Investment to be made to claim deduction under section 80C
Maximum deduction allowed under section 80C of Income Tax 1961 is Rs 150000.Following are eligible for deduction under section 80C:
- Tuition fees paid by individual for the education of children can be claimed. This benefit is only for 2 children.
- Repayment of housing loan principle is allowed for deduction under section 80C.
- Further Stamp duty value and registration charges paid on house are also available to claim deduction.
- Life insurance premium paid by individual for self, spouse and children subject to limit of 10% of capital sum assured for the policies issued after 01.04.2012 can be claimed for deduction. For policies before 01.04.2012 the limit is 20% of capital sum assured. For individual suffering from disability or suffering from specified disease the limit is 15% of capital sum assured. HUF can also claim this benefit
Further following investments can be made to claim deduction under section 80C
- National Savings Certificate (NSC)
- Sukanya Samriddhi Scheme
- Senior Citizens Savings Scheme (SCSS)
- Employee’s contribution to provident fund
- Public Provident Fund scheme
- Equity Linked Savings Scheme (ELSS)
- 5 year fixed deposits with any branch of Indian Post Office and 5 Year Tax Saving Bank Fixed Deposits (FD)
- Unit Linked Insurance Plan (ULIP)
National Savings Certificate (NSC):
- Non-residents, Trust and HUF cannot invest in this scheme.
- NSC comes with a lock-in period of 5 & 10 years
- Minimum investment limit is Rs 100. There is no maximum investment limit.
- Interest accrued on the amount invested in NSC is taxable but if it is reinvested than it will be counted as fresh investment and hence qualifies for 80C deduction.
- Maturity amount is tax-free.
Sukanya Samriddhi Scheme
Sukanya Samriddhi Scheme is one of the best investment options available.
- Parents/guardians can open account in the name of a girl child till she attains the age of 10 years. Account can be opened at public sector banks and post offices.
- Minimum & maximum investment limit is Rs 250& Rs 1.5 lakhs p.a. respectively.
- The duration of a Sukanya Samriddhi Account is 21 years.
- The account allows premature withdrawal when a girl child completes 18 years.
- The account has a lock-in period of 8 years, excluding the entry age which is 10 years.
Senior Citizens Savings Scheme (SCSS)
As the name suggests, this scheme is for senior citizens.
- An individual aged 60 years or more is allowed to open the account. An individual of the age of 55 years or more but less than 60 years, who has retired under VRS (Voluntary Retirement Scheme) is also permitted to open account if he/she satisfies 2 conditions. First, the account is opened within 1 month of receipt of retirement benefits. Second, investment amount should not exceed the amount of retirement benefits.
- Minimum and maximum investment limit is Rs 1,000 and Rs 15 lakh respectively.
- Interest income is taxable and taxes will be deducted at source if it is more than Rs 10,000 p.a.
- Maturity amount is exempt from tax.
Employee’s contribution to provident fund
If the employee’s basic salary exceeds Rs 15,000 per month, he has an option to join the scheme, otherwise he/she has to compulsorily contribute towards provident fund.
- A person cannot withdraw his/her PF balance for as long as he/she continues to work except in special circumstances i.e flat, construction, marriage/education of children etc
- The EPF falls under EEE (Exempt, Exempt, Exempt) category.
- Employer’s contribution to the PF account up to 12% of salary is tax exempt. Employee’s own contribution qualify for deduction under section 80C. Entire accumulated balance (including interest) of PF is tax exempt if withdrawn after continuous service of 5 years.
PPF account can be opened by Resident Indian individuals either in their own name or in the name of minor child. It can be opened by both salaried and non-salaried individuals. A HUF cannot open a PPF account.
- Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.
- PPF qualifies for EEE (Exempt, exempt, exempt) category.
Equity Linked Savings Scheme (ELSS)
- Anyone with a Demat account can invest in ELSS.
- Minimum lock-in period for this scheme is 3 years
- As the return on investment is directly linked to stock market performance, in the long run ELSS has wide potential to provide you the best return on your investments. It is more suitable for the person with appetite to take a bit more risk due to market factors
- The minimum investment limit is Rs 500. There is no upper limit for investment in this scheme.
- ELSS falls under EEE (Exempt, exempt, exempt) category
5 year fixed deposits with any branch of Indian Post Office and 5 Year Tax Saving Bank Fixed Deposits (FD)
- Account may be opened by any individual.
- Maturity period is 5 years
- Minimum investment limit for Indian Post Office is Rs 200 and for Bank Fixed Deposits is Rs1000. There is no upper limit to investment.
- Interest earned under this scheme is fully taxable.
- The investment is eligible for deduction under 80C
- Maturity amount is exempt from tax.
Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan is a life insurance product that is a combination of investment and insurance. That means a portion of the money invested in ULIPs will be used to provide risk cover and the balance amount will be invested in the stock market.
- An investor can buy ULIP for self or spouse or child. Child can be married or unmarried, dependent or independent and minor or major.
- An investor can invest an amount higher than Rs 1.5 lakh but deduction will be allowed only up to Rs 1.5 lakhs.
- Investment and withdrawals & maturity amount are tax-free.