While investing in a tax-saving instrument or any investment for that matter, it is important to keep an eye on the taxability of its income. Taxes can constrain long-term earnings potential if the income earned is taxable, as they tend to diminish returns over time.
Most of us are already well aware of the deduction available under section 80C of the Income-tax Act, 1961. Taxpayers can claim a maximum deduction of Rs 1.5 lakh under section 80C for the current financial year.
This section provides various investment options that generate returns and can also claim as deductions when calculating total taxable income.
80C – Tax-Saving Options
Mutual Fund Equity Linked Savings Scheme (MF ELSS): This has the lowest lock-in period of 3 years. In the case of a monthly SIP, each installment has a 3-year lock-in.
Unit Linked Insurance Plans (ULIPs): Insurance companies offer ULIPs as market-linked investments, with a lock-in period of 5 years, and post-lock-in gains are eligible for tax saving.
National Pension System (NPS): Investments of up to 1.5 lakh rupees in a financial year can be claimed for tax deductions. Additionally, an extra deduction of up to 50,000 rupees is claimable under Section 80CCD(1B).
Employee Provident Fund: The provident fund deducts your salary contributions, and additionally deductions can made for contributions towards the Voluntary Provident Fund.
Public Provident Fund: This investment has one of the longest tenures of 15 years with a further extension of 5 years allowed each time. However, The interest rates are linked to that of government securities.
National Savings Certificate (NSC): You can claim deductions for investments made in NSC.
Bank Fixed Deposits: Fixed deposits of 5 years with a scheduled bank are eligible for deduction.
Senior Citizen Savings Scheme (SCSS): You can claim deductions for investments made in SCSS as well.
Life Insurance Premium: You can claim this deduction when you pay the life insurance premium for yourself, your spouse, or your children.
Tuition Fees: If you have paid tuition fees towards the full-time education of your children, Therefore, you can claim for up to two children.
Home Loan principal repayment: Consider the repayment of the principal amount towards a housing loan.
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