Particulars : Sec 80C No saving
Your Annual Income : 600,000 600,000
Your Tax saving investments : 100,000
Net Taxable Income : 500,000 600,000
For the first Rs. 200,000 : Nil Nil
For the remaining Amount : 30,000 50,000
Education Cess : 600 1,000
Total Tax liability : 30600 51,000
An investment of Rs. 100,000 in tax saving schemes reduced your tax liability by Rs. 20,400. This tax saving will be more when you are in upper tax slab category. In the above example you can save Rs. 20,400 income tax and at the same time you will get interest or profit from the tax saving scheme. Income from a few popular tax saving schemesalso exempted tax and your gain will be more. Here let us know the investments or financial instruments which allow exemption under section 80C.
1. Contribution to EPF or GPF: Employees Provident Fund or General Provident Fund is the retirement scheme of salaried persons. EPF is for private employees and GPF for government employees. The contribution of Provident fund is deducted from salary every month and deposit in recognized provident fund account by the employer. In case of Contributory provident fund the employer also deposit the same amount. Employees’ contribution to both of this provident fund scheme is tax exempted under section 80C of Income tax act. Interest on provident fund is also tax freeand the maximum lock in period is the service period of the employee. The employer can invest additional amount as voluntary contribution which also attract tax exemption and tax free interest.
2. Investment in Public Provident Fund: A Public provident Fund is also a tax saving investment which can open in any post offices in India or selected nationalized banks. At present PPF also gets 8.8% tax free interest and one can invest up to Rs. 100,000 in PPF every year. Lock in period is 15 years and investment in PPF is exempted under section 80C of income tax act.
3. Premium paid for Life Insurance: Life insurance premium also exempted from tax under section 80C of income tax act. If you pay Life insurance premium for yourself, spouse or kids you can avail this tax exemption. But life insurance premium paid for parents are not eligible for tax exemption. In budget 2012-2013 the tax exemption of Life insurance premium restricted to 10% or sum assured. If any annual Life insurance premium is more than 10% of the sum assured, you cannot claim tax exemption for the premium paid for such Life insurance policy. Till the financial year 2011-12 this limit was 20% of the sum assured. You can avail tax exemption for the life insurance premium for all type of life insurance policy including ULIP, Endowment, Term insurance, money back policy etc. The maturity amount, death benefit and bonus are also exempted from tax.
4. National Savings Certificate: You can avail tax exemption under section 80C of income tax act for the investment in NSC or National Saving Certificate. Now the NSCs are two types. The first one is five years NSC and the second one is 10 Years NSC. You can avail tax exemption for both NSC schemes, but the interest is taxable on accrual basis. Theaccrued interest is also considered as a reinvestment and you can claim tax exemption for the accrued interest every year.
5. Equity Linked Savings Schemes: Equity linked tax saving scheme or ELSS is equity related mutual fund and investment in this ELSS are exempted under section 80C of income tax act. This has a lock in period of 3 years and this is the shortest lock in period for a tax saving scheme. As a mutual fund, ELSS does not provide interest, but you can receive the growth or dividend. You must be cautious that ELSS invests the pooled money from investors in volatile share market and you cannot assure any return from the ELSS and the possibility of loss also there. The dividend and capital gain (long term) is not taxable for ELSS.
6. Housing loan repayment: The principal amount repayment of housing loan also come under this category. But keep in mind that the tax exemption is available only for the loan repayment of completed houses. The individual who claim for the concession should have completion certificate, possession letter or registered sale deed. Loan for construction linked house property is not eligible for tax exemption until it is completed and acquire completion certificate from relevant authorities. Interest paid for such home loan also attracts tax exemption up to Rs, 150,000 under section 24 of income tax act.
7. Tax Saving Bank fixed deposits: An investment in tax saving fixed deposits in banks also attracts tax exemption under section 80C. You should inform the bank about your tax saving plan, while depositing this FD . Lock in period is five years and the interest is taxable.
8. NPS or New Pension Scheme: New pension scheme is suitable for those who do not have provident fund account. Minimum annual investment is Rs. 6000 and those have completed 18 years of age and do not overcome 55 years can join this NPS. You cannot withdraw this amount until you complete 60 years of age. You can withdraw the accumulated money at the age of 60 or can transfer to any annuity account to get regular pension. If you withdraw the money the income is taxable. For annuity the amount is not taxable.
9. Pension plans: An investment in pension scheme with any insurance firm is exempted under section 80CCC of income tax act and the exemption limit is same Rs. 100,000 altogether with other tax saving investments under section 80C. At the maturity you may make a tax free withdrawal of one third of the total accumulated amount. The periodic pension is also taxable.
10. Senior Citizens Saving Scheme: Those who have completed the age of 60 years or those who have taken voluntary retirement at the age of 55 can join this scheme. This is a onetime investment and can start with a minimum amount of Rs. 1000 and the maximum amount is Rs. 1,500,000. This scheme gives out quarterly interest at the rate of 9% per annum and this will be a good income source for the senior citizen. The lock in period for SCSS is 5 years and eligible for tax exemption under section 80 C of income tax act at the year of investment. Interest is taxable.
11. Post office time deposit: Post office time deposit also attracts tax exemption under section 80C of income tax act. This is same as 5 year bank fixed deposit and have a quarterly accumulated interest of 7.5% p.a. Minimum investment in POTD is Rs. 200 and no maximum limit. Interest is taxable.
With all these investment schemes you can save tax for Rs. 100,000 at the same time this will be an investment and can enjoy interest and other benefits from these investments. But you can choose any of these schemes or a few of them as per your investment strategy, risk bearing nature, your financial goals and also the taxability of the income derive from it.
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