Tax Saving Investments : 2 minute guide to save tax (Under Section 80 C)

Posted by  Fintra , updated 2020-12-29

Filing an Income Tax return is always perceived as a hassle. At the end of every financial year, you are faced with a challenge to save income tax. Fortunately, you have a few tax-saving investments available to you, especially in the field of personal finance. Most of these options come under section 80C of the Income Tax Act.

Still, many people remain unaware of such tax saving options. This blog will help you be aware of tax-saving investments and expenses under the 80C Act

What Is the Section 80C act?

Firstly, we must understand what 80C is and what it signifies before discussing any further details. Section 80C is a part of the Income Tax Act of 1961 which consists of several investments and expenses which are eligible for tax reductions. Through investments made under the 80C Investment Schemes, a taxpayer can get a tax reduction of a maximum of Rs 1.5 lakhs in one financial year.  

The tax-reducing investments under the 80C Act are as follows-

1. PUBLIC PROVIDENT FUND (PPF): Any Indian citizen can open a PPF account in his or her name or on behalf of a minor. A PPF account matures after 15 years, but premature closure is allowed after 5 years. As of 2018, the interest rate is 7.9% per annum, compounded yearly. The minimum amount required to invest in a PPF is Rs 500. PPF is eligible for a tax deduction under EEE (Exempt, exempt, exempt) category.
2. EMPLOYEE PROVIDENT FUND (EPF): It is a retirement benefits scheme that can be availed of by any salaried employee. The employee and the employer both have to contribute 12% of the basic salary to the provident fund. The employee cannot withdraw the balance of the PF. However, exemptions are possible in special circumstances such as loss of jobs, etc. As of 2018, the interest rate is 8.65% per annum. EPF too qualifies for a tax reduction under the EEE category.
3. EQUITY LINKED SAVINGS SCHEME (ELSS)- Mutual Funds: ELSS is a special category of mutual funds for investors seeking tax benefits along with superior returns. It has a lockin period of 3 years and can save up to Rs 46,000/- tax per annum. The minimum amount that you need to invest is Rs 500 and is also under EEE.
4. NATIONAL SAVINGS CERTIFICATE (NSC): The National Savings Certificate is a fixed income investment scheme with fixed maturity periods – 5 years & 10 years. An Indian citizen can open with any post office and can avail of an interest rate benefit of 7.6%, compounded annually. The minimum investment amount is Rs 100 and there is no limit to the maximum amount of investment. The amount received after maturity is completely tax-free.
5. SUKANYA SAMRIDDHI SCHEME: This is, undoubtedly, one of the best investment schemes currently available. The legal or natural guardian can open an account on behalf of a girl child under the age of 10 years. The maturity period is of 21 years. However, withdrawal is allowed in the case of marriage or higher education. The current rate of interest is 8.4%, compounded annually. The minimum amount required to invest is Rs 1,000. The maximum investment limit is Rs 1.5 lakh. This scheme is also eligible for tax-exempt under the EEE category.
6. SENIOR CITIZEN SAVINGS SCHEME (SCSS): Any individual aged 60 or more can open an account under this scheme. The maturity period is of 5 years but an extension of 3 years is allowed. Premature withdrawal is allowed after 1 year. As of 2018, the interest rate is 8.4% per annum. The minimum investment limit is Rs 1,000 and the maximum is Rs 15 lakh. The maturity amount is tax-deductible.
7. 5-YEAR POST OFFICE TIME DEPOSIT: A fixed deposit account at an Indian post office can be opened by any Indian citizen. Senior citizens get special tax-exempts on post office FDs. The maturity period is of 5 years. Premature withdrawal or closure is not allowed. The interest rates vary. The minimum amount required to open an account is Rs 1,000. There is no upper limit. The amount receivable is exempted from tax under the 80C.