Anyone who comes under the purview of Income Tax in India tends to be worried about the substantial outflow that the tax payments can cause on their annual income. It significantly reduces the take home salary for those who are employed, and the cash in hand for the others. If your earning is above the basic tax exemption limit, then you need to think seriously about tax planning which will help you to save some tax legitimately.
Tax planning is a way in which you can legally save taxes by investing in certain financial instruments and assets specified by the Income Tax Act, 1961. The specifications are contained in various sections of the act, the most important of which is income tax section 80c. This section is an excellent tool for tax planning and provides for a variety of instruments in which you can invest and get tax deductions of up to Rs. 1.5 lakhs in a year.
The main reason for taking advantage of these deductions is to reduce your tax burden. Naturally, if you save some tax, you then you will have more disposable income in your hand. This is the direct benefit of taking advantage of income tax deduction under section 80c.
Apart from this, there is another major benefit which many people overlook. This section helps people to be more disciplined. Instead of spending their money frivolously, the taxpayer invests in certain assets to get the deduction under income tax section 80c. This makes them more responsible and helps in building their future.
- Long term fixed deposits: Bank fixed deposits are one of the most favorite assets of the Indians, and now investing in one can get them some tax deductions too! The only requirement is that these fixed deposits have to be of a tenure of at least 5 years. That means that you cannot get a tax deduction on a short term fixed deposit and you have to keep it for at least 5 years. You can simply walk into a bank and open these fixed deposits over the counter. Since the investment tenure is long, you can get good returns by investing in these fixed deposits. Remember that these fixed deposits do not offer loan facility and premature withdrawals are not allowed.
- Public provident fund: These have been around for generations now and are still very popular as tax saving instruments. Though the interest rates on PPF have been substantially reduced in recent times, they still carry an interest rate of 8.1 (for the financial year 2016-17) which gets compounded annually. The initial tenure of a PPF account is 15 years and can be opened with as little as Rs. 100. The minimum and maximum deposits are Rs. 500 and Rs. 1.5 lacs per year. The beneficiary is allowed to take a loan from his/her account from year 3 to year 6. Premature withdrawals can be made from year 7 onward. The lock-in period of 6 years in PPF helps in promoting the habit of long-term investment in the investor.
- Employees Provident Fund (EPF): As per the Income Tax Act employers are compulsorily required to deduct 12% of the salary of an employee and deposit it into the Employees Provident Fund . The employees can get a deduction of up to Rs 1.5 lakhs per year under section 80C on this deduction.
- National saving certificate (NSC): This is a savings Bond issued by the Government of India and is a popular mode of investment among the Indian population. These are issued for tenures of 5 years and 10 years by the Indian Postal Service and can be purchased from any post office. The present interest rate on NSC is 8.10%. This interest rate is compounded annually and is taxable in the hands of the receiver.
- Post Office Time Deposit: These are fixed deposits which can be opened with an amount as low as Rs. 200. You can earn deductions under section 80C on post office time deposits that are made for 5 years. At present, the 5 years deposits carry a compound interest rate of 7.8% per annum.
- Life Insurance: The premium that you pay every year on your life insurance policy is allowed as a deduction under section 80C. The premiums paid for Life Insurance covering your spouse, children yourself are deductible.
- ULIP: Unit linked insurance plans (ULIP) are very popular in India and these provide a combination of insurance and investment to the holder. IA part of the amount invested is allocated for the insurance premium, and the remaining amount is invested in the stock markets for generating returns.
- Senior citizen Savings Scheme: This can be purchased by anyone who has crossed the age of 60 or by someone who is at least 55 years old and has taken voluntary retirement. The maturity. of this scheme is 5 years and offers a rate of interest of 8.5 per annum.
If your income is above the basic exemption limit of Rs. 2.5 lakhs per annum, then you must invest in these tax saving schemes under 80c. By doing so not only will you save tax, but will secure your future as well.
Get more explaned detail on section 80C please reffer our new article Investments Under Section 80c of Income Tax Act, 1961