These investments can help you save tax under Section 80C

As you start planning your tax-saving investments for financial year ending March 31, 2019, you must remember that there are various deductions to choose from. A taxpayer can claim these deductions from total income, thus bringing down taxable income and reducing tax out-go.

Even if you have paid excess taxes and missed claiming a deduction done before March 31, do note that during filing of income tax return you can still claim these deductions and get a refund of excess taxes paid. DNA Money brings to you some important investment deductions for a taxpayer to save taxes.

Under Section 80C, a maximum deduction of Rs 1,50,000 can be claimed from your total income. This means you can reduce up to Rs 1,50,000 from your total taxable income through the smart use of Section 80C. Those in the highest tax bracket can save as much as Rs 46,800 in income taxes by investing Rs 1.5 lakh a year. This deduction is allowed to an individual taxpayer or one following a Hindu Undivided Family (HUF) structure. Let us have a look at the investments deductions one by one.

1. Life insurance premium (for self, spouse, children) – Premiums paid up to Rs 1,50,000 are deductible as per provisions of Section 80C. “Life insurance premium paid by you for your wife/husband/child’s policy qualifies for a deduction under Section 80C of the Income Tax Act, 1961,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.

You can avail tax exemption on your premiums paid for all life insurance policies including term insurance, unit-linked insurance plans, etc. One can claim tax benefits on a life insurance policy bought from any life insurer – private or public – if they are approved by Insurance Regulatory and Development Authority of India.

While single premium policies offer life insurance coverage, they have certain limitations if you want to claim deductions under Section 80C. “You are eligible to claim deductions only if the sum assured is at least 10 times the single premium paid,” added Gandhi.

For instance, a life insurance with sum assured of Rs 15 lakh and single premium of Rs 1.5 lakh can help you claim the entire premium as deduction. But, if your sum assured is Rs 10 lakh for a single premium of Rs 1.5 lakh, then you could claim a deduction of only Rs 1 lakh only.

2. Employees’ Provident Fund (EPF), Public Provident Fund (PPF) – Contribution made in the provident fund for the employee’s welfare by the employee and the employer enjoys tax benefits. The employee’s contribution towards EPF will be eligible for deduction under Section 80C. Salaried individuals, with large basic salary, often end up with Rs 1.5 lakh in EPF, thus taking the full benefit from just one avenue under Section 80C. The interest rate on EPF is 8.55%

PPF, which has a 15-year lock-in period, is a popular tax-saving investment avenue with most taxpayers. You can do a maximum of 12 PPF deposits in a financial year. The interest rate is 8%.

In case of EPF and PPF, the amount invested, interest earned and amount at maturity are all tax-free.

3. Medical insurance premium (for self, spouse, children and parents) – The Income Tax Act 1961 regards health insurance as an important investment. Hence, you can enjoy tax deductions under Section 80D of the Act. According to this section, deductions are offered towards policies on self, spouse and children and also towards non-senior/senior citizen parents.

“Under the section 80D, an individual can claim tax deduction of up to Rs 25,000 on policy taken for self, spouse and children. If the policy holders’ parents are covered then he/she is eligible for a deduction of up to Rs 50,000 and up to Rs 1,00,000 if both the individual as well as his/her parents are senior citizens,” said Prasun Sikdar, MD & CEO, Cigna TTK Health Insurance.

However, you cannot claim premiums paid for your in-laws, brothers, or sisters.

Do note in a case where premium for health insurance for multiple years has been paid in one year, the deduction will be allowed (from the assessment year 2019-20) on proportionate basis for the number for years for which the benefit of health insurance is provided.

4. Equity Linked Saving Scheme (ELSS) – An Equity Linked Savings Scheme (ELSS) is an open-ended equity mutual fund which qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act. It has a three-year lock-in period.

“ELSS funds form part of larger asset allocation strategy and investors should consider ELSS funds accordingly,” advises Devang Kakkad, head research, Equirus Wealth Management.

Returns earned in ELSS funds are taxable over Rs 1 lakh per year.

5. National Pension System (NPS) – Any individual who is subscriber of NPS can claim tax deduction up to 10% of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs 1.5 lakh under Sec 80 CCE. But, there is an exclusive tax benefit to all NPS Subscribers u/s 80CCD (1B). An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act. 1961.

For corporate subscribers, additional tax Benefit is available u/s 80CCD (2) of Income Tax Act. The employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

On maturity, 40% of the corpus has to be used for buying an annuity. Of the remaining 60%, till recently, 40% was allowed to be withdrawn as tax free, and subscribers had to pay tax on the remaining 20%. But now it has been proposed to extend tax-free withdrawal to the entire 60%.

NSC, SSY, Post Office Time Deposit, SCSS – Investments in the National Savings Certificate (NSC) are eligible for tax rebate under Section 80C. Each year’s interest is considered reinvested in the NSC and so it qualifies for a fresh tax deduction. Only in the final year, or the fifth year, interest is not reinvested, and so it cannot be claimed as a deduction. The interest is 8%.

The Sukanya Samriddhi Yojana (SSY) is a small deposit scheme for the girl child. It matures 21 years after the account is opened. Though partial withdrawal is allowed when the girl child reaches 18 years for education purposes. The interest rate is 8.5%.

Sum deposited in the five-year post office deposit scheme qualifies for tax deduction. 7.8%. This is similar to the tax-saving bank deposits that have a five- year maturity. State Bank of India offers 6.85% on five-year FDs. An individual of the age of 60 years or more is eligible Senior Citizen Savings Scheme or SCSS. The interest rate is 8.7%. The maturity period is five years.

The interest earned on all these investments is subject to tax.

INVEST TO SAVE TAX
By investing up to Rs 1.5 lakh in the instruments under Section 80C, one can reduce their total tax outgo. Those in the highest tax bracket can save as much as as Rs 48,500 in a year
Check the lock-in period, interest rate and whether tax applies at investment, interest accrual or maturity stage before deciding on the investment option