Income Tax planning is one of the most important aspects of personal finance. It forms an integral part of our savings plan. However, 90% of the financial mistakes made by individuals in India are during the tax planning season. Most of the individuals fail to assess their tax liability and postpone the tax savings to last minute. Due to these reasons, they end up paying unnecessary taxes or opt for unnecessary tax savings.
Of the people, those who plan and file for their taxes – most of them fail to make full use of the section 80C benefits available under the Income Tax Act. If they had planned properly, they could have saved a few thousands by claiming the full Rs. 1.5 lakh benefits. Therefore, to make sure that this tax season you make the most of Section 80C.
Contribution under the Employee Provident Fund
Your employer deducts 12% of your basic salary to put in Employees’ Provident Fund (EPF). This contribution can be claimed under section 80C. For a basic of Rs.30,000 per month, an amount of Rs. 43,200 (Rs. 3,600 x 12) is contributed to EPF by you annually. Claiming your EPF as deduction takes you one step closer to the Rs. 1.5 lakh mark.
Public Provident Fund account
You can open a PPF account and claim deduction on the deposits made. A maximum of Rs. 1,50,000 is allowed, to be invested in one financial year; while the minimum investment required each year is Rs. 500. You can also open a PPF account for your spouse or child and claim a tax deduction in your tax return for deposits made.
National Savings Certificate
National Savings Certificates or NSCs are eligible for deduction in the year they are purchased. Their term is for 5 years and interest earned is compounded annually. Deposits qualify for tax rebate under Section 80C of the Income Tax Act. Interest is also eligible for deduction under Section 80C during the term of the NSCs.
Unit Linked Insurance Plan
ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs. 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C.
Five Year Fixed Deposits
Most banks offer tax saving fixed deposits that provide tax benefits on the amount deposited in them. These deposits come with a mandatory lock in period of 5 years and can have a maturity period ranging from 5 years to 10 years. It needs to be noted that not all FD investments are eligible. Only the ones made in tax-saving FDs are.
Apart from the above investments the following expenses are also eligible for deduction u/s 80C
Payments in LIC – Life Insurance Premium
The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.
Payments in Children’s Tuition fees
The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs. 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.
Repayment of Home Loan
The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees and transfer expenses.
Rahul Jain, Head, Personal Wealth Advisory, Edelweiss