Understanding Deductions Under Section 80C

Subsections of Section 80C

Section 80C of Income Tax Act has some sub-sections and they are:

Tax Saving Investments under Section 80C

Here are some investments that you can make to save tax under Section 80C:

• Public Provident Fund (PPF):

  This tax-free investment scheme can be opened through an account in the post office or bank. The lock-in period is 15 years and the maximum amount you can invest in a year is INR 1.5 lakh.

• Equity Linked Savings Schemes (ELSS):

  This mutual fund scheme has a lock-in period of 3 years, and you can claim atax deduction under 80Cof up to INR 1.5 lakh by investing in this scheme.

• Employees’ Provident Fund (EPF)

  The interest earned on EPF is tax-free, but it becomes taxable if the employee leaves the organisation or withdraws from EPF before completing 5 years in the organisation. On retirement, employees can avail of a lumpsum amount.

• National Pension Scheme (NPS):

  Contributions from both employers and employees are tax-free, but the employers’ contribution cannot be more than 10% of the basic salary and dearness allowance. A self-employed individual can also claim tax deduction under 80C for contributions that amount to 20% of gross income. The returns are tax-free only until maturity. After the maturity of the scheme, 60% of the accumulated money becomes taxable.

• Tax saving fixed deposits:

  With a maturity period of 5 years, these FDs are eligible for tax exemption under 80C. These FDs have a lower rate of interest.

• National Savings Certificate:

  With a 5-year tenure, you can claim a tax deduction on the interest earned on these government-backed savings schemes.

• Sukanya Samriddhi Yojana:

  This government scheme was launched to support the education and marriage of a girl child financially. The account matures after the girl attains 21 years or gets married after she turns 18; the interest earned from this investment is tax-free. The maximum contribution in a year is INR 1.5 lakh.

• Senior Citizen Savings Scheme:

  You can claim 80C deduction of up to INR 1.5 lakh under Section 80C by investing in this scheme, but the interest accrued is taxable as per your income tax slab. The lock-in period is 5 years but can be extended by 3 years.

Deductions on Investments under sub-sections of Section 80C

The deductions on investments under sub-sections of 80C are:

When should I Invest to Claim Deductions under Section 80C of the Income Tax Act?

Well, you should make the investment in the financial year to get the tax rebate. If you have INR1.5 lakh to invest, you should invest at the beginning of the financial year instead of doing it in the last quarter primarily for two reasons— one, you will reap more benefits by making an early investment and remaining carefree for the rest of the year. Secondly, if, unfortunately, some emergency causes you to spend your savings in the last quarter, you may not have enough to make an investment. And taking debt to invest to save taxes is again not a wise call. So, be an early bird.