tax free |
