It's January yet again, and that means another round of last-minute tax-saving rush. The last quarter of every financial year, which is the January to March quarter, marks the beginning of last-minute attempts to save tax?for all those lazy or rather laid-back folk who left this task for the eleventh hour.
Amongst the plethora of tax saving sections and options available under the Income Tax Act, Section 80C remains the most popular and crowded one, given that the maximum limit of claiming tax deductions in total stands at just Rs 1.5 lakh.?
Nonetheless, with the tax saving rush going on, let us explain some of the popular and prominent tax saving options under section 80C,?which can help taxpayers choose and utilise the suitable ones as per their financial requirements:
Managed by the Government of India, PPF is one of the safest among all Section 80C investment options. Both the principal and interest components are backed by the sovereign guarantee. Currently, PPF is paying an interest rate of 7.1% p.a. compounded annually, which is reviewed every quarter by the Ministry of Finance. The interest earned as well as the maturity amount are completely tax-free.
While the biggest drawback of the?PPF scheme is its long lock-in period of 15 years, it does offer some degree of liquidity in the form of partial withdrawals and premature closure.?
Also Read:?PPF vs ELSS vs?Tax Saver?Bank FD
Your life?insurance?premium can be claimed as tax deductions under Section 80C. So, if you have paid an insurance premium to insure your own life or the life of your spouse or child, such premium payments are eligible for deduction under section 80C of the Income Tax Act.
While you repay the home loan EMIs, remember that the principal component is eligible for tax deduction under Section 80C.?The principal paid on the home loan EMI for the year is allowed as a deduction under Section 80C.?
But note that, to claim this deduction, the house property should not be sold within five years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
ELSS are diversified equity mutual funds with a lock-in period of three years, which is the shortest among all investment options available under section 80C.?
Similar to other mutual funds, you can opt for the systematic investment plan (SIP) mode of investments in ELSS, to ensure regular and disciplined investing. ELSS too comes under the ambit of 10% LTCG on equities, wherein only long-term capital gains exceeding Rs 1 lakh in a financial year are taxable @10%. So, gains up to or below Rs 1 lakh in a year are tax-free.
In terms of capital protection and certainty of return, tax-saving Fixed Deposits from the post office and banks score high. However, their biggest disadvantage lies in the taxability of the interest income, according to the applicable tax slab of the depositor. Although tax-saving FDs come with a lock-in period of 5 years, the interest income can be paid out either in every quarter, every month or even in a lump sum at the time of its maturity.?
Also Read:?List Of?Tax Saving?Investment Options With Totally Tax-Free Returns
ULIPs are tax-saving instruments that offer combined benefits of both insurance and investment. A small part of your ULIP premium is used towards providing your life cover, whereas the remaining part of the premium is used for generating returns, through investments in equities and/or debt instruments. ULIPs involve a lock-in period of five years and the premium paid is eligible to be claimed as a tax deduction under section 80C.
NPS is a market-linked investment product which is aimed at providing post-retirement financial security to its subscribers. Besides the annual deduction of up to Rs 1.5 lakh which is available under Section 80C, NPS also offers an additional deduction of Rs 50,000 under Section 80CCD(1B) for any additional self contribution.?
One of the most popular small investment options is?the National Savings Certificate (NSC) provided by the postal department. It¡¯s a fixed investment scheme available with any post office and is primarily aimed to encourage small and medium-income individuals to invest while saving tax. It involves a lock-in period of five years and the principal and interest both qualify for tax deduction under section 80C (except interest received in the final year).
Launched in 2015, this government-backed scheme encourages investment in girl¡¯s higher education and marriage. The SSY account can be opened anytime from the birth of a girl child till she reaches 10 years of age, with a post office or authorised banks. The principal amount qualifies for tax deduction under Section 80C and the interest earned is tax free.
Senior Citizens¡¯ Saving Scheme (SCSS) is a government-backed retirement benefits programme. Senior citizens resident in India can invest a lump sum in the scheme, individually or jointly, and get access to regular income along with tax benefits. It is a Post Office savings scheme. Senior citizens can open an account in a Post Office branch or an authorised bank.?
Also Read:?5 Tips To Buy Health?Insurance?For?Parents
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