Majority of the tax saving investments are done in last quarter of the financial year, During January, companies require their employees to provide investment declaration/ proofs for purpose of tax deduction.
Most tax payers know that they can claim deduction upto Rs 1 lakhs under Section 80C of the Income Tax Act.
Alongwith the well known investment options like NSC, PPF etc, here is the extended list of investments which can offer you deductions under 80C in financial year 2012-2013 (assessment year 2013-2014) :
There are some other options where you can save tax apart from 80C. Please see my other post on Tax saving Options other than 80C
1. PF / EPF – Provident Fund: Your employer deducts PF from your salary. This PF deduction is counted towards section 80c investments. You can check the amount on your payslip. Current interest is 8.8%. Interest Tax free.
2. PPF – Public Provident Fund: PPF is available for both salaried & self-employed person. It is one of the best long term saving options which is safe & give assured returns. Normal maturity period is 15 years & current interest rate is 8.8% tax free. Minimum contribution is Rs 500 per year & max contribution is Rs 1 lakh per year. Interest Tax free.
3. NSC – National Savings Certificate: You can purchase NSC through post office or online through some banks. Period of NSC is 5 years or 10 years. Current interest is 8.6-8.9%
The interest accrued every year is liable to tax (i.e. included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction. Interest Taxable.
4. 5 year Bank Fixed Deposit: Tax saving fixed deposits (FDs) with tenure of 5 years are also entitled for section 80C deduction. Normal FD for 5 years or more will not be entitled to deduction automatically. You need to ask the bank that you need Tax Saver Fixed Deposit and they will put a stamp on FD receipt regarding 5 year lock-in. This FD will NOT have facilities like Premature withdrawal, Loan against Fixed Deposit and Auto-renewal facility. Interest Rates are 8.5 -9.5%. Interest Taxable.
5. 5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, Only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C. Interest – 8.5 % . Interest Taxable.
6. NHB Suvriddhi: National Housing Bank (Tax Saving) Term Deposit Scheme is also approved for 80C deduction. The duration of this scheme is 5 years and Interest rate is 9.25%. Maximum Investment amount per year is Rs 1 Lakh. Interest taxable. TDS applicable. See details at NHB website.
7. ELSS – Equity Linked savings scheme: ELSS mutual fund are schemes specially created and approved for tax savings. The underlying investment in ELSS is Equity and it carries the same risk as any other equity fund. There is a lock-in period of 3 years. Handsome returns can be earned from the equity market if you are investing with a long time horizon.
8. Life insurance premium: Any premium amount paid for life insurance for you, spouse & children will be covered under section 80C. The insurance policy can be from LIC or private insurance company. Only premium equal to 10% of sum assured will be allowed (from 1-April-2013 applicable for assessment year 2013-2014).
9. ULIP – Unit linked Insurance Plan: ULIPs combine life insurance and equity investments. Few years back, many distributors were pushing ULIP to customers because they were getting hefty commission upto 70% of first year premium. But now, IRDA has capped the total charges to 3%. So current ULIP schemes are better than previous ones but still there are other investment options which can yield the same results at a lower cost. AVOID.
10. Pension Fund: Any premium paid towards any Pension Fund (LIC or private insurer) annuity plan, whether deferred or immediate will give you tax relief in that financial year. This deduction is under section 80CCC which is part of section 80C for overall Rs 1 lakh limit.
11. NPS – National Pension Scheme: Any contribution made by a National Pension System subscriber in Tier I scheme is deductible from the total income under Section 80CCD of the Income Tax Act. However, the aggregate deduction under Section 80C, 80CCC and 80CCD is fixed at Rs.1 lakh.
So, if the NPS subscriber is already having other eligible deductions such as LIC premium, PPF, bank or NSC deposits, ELSS etc, then they will not have much benefit in terms of taxation.
12. Tuition fees: Many people are not aware of this deduction. Any amount paid as tuition fee for the education of the first two children of the employee / tax payer is eligible for deduction u/s 80C of I-T Act. The deduction can be claimed for full-time courses including pre-nursery and playschool.
13. Stamp Duty and Registration Charges for a home: If you have bought a house recently, you can claim stamp duty & registration charges under section 80C in the year of purchase of the house.
14. Home Loan Principal Repayment: If you have taken home loan, you can claim the principal repayment as deduction under section 80C.Only principal qualifies for deduction under Sec 80C. The deduction for interest component can be claimed under Section 24 of the Income Tax Act.
B. Tax Saving Options for NRI: An NRI can use all the options mentioned above for claiming deduction under 80C except
- new investment in NSC
- New PPF Account opening , contributions can be made to exisiting PPF account
- 5 year Post Office deposit
Important Note: If you have not claimed full 80C limit of 1 Lakhs while submitting investment declaration to your employer, you can still do the investments and claim refund while filing income tax return. I will write another article on this issue.
Feel free to share, if you have other investment options in mind which entitles deduction under Section 80C of Income Tax Act. India. Please see my other post on Tax saving Options other than 80C
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There are some other options where you can save tax aprt from 80C. Please see my other post on Tax saving Options other than 80C