7 most popular tax saving options to explore

In India, almost everyone would be aware of “Section 80C” of the Income Tax Act, 1961. It offers the maximum deduction to the citizens of the country. For the present financial year FY 2018-19, the maximum deduction that a person can claim under section 80C is about Rs.1.5 lakhs. There are many investment options that one can opt for under this act that not just generate returns but also can offer tax benefits when the total taxable income is calculated.

A lot of people are aware about a few investments that will help them avail the deduction, for instance, life insurance policies, equity-linked savings schemes (ELSS), and Public Provident Fund (PPF). However, these are not the only options available. There are a few more options that are definitely worth giving a shot. A Deduction u/s 80C is available not just for investments but it is available even for certain expenses made by a taxpayer. However, to avail this deduction for any financial year, the taxpayer will have to spend or invest the specific amount in that particular year itself. 

We bring to you a list of the 7 most popular investments as well as expenditures that could be claimed as a deduction u/s 80C by the taxpayer for the current financial year – FY18-19. 

1.The Employees` Provident Fund or EPF & the Voluntary Provident Fund or VPF

EPF is a scheme where a portion of the taxpayer`s salary is deducted on a monthly basis as their contribution. The entire amount that has been deducted could be claimed while calculating the total taxable income. However, the taxpayer must remember to check with their employer regarding the interest earned on the corpus in the financial year. Any interest earned that surpasses the 9.5% limit is taxable. In addition to this, in case the employer contribution exceeds 12% of the employees salary, the excess will be taxable. Another option that can be chosen by the employee is the VPF wherein he/she is willing to take home a less salary by increasing his/her contribution to the PF. The VPF is eligible for tax deduction as well. This is the best option if you do not want any confusion regarding investments and you can increase your contribution to the EPF and VPF to 150000. At present, the interest rate has been increased by the Government to 8.65%.

2. Life Insurance Premium

Any amount paid by an individual for the life insurance premium for themselves, their children or spouse is included in the deduction u/s 80C. You must note that any premium paid for your parents i.e. mother, father or both or even your in-laws is not covered.  Premiums for multiple insurance policies are included. Even a Hindu Undivided Family (HUF) that purchases life insurance for any of its member can get a tax deduction on amount of premium. 

3. Public Provident Fund (PPF)

This is a government scheme and any investment in this can be claimed as a deduction u/s 80C. The investment could range between Rs.500 to Rs 1.5 lakh in the current financial year. Also, the interest earned on PPF is tax-free at present and the maturity period of the scheme is 15 years. One must bear in mind that the interest rate is not fixed and is revised every quarter. At present, the interest rate is 8% for the  April-June 2019 quarter.

4. Tax Saving Mutual Funds or ELSS

There are a few mutual fund schemes that have been designed specifically to offer tax savings. These schemes are known as Equity Linked Savings Scheme (ELSS). The investments made in ELSS can be claimed u/s 80C for deduction.  Although there is no restriction on the amount of investment, the tax benefit is restricted to Rs 1.5 lakh only. The scheme has a 3 year lock-in period which is the shortest amongst the various options under Section 80C. Capital gains from ELSS will be subject to the long-term capital gains (LTCG) tax. 

5. Repayment of Home Loan Principal 

The equated monthly instalment (EMI) that is to be repaid has two parts – the Principal and Interest. The principal is eligible for deduction u/s 80C. So, in case you have any outstanding home loan under your name, the repayment of the principal made in a financial year can be claimed as a deduction and you do not have to consider investing in any other product to get tax benefits u/s 80C. In addition to this, payment made to the development authorities such as Delhi Development Authority (DDA) so as to buy a house can also be claimed as a deduction u/s 80C.

6. National Savings Certificate (NSC)

This is a tax-saving instrument having a 5-year maturity period. A person can buy an NSC at even Rs. 100 with no upper limit on the amount of investment. Any NSC investments are applicable for deduction u/s 80C`s overall limit. The interest however is taxable and is compounded annually. 

7. Sukanya Samriddhi Account

This scheme enables you to open the account in the name of your minor daughter till 10 years of age. Any amount that is deposited in the account  is eligible for deduction u/s 80C. In addition to this, the account could be opened for two girl children at maximum and  if there is a scenario of twins the facility will extend to a third child too. The amount must be deposited for 15 years in this account. The maturity period for this account is after 21 years. This means that there wont be a need to deposit anything in between the 16th and the 21st year. 

Some other popular schemes worth investing would be ULIPs, NABARD Rural Bonds, tuition fees payment, contribution to the National Pension Scheme (u/s 80CCD 1 and 80C), 5-year post office deposit schemes, 5-year bank deposits, and the senior citizen saving scheme 2004. 

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Pratik is an MBA from IBS business school – Mumbai, with dual specialization in Marketing and Finance. He is driven by passion for markets and loves to analyze client portfolios with a long-term approach. He believes in the principle of asset allocation and diversification to maximise client return following a risk-based approach. Managing risk comes naturally to him, owing to his prior work experience with worked for ICICI Prudential Life Insurance Co. Ltd.