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Home / Health Insurance / Articles / Income Tax / Savings With Section 80C of income tax act Investments

Savings With Section 80C of income tax act Investments

Team AckoJun 19, 2023

Section 80C of the Income Tax Act, 1961; allows individuals to claim deductions on certain investments and expenditures. These deductions can help reduce your taxable income, effectively lowering the amount of tax you need to pay. In this article, we'll take a look at some of the investments that are eligible for tax deductions under Section 80C.

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Contents

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How to maximise your savings with Section 80C investments

Here are some tips to help you maximise your savings with Section 80C investments.

1. Plan ahead

To identify your investment objectives and your financial budget, it's critical to have a plan in place. This will assist you in choosing the right investments, and investing the right amount.

2. Diversify your investments

Your risk is spread out by diversifying your investments, which may also lead to higher profits. Under Section 80C, consider a combination of short- and long-term investments.

3. Consider the lock-in period

There is a lock-in period for some investments made under Section 80C, such as Equity Linked Saving Schemes (ELSS). This means that you cannot withdraw your money until a certain time has passed. Before selecting investments under Section 80C, consider the lock-in period.

4. Take advantage of compounding

When the interest from an investment is reinvested, compound interest results, increasing the interest that you will eventually earn. To maximise your savings over time, consider investments that provide compounding rewards.

5. Regularly review your investments

It will be easier to monitor your progress and make any necessary corrections if you regularly evaluate your Section 80C investments. This may also indicate whether you need to increase your investment level to meet your financial objectives.

6. Make use of the full Rs. 1.5 lakhs limit

To benefit from the tax advantages of qualifying investments and costs, use the full Rs. 1.5 lakhs of the Section 80C limit.

7. Consult with a financial advisor

To understand your Section 80C investment possibilities and choose investments that fit your financial objectives and risk tolerance, speak with a financial advisor.

List of investments which are eligible under Section 80C?

The following table lists the investments that are eligible for deductions under Section 80C.

Investments

Description

EPF

Section 80C permits deductions for contributions paid to your EPF account by you and your employer, up to 12% of your base pay.

Public Provident Fund (PPF)

Section 80C allows tax deductions for contributions made to PPF accounts up to a limit of Rs. 1.5 lakh annually.

Life insurance premiums

Section 80C allows for the deduction of life insurance premiums paid up to 10% of the amount assured.

Equity Linked Savings Scheme (ELSS)

The highest deduction allowed under Section 80C for an ELSS mutual fund, which invests in stocks, is Rs. 1.5 lakh annually.

National Savings Certificate (NSC)

Investments in NSC, a fixed-income investment fund provided by the government, are eligible for deductions under Section 80C up to a maximum of Rs. 1.5 lakh annually.

Other eligible investments under Section 80C

Here is a list of other investments that are eligible for deductions under Section 80C.

1. Home loan principal repayment

Section 80C allows deductions for principal payments made on home loans up to a limit of Rs. 1.5 lakh per year.

2. Tuition fees for children

Section 80C allows for deductions for up to two children's full-time tuition fees, up to a maximum of Rs. 1.5 lakh per year.

3. Sukanya Samriddhi Yojana Account

Section 80C allows for deductions on contributions made to a Sukanya Samriddhi YojanaAccount, a savings programme for girls, up to a maximum of Rs. 1.5 lakh annually.

Things to keep in mind while making Section 80C investments

Here are some important things to keep in mind while making Section 80C investments.

  1. Eligibility

You should confirm if you qualify for deductions under Section 80C of the Income Tax Act. Individuals and Hindu Undivided Families may use this area (HUFs).

1. Investment limit

Section 80C allows for a maximum investment of Rs. 1.5 lakhs every fiscal year.

2. Investment options

The Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), Equity Linked Savings Scheme (ELSS), Life Insurance Premium, etc. are only a few of the investment possibilities that are permitted under Section 80C. Select the investing strategy that best aligns with your financial objectives and risk tolerance.

3. Time horizon

When making Section 80C investments, keep your long-term financial goals in mind. Some investments have a lengthy lock-in period, so make sure you have the patience to remain invested for the needed amount of time.

4. Tax benefits

Section 80C investments provide tax advantages, although the advantages vary based on the investment type. Before selecting a choice, consider the tax consequences of each alternative.

5. Risks

Consider the risks associated with each investment option. For example, equity-linked investments come with higher risk but also have the potential for higher returns.

6. Financial goals

Try to match your Section 80C investments to your financial objectives. If you want to save for your child's education, for example, you could consider investing in an education-oriented mutual fund.

7. Regular review

Review your Section 80C investments on a regular basis to ensure that they are still aligned with your financial goals and make any required modifications.

Frequently asked questions on Section 80C investments.

Here are some common questions and answers about Section 80C investments.

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How does one determine the best investment option under Section 80C?

The best investment option depends on the individual's financial goals, risk appetite, and time horizon. It's important to consider the tax implications and the risks associated with each investment option before making a decision.

Is it necessary to invest the full Rs. 1.5 lakhs limit under Section 80C?

No, there is no requirement to invest the full Rs. 1.5 lakhs limit under Section 80C. You can choose to invest any amount within the limit that you are comfortable with.

Can Section 80C investments be redeemed before the maturity period?

Some Section 80C investments, such as Equity Linked Saving Schemes (ELSS), have a lock-in period and cannot be redeemed before maturity. Others, such as the Public Provident Fund (PPF), can be redeemed after a certain period but may have penalties for early redemption.

Can one claim deductions under Section 80C for investments made by a spouse or dependent?

No, deductions under Section 80C can only be claimed for investments made by the individual or the Hindu Undivided Family. Investments made by a spouse or dependent do not qualify for deductions under this section.

Is it necessary to regularly review Section 80C investments?

Yes, it is important to regularly review Section 80C investments to ensure that they are still aligned with your financial goals and to make any necessary changes. Regular review also helps to track your progress and make informed decisions.

Can an individual claim deductions under Section 80C for multiple investments?

Yes, an individual can claim deductions under Section 80C for multiple investments as long as the combined amount of all investments does not exceed the limit of Rs. 1.5 lakhs per financial year.

Can Section 80C investments be used as collateral for a loan?

Some Section 80C investments such as the Public Provident Fund (PPF) cannot be used as collateral for a loan. However, other investments such as Life Insurance policies and National Savings Certificate (NSC) can be used as collateral for a loan.

Are there any penalties for not using the entire Rs. 1.5 lakhs limit under Section 80C?

No, there are no penalties for not using the entire Rs. 1.5 lakhs limit under Section 80C. However, failing to use the entire limit means foregoing the tax benefits associated with qualifying investments and expenses.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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