Explainer | Investment options eligible for deduction under section 80C of Income Tax Act

Tax breaks are important as they bring down your tax liability. Though saving income tax cannot be the sole aim for one’s investments, it helps to take into account tax breaks while investing to ensure congruence between financial planning and tax planning.

Section 80C of Income Tax Act is a key tax shelter for most individuals. Here are a few avenues you can tap:

Life Insurance Premium
Public Provident Fund (PPF)
Employees’ Provident Fund (EPF)
Sukanya Samriddhi Yojana (SSY)
National Saving Certificate (NSC), including accrued interest
5-Year fixed deposits with banks, Post Office, HUDCO and NHB
Senior Citizens Savings Scheme (SCSS)
National Pension System (NPS)
Unit-Linked Insurance Plans (ULIPs)
Equity Linked Savings Schemes (ELSS)
Pension Plans
Tuition fees paid for children’s education (maximum 2 children)
Principal repayment on Housing Loan

All investments and expenses put together, one can avail of deduction up to Rs 1.5 lakh per financial year. Each one of these come with some condition. It is better to know the same before committing your hard-earned money. Some of these conditions are as follows.

- ULIPs come with a five-year lock in period and one can avail of tax benefit if the sum assured is at least 10 times the annual premium paid.

- Tax saving bank fixed deposits, SCSS and NSC come with a five-year term. For NSC, the interest earned on the first four years is deemed to be reinvested and eligible for tax deduction.

- Meanwhile, investments in ELSS are subject to lock-in of three years.

- Then there is option of PPF which comes with a tenure of 15 years and can be extended by five years at a time. The rate payable on PPF is reviewed every quarter. Contribution to recongnised EPF by salaried employee fetches tax benefit under section 80C. Contribution by employer does not fetch tax benefit to employee.

- Under Section 80CCD(1), investment in NPS up to Rs 1.5 lakh qualifies for income tax deduction. However, total amount of deduction under sections 80C, 80CCC (investment in pension plan offered by an insurer) and Section 80CCD (1) (for NPS) cannot exceed Rs 1.5 lakh.

You can invest up to Rs 50,000 in NPS which fetches deduction under Section 80CCD (1B) of the Income Tax Act, 1961. This deduction is in addition to Rs 1.5 lakh allowed under Section 80CCD (1).

- Sukanya Samriddhi Yojana (SSY) is a scheme meant for a girl child and allows partial withdrawal of funds when the girl child attains the age of 18 years. Remaining money can be withdrawn when the girl child is 21 years of age.

- Home loan principal repayment up to Rs 1.5 lakh is eligible for tax break under section 80C if the construction of the property is complete. The benefit is reversed if you sell the property within five years of possession.