Most of the salaried professionals commit financial mistakes during the Tax Season due to lack of awareness regarding the deductions available under Section 80 of IT act. People under-utilize the benefits of Section 80 act and end up buying a wrong financial instrument for Tax saving which would have a bad impact on their personal finance. We attempt to help working professionals to understand how to utilize the acts under the Section 80 C and cover all the provisions that come under this act.
Savings under section 80 C can be broadly classified as: Investment based (PF, PPF, EPF, NSC, NPS, Fixed deposit, ELSS) and Non investment based (principal repayment of home loan, tuition fee, etc.). Before making investments related to tax saving it is always important that the individuals must analyze their risk appetite and determine the percentage of debt and equity exposure they are comfortable with.
Section 80 C:
The deduction under this section 80C is allowed from the total gross income. Total deduction under this section 80 C cannot exceed 1.5 lakhs. The following are the aspects covered under the section 80 C:
The 80 C deduction is valid on insurance policies purchased after 1st April, 2012 only if the premium is less than 10% of sum assured. The policy must be in the assessor’s or spouse’s or any child’s name.
Employee Provident Fund:
The contribution made under the EPF, recognized provident fund are considered under section 80 C. The deduction is as per basic salary (12%). Employees also have an option to contribute further in form of voluntary provident fund. That additional contribution also qualifies for 80 C deductions. The returns are predetermined at 8.75% per annum.
Public Provident Fund:
Under PPF (Public provident fund) the contribution is allowed for deduction under section 80 C, maximum limit for investing is 1.5 lakhs from Assessment Year 2015-16. Investment made yields returns at 8.7% per annum.
Post Office Term Deposit:
The amount deposited in the five year deposit scheme in post office is considered for Tax exemption under section 80 C. Rate of interest of 8.5% compounded quarterly is earned for the investment.
Senior Citizens Saving Scheme:
This option is available for retired person having age of 60 years and above. The amount deposited under the senior citizen saving scheme would come under section 80C.It has a lock in period of 5 years. Interest at 9.2% per annum.
Comes in two options with maturity of 5 years and 10 years. Investments up to Rs 1.5 lakhs eligible for deduction under section 80 C. Rate of interest are at 8.5% and 8.8% for NSC having maturity of 5 years and 10 years respectively.
Equity Linked Savings Scheme (ELSS):
Mutual funds specially designed for tax saving purpose with investments in equity markets. Have a lock in period of 3 years (Least in the category of tax savings instruments). ELSS is the most suitable tax saving instruments for working professionals. High equity exposure ensures high returns if markets are favorable.
Tuition fees paid to educational institutions situated in India for the purpose of full time education of any two children which subjects to a maximum of 1.5 lakhs.
Repayment of loan taken for buying or constructing residential house property come under this section 80 C. Only the principal repayment would come under this section 80 C.
Generally employees rush at the end of the financial year and buy financial products which would help them in Tax saving and wouldn’t bother about continuing them in future. This would mean that the investments made this year are taxable if discontinued. So, it is important to plan your Taxes by keeping the above provisions in mind.
Written By Arthayantra