Tax saving investments under section 80C

The Indian law requires everyone who earns to pay income tax. The more you earn, the higher the tax. However, in the long term, paying higher taxes is attributed to lesser savings. For a person looking to achieve financial goals, lesser savings would mean an inadequate amount to cover future expenses, creating uncertainty over your financial future.

Taxpayers looking to reduce their taxable income and tax liability turn to tax-saving investments allowed by the Income Tax Department under various sections. Among numerous sections that allow tax savings, Section 80C tax saving options are preferred by most taxpayers.

Why 80C Tax savings?

If you are an earning individual, you must know that paying income tax is inevitable. However, certain tax-saving investments allow you to switch from an upper tax slab to a lower one. For this, you must first understand the current tax slabs. The tax slabs are:

Net Income Range (Annually) Rate of Income Tax
Up to Rs 2,50,000 NIL (0%)
Rs 2,50,000 to Rs 5,00,000 5%
Rs 5,00,000- Rs 7,50,000 10%
Rs 7,50,000- Rs 10,00,000 15%
Rs 10,00,000- Rs 12,50,000 20%
Rs 12,50,000- Rs 15,00,000 25%
More than 15,00,000 30%

Once you have calculated your total income (total of earnings from all the five income heads), you can cross-check the above tax bracket to know your income tax liability. After you know your tax bracket, the process of getting into a lower bracket starts, which you can successfully undertake through tax saving under Section 80C.

Best Tax Saving investment plans under Section 80C

Section 80C of the Income Tax Act provides numerous tax-saving investments that can allow you to get a tax deduction of up to Rs 1.5 lakh. For example, if your total taxable income is Rs 10,00,000, you can lower it to Rs 8,50,000 by investing in 80C tax-saving options. Some of the best tax-saving investments under section 80C are:

  • Public Provident Funds (PPF): This investment instrument is a savings-cum-tax saving investment scheme first introduced by the Indian government in 1968. The scheme allows investors to build a retirement corpus over time. Having a lock-in period of 15 years (further extendable by 5 years), the scheme provides a tax deduction on the contributed amount up to Rs 1.5 lakh. The current interest rate for a PPF account is 7.10%.
  • Tax-saving Fixed Deposit: Tax-saving FDs are similar to any bank’s fixed deposit but come with a lock-in period of at least 5 years. It can be opened by any resident of India. The interest rate of tax-saving FDs ranges from 5.5%-7.5%, with the interest amount taxable under the Income Tax Act. The contributions made to open a tax-saving FD are tax-deductible up to Rs 1.5 lakh under the section.
  • National Pension Scheme (NPS): This scheme is a government-backed retirement savings scheme that allows its investors a regular post-retirement income. The account can be opened by any Indian resident between the age of 18-60, with no limit of the maximum contribution. Under special conditions, the investor can withdraw the amount partially. The returns on NPS range between 12-14%, with the contribution allowed as tax deductions up to Rs 1.5 lakh.
  • Unit Linked Insurance Plans (ULIPs): They are a tax-saving investment that offers the dual benefit of insurance and investment. A portion of the premium paid towards the policy is utilized towards the insurance, and the remaining is invested in securities such as equities or debt. You can buy ULIP for yourself or your family, with the premium being applicable for tax deductions up to Rs 1.5 lakh.
  • Sukanya Samriddhi Yojana: The scheme is directed towards the holistic financial development of the girl child and offers itself an effective tax-saving investment for the parents. Launched as a part of the ‘Beti Bachao, Beti Padhao’ initiative by the central government, it offers a current interest rate of 7.6%. The investments made in the SSY account are eligible for tax deduction up to Rs 1.5 under section 80C.

Are Expenses Deductible?

Apart from your contributions, there are some expenses/payments you can make that would be applicable for tax deductions under Section 80C. The tax-deductible limit is the same (Rs 1.5 lakh) as it is for the above contributions. These are:

  • Life Insurance Premium: You can invest in a life insurance policy to protect yourself and your family from any eventuality. A person can claim a tax deduction under section 80C of up to Rs 1.5 lakh on the paid premium. Further, section 10(10 D) exempts policy benefits such as maturity benefit, survival benefit, and death benefit from the tax.
  • Repayment of Home Loan: If you have taken a home loan for constructing or buying any residential property, the payment you make towards repaying the principal amount is eligible for a tax deduction. Furthermore, the deduction is applicable on stamp duty, transfer expenses, and registration.
  • Children’s tuition expenses: The expenses towards the tuition fee for a maximum of two children are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The fee can be paid to any of the government-recognized schools or colleges. The expense is tax-deductible up to Rs 1.5 lakh.

Section 80C tax saving is one of the most effective ways for taxpayers to reduce their taxable income and save big on paying income tax. Although other sections allow tax-saving investments, tax saving under Section 80C proves comprehensive in providing wide-ranging investments that can allow for healthy diversification. You can review your financial situation and exhaust the 1.5 lakh limit of the Section 80C tax deduction in ways that suit you best.

Frequently Asked Questions Expand All

Yes, a tax-saving fixed deposit is covered under section 80C. The contributions made towards the FD are tax-deductible under the section up to Rs 1.5 lakh.

There is no upper limit in almost all the tax-saving investments under Section 80C. You can contribute more than 1.5 lakh in the investments. It will ensure that you exhaust the overall limit of the section along with enjoying the offered benefits.