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Last Updated : Feb 13, 2020 07:59 PM IST | Source:

Tax Saving Investment Options Under Section 80C

How to Save Tax? There are numerous tax saving options under section 80C of the income tax act. How to Save Tax? There are numerous tax saving options under section 80C of the income tax act.

Here are some of the choices available to you under Section 80C of the Income Tax Act to reduce your tax burden

As 31 March approaches, it’s time to take stock of your Section 80C investments. Have you made the maximum investments possible to reduce your taxable income by up to Rs. 1.5 lakh? If you haven’t, we present you with a list of options to meet varying degrees of risk appetite and returns.

  • Equity-Linked Savings Schemes (ELSS)

  • Five-year Tax-Saving Fixed Deposits

  • Public Provident Fund (PPF)

  • National Savings Certificates (NSC)

  • National Pension System (NPS)

Equity-Linked Savings Schemes (ELSS)

ELSS funds invest in the stock market and very popular among tax-savvy investors.

  • Pros: You enjoy substantially higher returns than most other investments available to you under Section 80C. What’s more, the lock-in period of three years is much lower than the others in the tax-saving category.

  • Cons: Investments in ELSS are subject to market risks, and there is no guarantee of substantial returns in the future. Profits on redemptions are subject to long-term capital gains tax at 10 per cent if they exceed Rs. 1 lakh in a financial year.

Five-year Tax-Saving Fixed Deposits

If you like investing in bank deposits, this could be a good option.

  • Pros: Risk levels are fairly low. It’s also very easy to invest in them and can be done in seconds through Internet Banking.

  • Cons: Interest rates are lower than other government-backed savings schemes, and these FDs have a lock-in period of five years. Interest is fully taxable – it is added to your income and you have to pay income tax according to your slab. There’s also tax deduction at source (TDS) for interest earnings of over Rs. 10,000 a year.

Public Provident Fund (PPF)

This government-backed scheme has been a favorite of cautious investors for a long time.

  • Pros: Since it’s backed by the government, investments in PPF involve very little risk. Interest rates are quite good, slightly higher than those on bank FDs (at 7.9 per cent as of January 2020). PPF also enjoys EEE (exempt, exempt, exempt) status – investment, interest and final corpus are all free from tax. This tax benefit is unmatched by other investments.

  • Cons: The only disadvantage is the long lock-in period of 15 years. However, you can make partial withdrawals after the seventh year, and avail of loans as well.

National Savings Certificates (NSC)

This is yet another government-backed scheme offered through the Department of Posts. You can purchase them at any post office.

  • Pros: This is a low-risk investment with decent interest rates, comparable to those on PPF. NSCs can also be used as collateral for loans.

  • Cons: Unlike PPF, interest earned on NSC is added to your taxable income, and you have to pay income tax according to your slab. The money is locked in for five years.

National Pension System (NPS)

If you want a pension, this government-run scheme could be what you want. It’s available to all Indian citizens between the ages of 18 and 60.

  • Pros: The funds are invested in a mix of equity or debt or a mix of the two, and can offer fairly good returns to investors, ranging from 9-12 per cent. And you can get an additional deduction of Rs. 50,000 from taxable income.

  • Cons: The money is locked up till retirement. After that you can withdraw only up to 60 per cent of funds. The rest has to be put in an annuity by an approved insurance company.

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First Published on Feb 13, 2020 07:59 pm
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