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80C deduction, do you know what it is? It’s that time of the year again when you have to arrange for your tax proof documents and submit them to your employer. Whatever tax investments you had declared at the starting of the year, you will have to submit the supporting documents for those. Based on that, the income tax for the upcoming months will be calculated. If all the documents are in order then all good. Else if there is any shortfall then the deficit amount will be deducted as tax from the upcoming months’ payslips.
Luckily for us, the Government of India has given us an option to reduce the amount of tax outgo from our monthly payslip. It is known as Section 80C. Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. That means if common people like you and me invest in these specified options then we will be eligible for a tax rebate. As per the Income Tax Act, the maximum amount that can be claimed as deduction under Sec 80C (80C limit) is Rs.1.5 lakhs.
80C deduction investment options at a glance
ELSS mutual funds
Tax saving fixed deposits
Employee Provident Fund (EPF)
Public Provident Fund (PPF)
National Pension System (NPS)
Pension Plans
Unit Linked Insurance Plans (ULIPs)
National Savings Certificate (NSC)
Sukanya Samriddhi Yojana
Senior Citizens’ Saving Scheme
Payments in LIC-Life Insurance Premium
Repayment of home loan
Payments in children’s tuition fees
80C deduction investment options in details
80C deduction: ELSS mutual funds
This is one of the best 80C investments available in the market right now. It not only helps to save tax but also helps to grow wealth over the long term. Equity Linked Savings Scheme or ELSS funds in short are equity mutual funds by nature. They have a lock-in period of 3 years. That means that you will not be able to withdraw the money before that period. After 3 years is over, you will have the option to either redeem the investments or continue investing further. As per research it has been found that for getting the best returns out of this category, you should stay invested for 5+ years.
Eligibility : Can be opened by Resident Indian individuals.
Liquidity: ELSS funds have lock-in period of 3 years.
Rate of Returns : Returns vary across different funds ranges from 11% to 18%
Investment Limit: No limit on maximum contribution
Tax Treatment : Interest earned is fully exempt from tax.
Read the below article to know more about ELSS funds:
10 top best ELSS tax saving mutual funds to invest for 2018-2019
80C deduction: Tax saving fixed deposits
This is a relatively less risk investment option for those who are looking to save tax through Sec 80C deduction. Tax-saving FDs are like regular fixed deposits. They come with a lock-in period of 5 years and tax break under Sec 80C on investments of up to Rs 1.5 lakh.
Eligibility : Can be opened by Resident Indian individuals.
Liquidity: Fixed Deposits have lock-in period of 5 years.
Rate of Interest : FD interest rate across different banks ranges from 5.5% to 7.75%
Investment Limit: Minimum investment limit is Rs 1000.
Tax Treatment : Interest earned is taxable.
80C deduction: Employee Provident Fund (EPF)
If you are a working professional then you will be familiar with this one. In every month’s payslip, you will notice a certain amount that has been contributed by your employer to your PF account. EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA. It is deducted by an employer and deposited in the EPF or other recognised provident fund.
Eligibility : Can be opened by employee with basic salary greater than 15,000 /month
Liquidity: Can withdraw PF balance after 2 months of leaving job. But he/she should not take up employment within two months with an employer covered by PF Act
Rate of Interest : Interest rate on the EPF is 8.55%.
Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.
Tax Treatment :Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years
80C deduction: Public Provident Fund (PPF)
PPF is another retirement scheme sponsored by the Government Of India that is eligible for 80C deduction. These are long term investments backed by the Government.
Eligibility : Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.
Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.
Rate of Interest : Current interest rate is 8.0% p.a.
Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.
Tax Treatment : Interest earned is tax-free.
Read below to know more about PPF accounts:
80C deduction: National Pension System (NPS)
The NPS is a pension scheme that has been started by the Indian Government. It is to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh (80C limit) can be used to avail tax deductions under Section 80C.
Eligibility : Can be opened by every Indian citizen between the age of 18 and 60
Liquidity: Partial withdrawals are allowed after 15 years but under special conditions
Rate of Returns : Returns rate on the NPS varies between 12% – 14%
Investment Limit: No limit on maximum contribution
Tax Treatment : Employer contributions are tax-free.
80C deduction: Pension Plans
Pension Fund deduction falls under Section 80CCC which is a part of 80C offering a tax relief for a maximum of Rs.1 lakh.
80C deduction: Unit Linked Insurance Plans (ULIPs)
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.
Eligibility : An investor can buy ULIP for self or spouse or child
Liquidity: Partial withdrawals are allowed under special conditions
Rate of Returns : Return rate on the ULIP varies between 12% – 14%
Investment Limit: No limit on maximum contribution
Tax Treatment : Investment and withdrawals & maturity amount are tax-free.
80C deduction: National Savings Certificate (NSC)
NSC is another 80C investment option that can help you to save tax. The investment period in this case ranges from 5 years to 10 years.
Eligibility : An investor can buy NSC for self
Liquidity: Withdrawals are not allowed before the maturity period
Rate of Returns : Current rate is 8.5% for 5 years and 8.8% for 10 years
Investment Limit: No limit on maximum contribution
Tax Treatment : Investment and withdrawals & maturity amount are tax-free.
80C deduction: Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana/Scheme is one of the most popular scheme by Government of India. The scheme is aimed at betterment of girl child in the country.
Eligibility : Parents/guardians can open account in the name of a girl child till she attains the age of 10 years
Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 8.5%
Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year
Tax Treatment : Investment and withdrawals & maturity amount are tax-free.
80C deduction: Senior Citizens’ Saving Scheme
Eligibility : Designed for people aged 60 years and above
Liquidity: Withdrawal is not allowed before maturity period ends
Rate of Interest : Interest rate on this scheme is 9.3%
Investment Limit: No cap on maximum contribution
Tax Treatment : Once the interest crosses Rs.10,000 in a financial year, the interest payable quarterly is subject to TDS and taxable.
80C deduction: 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.
80C deduction: 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.
80C deduction: 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.
80C deduction FAQs (Frequently Asked Questions)
What is Tax Saving FD? Does this come under Sec 80C deduction?
Tax-saving FDs are like regular fixed deposits. They come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh. Different banks offer different interest on the tax-saving FDs, which range from 7-9%. The returns are guaranteed and the FDs offer 100% capital protection. But upon maturity, the interest is added to the investor’s taxable income.
When is the best time to invest in SIP?
There is no specific date that can be said to be the best date for an SIP. However, the beginning of the month can be a good time for SIPs as you receive your salary at that time and would have enough money to invest.
Does ULIP come under Sec 80C investment options? When can I withdraw?
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. ULIPs don’t offer guaranteed returns because they are an equity market-linked product. The disadvantage of ULIPs is that they don’t offer clarity on where the investments are made. Nobody knows how much of the invested amount is deducted for commissions and expenses.
What is NSC – National Savings Certificate? Does this come under Sec 80C?
NSCs are eligible for tax breaks for the financial year in which they are purchased. Investments of up to Rs 1.5 lakh in NSCs can be made to save taxes under Section 80C. NSCs can be bought from designated post offices and come with a lock-in period of 5 years. The interest is compounded annually but is taxable. The current interest rate for FY 2018-19 on NSC is 8.0%.
What is EPF? Does this come under Sec 80C?
An employee’s contribution to the Employee Provident Fund (EPF) account also earns a tax break under Section 80C of up to Rs 1.5 lakh. This amounts to 12% of salary that is deducted by an employer and deposited in the EPF or other recognised provident fund. The current interest rate on the EPF is 8.6%
What is NPS – National Pension System? Does this come under Sec 80C?
The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C. An additional Rs 50,000 can also be invested in the NPS for tax deductions under Section 80CCD(1B). The NPS offers different plans that the subscriber can choose as per their risk profile. But the highest exposure to equity is capped at 50%. An option to change designated pension fund managers is also allowed. However, a major disadvantage of the NPS is that the proceeds upon maturity are taxable. Furthermore, there is no guarantee of the returns that can be earned from the NPS.
Is investment in Sukanya Samriddhi Yojana comes under Sec 80C? When can I withdraw?
Deposits of up to Rs 1.5 lakh can be added to a Sukanya Samriddhi Yojana account for tax saving under Section 80C. The current interest rate for FY2016-17 on Sukanya Samriddhi Yojana deposits has been set at 8.6%. Deposits in this scheme have to be made for a girl child by the parent or guardian. The interest is compounded annually and is fully exempt from tax. The receipts upon maturity are also tax-free. The Sukanya Samriddhi Yojana account matures 21 years after opening the account. A partial withdrawal of up to 50% of the previous year’s balance is allowed after the account holder turns 18.
What is Senior Citizens Savings Scheme (SCSS)? Does this come under Sec 80C?
The SCSS is a scheme exclusively for anyone who is over 60 years old or someone over 55 who has opted for retirement. The scheme has a maturity period of 5 years and gives 8.6% per annum. Investments of up to Rs 1.5 lakh in SCSS can be made to save taxes under Section 80C.
Why ELSS is considered the best tax saving option?
ELSS stands for Equity Linked Savings Scheme. These are tax-saving mutual funds that invest at least 65% of their assets in the stock markets. Investments of up to Rs 1.5 lakh in ELSS funds can earn a tax break under Section 80C. The advantage of ELSS funds is that they come with the lowest lock-in among all tax-saving investments – just 3 years. ELSS funds are best placed to help you earn inflation-beating returns over the long-term because of their equity exposure. Even though these tax-saving mutual funds don’t offer guaranteed returns, the best performing ones have generated 12-15% returns over the long-term through the power of compounding interest. Additionally, since ELSS funds are equity-oriented funds, all gains on investments held for over one year are levied 10% LTCG tax for the investor. You can invest in a diversified portfolio of ELSS funds through our investment platform.
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