Income Tax Deduction Under Section 80C

Some popular investment avenues or expenses eligible for 80C deduction are detailed below.

1. ELSS

ELSS stands for Equity Linked Savings Scheme. As the name implies, it primarily invests in equities, offering the dual benefits of capital appreciation and tax deductions. The scheme has a mandatory three-year lock-in and can help in annual tax savings of up to ₹46,800.

With ELSS, you can invest through a one-time deposit or a Systematic Investment Plan (SIP). For those unaware, SIP allows you to contribute a fixed sum every month or quarter to this scheme.

2. NPS

NPS stands for the National Pension System. It is a government-backed retirement savings plan open to all Indian citizens. The plan allows you (the subscriber) to decide the amount and frequency of contributions.

NPS accounts are of two types: Tier I and Tier II. The former is primarily for retirement savings and offers tax benefits. Contributions to this account are locked until retirement, with certain conditions allowing for partial withdrawals. The Tier II account is optional and operates similarly to a savings bank account, allowing you to withdraw whenever needed.

You can select government bonds, corporate debentures and equity funds as your investment mix in NPS. If you opt for auto-choice, the allocation is managed based on the subscriber's age.

3. ULIP

ULIP stands for Unit-Linked Insurance Plan. It not only provides financial security to your family following your demise but also helps you invest in market-linked schemes. You may opt for equity funds if you have a high-risk tolerance and aim for higher returns. If you are a conservative investor, you may prefer debt funds. There are also balanced funds that provide a middle ground by combining both strategies.

Besides offering tax exemption under 80C, the returns offered under ULIP are tax-exempt under Section 10(10D), subject to conditions and prevailing tax laws. However, remember that this scheme has a mandatory lock-in period of five years. You can proceed with partial withdrawals from the fund value after the completion of the preceding period.

4. Other Life Insurance Plans

Apart from ULIPs, the 80C tax deduction list also includes life insurance plans. An 80C deduction limit of up to ₹1.5 lakhs is applicable for the premiums paid for life insurance policies.

The premium payment can be monthly, quarterly or annual. You can consider the total premiums paid for the financial year to secure a life insurance plan and claim that as a Section 80C deduction.

Additionally, the maturity payouts and bonuses paid by life insurance companies are also tax-exempt under Section 10(10D) of the Act.

Thus, life insurance plans are a great way to secure your family’s financial future while saving on taxes under Section 80C.

5. PPF

PPF is the abbreviation for the Public Provident Fund scheme. This long-term savings instrument not only offers tax benefits but also provides an attractive interest rate of 7.1% per annum (compounded annually). PPF has a 15-year maturity period, but you can remain invested in it in blocks of 5 years.

During your investment tenure, PPF allows partial withdrawal only after the completion of seven years. Regarding loans, you can use this account as collateral between the 3rd and the 6th year of opening the account, subject to certain conditions.

Investing in PPF requires a mere Rs 500, but you cannot deposit more than Rs 1.5 lakhs in any financial year.

6. Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme is another government-sponsored investment opportunity. You may apply for it if you are over 60 or an early retiree with at least 55 years of age. In the latter scenario, making an SCSS investment is possible only if you do so within a month of receiving your retirement benefits.

SCSS rates are reviewed and revised quarterly. Despite these revisions, the rate applicable at the time of account opening remains fixed throughout the tenure. Not only that, but you can rest assured of a quarterly interest payout.

Regarding the threshold limit, you cannot invest more than Rs 30 lakhs and less than ₹1,000 in this scheme. SCSS has a fixed term of five years, which you can extend for an additional three years.

7. National Savings Certificate

The National Savings Certificate is categorised under a fixed-income investment avenue. You can invest in it through any post office branch. It offers a competitive interest rate of 7.7% per annum, compounded annually and paid at maturity.

The certificate has a fixed maturity period of 5 years. To start investing in this scheme, you only need ₹.1,000 (in a multiple of 100), and there is no maximum capping.

8. Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana (SSY) is a savings initiative designed to promote the welfare of female children. Introduced under the 'Beti Bachao Beti Padhao' drive, SSY aims to ensure a bright future for daughters by facilitating their education and marriage expenses.

You can open this account if you are a parent or legal guardian of a girl child who is below 10 years of age. The minimum and maximum investment limits in SSY are ₹250 and ₹1.5 lakhs, respectively. A family can open up to two accounts for two different girl children. In the case of twins or triplets, a third account can be opened.

As of the first quarter of the financial year 2024-25, the scheme offers an interest rate of 8.2% per annum. The account will mature either after 21 years from its opening date or when the girl child reaches 18 years old and gets married.

You can proceed with the premature closure of SSY in case of a medical emergency or higher education needs.

9. Infrastructure Bonds

Infrastructure bonds are financial instruments that help fund public utilities and development projects like roads, bridges, and energy plants. Either the government or infrastructure financing institutions issue these bonds.

When you invest in them, you are basically lending money to the issuing entity, which promises to pay back the principal sum on a stated date and make periodic interest payments.

Infrastructure bonds have a maturity period of 10 to 15 years. Some infrastructure bonds come with a lock-in period, typically five years, after which they may offer a buy-back option or be traded on the stock exchange.

These bonds offer tax benefits of up to ₹20,000 under section 80CCF, which exceeds the ₹1.5 lakh tax capping under section 80C. However, remember that the interest earned on these bonds is fully taxable.

10. NABARD Rural Bonds

The National Bank for Agriculture and Rural Development issues this bond. NABARD Rural Bonds were first issued in March 2016. They have been rated 'CRISIL AAA/Stable' and 'IND AAA/Stable', indicating the highest level of safety.

NABARD rural bonds offer attractive coupon rates, especially to retail investors. For instance, a 15-year bond might offer a coupon rate of 7.64%, while a 10-year bond might offer 7.29%. The face value of each bond is ₹1,000, with a minimum investment requirement of five bonds, or ₹5,000.

11. Tax Savings FD

This investment option offers capital protection and a fixed return on investment. The interest rate varies between 5.5% and 7.75%, depending on the bank. The interest you earn on this investment is taxable and subject to TDS.

However, remember that this investment avenue has a mandatory lock-in period of five years, and there is no provision for premature withdrawal.

12. Home Loans

Section 80C offers tax benefits on the repayment of the home loan principal. However, you must not sell the property within five years of possession to claim this deduction. If you do not adhere to this rule, the tax perks you previously availed will be revoked.

Since we are talking about home loans, let's also learn some other tax provisions applicable to home loans:

• Section 24(b)

• Section 80EE

• Section 80EEA

13. Stamp Duty

Stamp duty and registration charges are mandatory payments made to the government when a property is purchased or transferred. Stamp duty is a tax applied on legal documents during property transactions, while registration charges are fees paid for the official recording of the ownership change.

With rebate under 80C, these expenses can be claimed as deductions, reducing the taxable income of the individual or Hindu Undivided Family (HUF) making the payment.

14. Tution Fees

Under Section 80C, tuition fees paid for the full-time education of children can be claimed as a deduction by parents. This provision aims to reduce the financial burden of education expenses on families and encourage literacy.

To claim benefits, the educational institution must be situated in India. It can be any university, college, school, or other educational institution providing full-time education. A parent can claim this deduction for a maximum of two children. If both parents are taxpayers, they can collectively claim for four children.

Fees such as development fees, donations, private coaching fees, hostel expenses, mess charges, library charges, or similar payments are not eligible for tax deduction. Besides this, the deduction is available only on actual payment, not on a payable basis. Payments must be made via cash, cheque, or demand draft.

Section 80C of the Indian Income Tax Act offers valuable opportunities for individuals and Hindu Undivided Families (HUFs) to reduce taxable income by up to ₹1.5 lakh annually.

Investments and expenditures under this section cover an array of options, from ELSS and the National Pension System to the Public Provident Fund and Sukanya Samriddhi Yojana, catering to diverse financial goals and preferences.

Besides Section 80C, you can claim tax benefits under Section 80D when you buy health insurance online from Tata AIG. This medical insurance covers a range of expenses related to your hospitalisation and recovery treatment.

For example, your health insurance plan may pay for ICU charges, OPD, medicines, and diagnostic tests. You also get pre-existing disease health insurance with a pre-specified waiting period..