A quick primer on saving tax with investment & insurance under

A quick primer on saving tax with investment & insurance under section 80 C

Last Updated: Tue, Mar 14, 2017 13:02 hrs
Income Tax (Reuters image)

It's nearly the end of the financial year, and some of you may be trying to make a last-minute dash to buy investment and insurance products to save some taxes. You may be wondering what your options are. You may even be wondering what you're getting into with some of these products-whether you stand to gain something from them, or if it's money down the drain.

Worry not-help is at hand. Here's a ready reckoner to help you navigate through tax-saving options under Section 80 C of the Income Tax Act.



The Sections

You're allowed to claim a total tax deduction of Rs. 150,000 under Section 80 C. Under its sub-section 80 CCD 1b, you're allowed to save an additional Rs. 50,000 under investments in the National Pension Scheme.

Section 80 C

Let's start with your options under 80C through which you can save Rs. 150,000 with one or many of these options.

Life Insurance: These come in various shapes of form. Broadly, you have endowment plans, cashback plans, term plans, ULIPs, and full life plans. The premiums you pay in a financial year towards your life insurance policies.

Tip: Make sure you have the right life insurance plan for you. For example, pick a term plan if you have dependent family members. Go online; compare various products before settling on one for you.

Home Loan Principal Repayment: If you are repaying a home loan, principal payments up to Rs. 150,000 are tax-deductible. Make sure you use this limit to the max.

Tip: With home loan interest rates falling to a low, you should aim to pay as much principal as you can. It will not only help you save tax under 80 C, but also help you make great progress in reducing your loan balance at a cheaper rate.

Equity-Linked Saving Schemes: ELSS mutual funds are the only mutual funds variety that allow you to claim tax deductions on equity investments. This is a long-term investment option with a three-year lock-in. Your returns are tax-free.

Tip: This is a market-linked investment, so market risks apply. Invest through monthly SIPs to neutralize the market risks.

Public Provident Fund: The best small saving schemes for general investors. PPF is a long-term investment option wherein you deposit between Rs. 500 to Rs. 150,000 in a year. The current annual rate of return is 8%. Your PPF investment is 100% tax-free.

Tip: This is a long-term investment option for 15 years or more, with the option to make partial withdrawals from the seventh year. Use PPF to achieve long-term goals such as retirement corpus creation or buying a house.

Five Year Fixed Deposit: This variety of fixed deposits held with banks and post-offices earn you tax exemptions. The deposit comes with a five-year lock-in and is therefore not a liquid investment. Currently, fixed deposits are earning around 6-8%, and interest earned is also subject to TDS. You can invest any amount you want under this option.

Tip: This year, you may want to reduce your dependence on this option given that interest rates are low now and the lock-is is long.

National Savings Certificates: Sold in certificates of denominations ranging from Rs. 100 to Rs. 10,000, the NSC is a trusted and government-backed savings scheme in which any amount can be invested. Currently, NSC earns 8% per annum, and has either a five or a ten-year lock-in.

Tip: This is a long-term investment plan where your returns are taxed only in the final year. However, this is a less tax-efficient option than PPF.

Kisan Vikas Patra: Just NSCs, KVP is a long-term investment option which currently earns 7.7% per year. You can invest with as little as Rs. 1000 and remain invested for a tenure of 9 years and 2 months.

Tip: Returns on KVP are fully taxable, making this less tax-efficient compared to PPF or NSC.

Senior Citizens Savings Scheme: The best small savings scheme available for senior citizens, the SCSS pays 8.5% per annum. You can invest from anywhere between Rs. 1000 to Rs. 15 lakh under this scheme.  Only the maturity amount is taxable as per slab. It has a five-year lock-in with the option to extend the tenure by three years.

Tip: If you have senior citizen family members, you can invest for them and earn better returns than even PPF.

Sukanya Samriddhi Scheme: The best scheme for investors with a girl child. The SSS offers returns of 8.5% currently. An account can be opened with a minimum deposit of Rs.  1000, and up to Rs. 150,000 can be invested each year. The child needs to be under the age of 10 at the time of account opening, and the fund matures 21 years after its inception, as long as 14 years of continuous payments have been made to the account.

Tip: This is a must-have for any investor with a girl child. It offers assured returns and capital safety, and can be used for planning the child's education and marriage.

80 CCD 1B

You can save an additional Rs. 50,000 under this sub-section of 80 C. You can do this by investing in the NPS or Atal Pension Yojana.

Tip: The NPS is a retirement corpus investment option, wherein you can get both equity and debt investment options. Go for equity if you are young, or a small mix of equity if you are risk-averse.

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