In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:
Provident Fund (PF) & Voluntary Provident Fund (VPF)
Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.
Public Provident Fund (PPF)
An account can be opened with a nationalised bank or Post office. The current rate of interest is 8%, which is tax-free and the maturity period is 15 years. The minimum amount of contribution is Rs 500 and the maximum is Rs 70,000.
National Savings Certificate (NSC)
Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.
Public Provident Fund (PPF)
An account can be opened with a nationalised bank or Post office. The current rate of interest is 8%, which is tax-free and the maturity period is 15 years. The minimum amount of contribution is Rs 500 and the maximum is Rs 70,000.
National Savings Certificate (NSC)
These are 6-year small-savings instrument, where the rate of interest is 8% and is compounded half-yearly. The interest accrued every year is liable to tax but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.
Equity-Linked Savings Scheme (ELSS)
Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested here is locked for a period of three years.
Life Insurance Premiums
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included. Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction under Section 80C.
Home Loan Principal Repayment
Your EMI consists of two components, namely principal and interest. The principal component of the EMI qualifies for deduction under Section 80C.
Stamp Duty and Registration Charges for a home
The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C. However, this can be done only in the year in the year of purchase of the house.
Five-year bank fixed deposits (FDs)
Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.
Others
Apart from the above, things like children's education expenses that can be claimed as deductions under Section 80C. However, you need receipts to claim the same.
