Investments in 80C- Managing between Tax Savings and Liquidity
You must pay income tax to the government on whatever money you get. However, there are several strategies you can use to lower your tax obligation. Investing your money in different Section 80C investment possibilities is one of the most well-known ways to accomplish this. By making these investments, you can take advantage of the tax deduction benefit of up to Rs. 1.5 lakh provided by Section 80C of the Income Tax Act, 1961. We’ll go over the different investment possibilities and some important characteristics of these tax-saving investment options in this blog post. These options can be used to take advantage of the Section 80C tax deduction benefits.
Section 80C: What is it?
Several significant investment choices and costs are listed in Section 80C as being eligible for tax savings. All of these financial products are referred to as Section 80C investment choices. Popular financial products like as Public Provident Fund, Unit Linked Insurance Plans, ELSS Tax Saver Mutual Funds, National Savings Certificate, National Pension System, etc. are among the many investment possibilities available under Section 80C. The total tax advantage from these tax-saving investments is only allowed to upto Rs. 1.5 lakh per year, though.
What are the requirements to be eligible under Section 80C?
Section 80c of the Income Tax Act applies to both individuals and Hindu Undivided Families (HUF). Additionally, both Indian citizens and NRIs are included in this section.
However, partnerships, corporations, and other corporate organizations are not eligible for the tax deduction for 80C investments.
By July 31st, you must file an income tax return to be eligible for tax deductions under this provision. To get the most out of your 80c investing possibilities, file your income tax on time.
Which 80C Investment Options Are There?
Investment Options for Individuals Under 80C
Whether you work for yourself or for a salary, it’s critical to weigh your options to save taxes. Of all the tax-saving choices, the section 80C tax deduction is the one that is most frequently used.
The good news is that the market offers several 80C investment options that function as tax-saving strategies. Now let’s examine the top investments under 80c.
Life Insurance Premium
The premium for life insurance is the most popular 80c investing choice. In addition to lowering taxes, life insurance safeguards your family’s financial stability in the event of unanticipated circumstances.
You can claim a tax deduction under section 80C on the premium paid for a life insurance policy if you buy one for yourself, your spouse, and your kids. But, if you purchase the coverage for your parents or parents-in-law, you will not be qualified to get this kind of reward. You are eligible to receive tax benefits on this 80C investment up to a maximum of Rs 150,000 if you own multiple policies.
Public Provident Fund (PPF)
The Public Provident Fund is another well-liked investment choice that falls under 80C. Within a fiscal year, you can invest between INR 500 and INR 1,50,000.
Your taxable income will drop by the amount invested in the fund under the terms of section 80C of the income tax.
In addition, you will earn tax-free interest, indicating a general financial benefit.
Employee Provident Fund (EPF)
The Employee Provident Fund is the next 80C investment option. This benefit plan is exclusive to salaried workers. Here, a certain sum of money is invested each month by the company and employees together. Interest is credited to the EPF account regularly.
Equity Linked Saving Scheme
The Equity Linked Savings Scheme is an additional 80C investing option. You can benefit from tax savings on the amount you contribute to the fund.
Higher returns are possible with this program because the funds are invested in equities funds. To prevent exorbitant losses, it is important to keep in mind that equity investments are subject to market risks. Therefore, you should base your decisions on your risk tolerance.
The amount you can invest in an Equity Linked Savings Plan has no maximum limit, however, you can only receive income tax benefits of up to Rs 1,50,000.
Unit Linked Insurance Plan
The Unit Linked Insurance Plan is a great choice because it provides both investment and life insurance benefits. It provides up to INR 1.5 lakhs in tax savings under section 80C of income tax. Investing in Unit Linked Insurance Plans enables you to take advantage of a variety of market-linked fund options to maximize your savings. A ULIP calculator can be used to determine how much insurance coverage will be sufficient for your family and how much you will have to pay for it.
Tax Saver Fixed Deposits
The Tax Saver Fixed Deposit is another 80C investing choice. Under 80C, any deposit you make with a bank is deductible from taxes once you’ve had it for at least five years.
You can designate a nominee for a tax-saving fixed deposit that will be able to take withdrawals before or after the deposit matures in the event of your death. It is important to note that an early withdrawal from a tax-saving fixed deposit is not permitted.
The entire amount can be claimed as a deduction under section 80CCD if you contribute an extra INR 50,000 under the National Pension Scheme (above and above the 1,50,000 section 80C limit). Keep in mind that you must have a tier I NPS account to receive the additional deduction.
Principal Repayment of Home Loans
If you have a house loan from any bank or financial institution, you are eligible to deduct Rs 1,50,000 from the principal amount of your loan under section 80C.
Yojana Sukanya Samriddhi
The Sukanya Samriddhi Yojana is a program designed to ensure a girl child’s well-being during life’s major turning points, like marriage and schooling.
Section 80C of the Income Tax allows for tax savings on this program. Two girl children under the age of ten may have their accounts opened by you. Under section 80C, it is a great alternative for investments.
Certificate of National Savings
The National Savings Certificate is the final 80C investment choice. You can deduct your investment under this plan from your taxes. Furthermore, the interest earned during the first four years is also deductible.
Investment for Senior Citizens under 80C
Investment plans that offer tax savings to senior citizens include the following ones:
Both fixed and recurring deposits
For seniors in particular, the two most popular tax-saving investment options are Fixed Deposits and Recurring Deposits. Senior citizens can benefit from tax-free interest income of up to Rs. 50,000 under Section 80TTB of the Income Tax Act.
Senior Citizens Savings Plan
The Senior Citizen Savings Plan was created specifically for seniors who are 60 years of age or older. At the age of 55, seniors who have selected the Voluntary Retirement Scheme may enroll in it.
The maximum amount that can be deducted from any investment made under this program is still Rs. 150,000.
The National Pension Plan
Throughout your career, the National Pension Scheme encourages you to make monthly contributions to a pension account. The National Pension Schemes allow senior citizens to make investments up to the age of seventy. Section 80CCD, a subset of 80C, permits a tax deduction for contributions made to this program. The total deduction allowed under both clauses, however, is limited to INR 1,50,000.
Bonds Without Taxes
Seniors seeking safer investing options may find that bonds issued by public sector businesses are a useful tax-saving tool. A Demat account can be used to purchase the bonds. These bonds allow for tax-free interest earnings.
Investment Choices for Hindu Undivided Families in 80C
Given that Hindu Undivided Family (HUF) is regarded by Indian law as a separate identity, HUF investment opportunities differ. HUF is eligible for an annual tax exemption of Rs. 2,50,000 under Section 80C of the Income Tax Act.
Aside from that, HUF is not allowed to purchase certain types of investment instruments.
These are the government’s mini-investment plans, which include the National Savings Certificate, monthly savings plans, PPF (Public Provident Fund), and recurring deposits.
Nonetheless, HUF can make investments in stock, life insurance, mutual funds, fixed deposits, and equity-linked savings plans (ELSS).
These investment instruments offer the same HUF tax benefits under Section 80C as individual benefits.
Which Payments Under Section 80C Are Eligible for Deduction?
A few sums are additionally deductible under section 80C:
Amount paid for life insurance
One of the most common strategies to avoid taxes is to pay the premiums towards a life insurance policy. The exemption, however, is only available in cases where the premium is less than 10% of the total amount insured.
Payback of Home Loan
The repayment of a house loan taken out by an individual to build or buy residential property is likewise exempt from taxes. Stamp duty, registration costs, and transfer expenses are also deducted.
Contribution to Children’s Fees
Up to Rs 1,50,000 in child education expenses is another amount that can be deducted. Under income tax section 80C, it is deductible from taxes.
Conclusion
All above strategies for tax savings involve investment in long term Investment options which are either redeemed at the time of retirement or after a lock in period of more than 5 years. Therefore, it can be said that such investment although would result in tax optimization, but can be burden on the liquidity considering the lock in period.
Such deductions are allowed in the Old Regime of the Income Tax and are not available in the New Regime.
Therefore, it is advisable to properly select the regime of income tax while filing return and take help of the professional advisers for the same as there can be huge difference between old and new regime of Income Tax.
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