As you plan your finances for the year, make sure you are receiving the full benefits of the tax deductions under Section 80C. There are several options available to you, from low-risk government schemes like PPF and NSC to high-return market-linked options like ELSS, that will ensure that you maximize your savings while keeping your financial goals in focus.
Are you a salaried employee struggling to make ends meet with rising living costs and economic uncertainties in the future? Do you feel that a substantial part of your income is just going in taxes? Then you must take the full benefits of the tax deductions available to you.
Section 80C of the Income Tax Act allows you to reduce your taxable income by up to ₹1.5 lakh annually. There are various avenues you can leverage to minimize your tax liabilities and maximize savings.
1. Invest in Equity-Linked Savings Schemes (ELSS)
ELSS are mutual funds that offer both tax benefits and the potential for high returns. With a lock-in period of three years, this makes them a popular choice for those seeking tax savings. Remember that with market-linked investments, returns are not guaranteed, but ELSS are often seen to outperform other 80C options in the long term.
Key Benefits:
- Potential for high returns based on market performance.
- Short lock-in period compared to other options.
- Eligible for tax deduction up to ₹1.5 lakh.
Your and your employers’ contributions towards your EPF automatically qualify for tax deductions under Section 80C. This is a safe and long-term savings option that can also help you build a retirement corpus.
Key Benefits:
- Guaranteed returns with government backing.
- Employer contributions add to the savings.
- Tax-free withdrawal upon retirement after five years of continuous service.
PPF is one of the most secure tax-saving options under 80C. It offers a guaranteed return with an attractive interest rate (currently around 7.1% per annum) and has a 15-year lock-in period. The interest earned on PPF is tax-free, making it a good option.
Key Benefits:
- Secure and guaranteed returns.
- Interest and maturity amounts are tax-free.
- Ideal for long-term wealth creation.
The NSC is another government-backed investment that qualifies for deductions under Section 80C. With a five-year maturity period and a fixed interest rate, NSC can be a safe and low-risk option and is ideal for individuals looking for stable returns.
Key Benefits:
- Fixed returns with low risk.
- Available at post offices across India.
- Interest is taxable, but reinvested interest qualifies for 80C deduction.
Life insurance not only ensures the financial security for your loved ones, it also helps you save on taxes. The premiums paid toward life insurance policies are eligible for deduction under Section 80C.
Key Benefits:
- Secures financial protection for your family.
- Premiums qualify for tax deduction under Section 80C.
- Payouts from certain policies may also be tax-free.
If you are repaying a home loan, the principal portion of your EMI qualifies for deduction under Section 80C. This can significantly reduce your taxable income, while also helping you build a valuable asset over time.
Key Benefits:
- Principal repayment eligible for tax deduction.
- Allows for dual benefits with interest deduction under Section 24.
- Helps in wealth creation through property ownership.
This scheme is designed to benefit the girl child, offering high interest rates and tax benefits. Investments made under SSY qualify for deductions under Section 80C. The account has a lock-in period until the girl reaches 21 years of age or on her marriage after she turns 18.
Key Benefits:
- High interest rates and tax-free returns.
- Secure and long-term investment for your daughter’s future.
- Contribution qualifies for tax deduction under 80C.
- Smart Tax Planning for Salaried Employees
With a wide range of investment options available, you can choose a combination that suits your risk tolerance and financial goals. Proper planning and timely investments will not only reduce your tax burden but also help in long-term wealth creation.
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