Income Tax News: Navigating a household with limited income can be demanding, prompting individuals to explore tax-saving avenues through strategic investments. Section 80C of the Income Tax Act offers a critical opportunity for tax savings, allowing individuals to save up to Rs 1.5 lakh through various investment options. However, the suitability of these options varies based on individual circumstances.
1. PPF (Public Provident Fund)
Investing in a PPF account, opened in the name of oneself, spouse, or children, provides tax relief. The account matures in 15 years, offering tax benefits at the time of investment, on interest, and on withdrawal.
2. EPF or VPF (Employees Provident Fund/Voluntary Provident Fund)
Salaried individuals investing in EPF can benefit from tax exemptions under Section 80C. Additional contributions to Voluntary Provident Fund (VPF) also qualify for tax savings. Remember, only your contribution to EPF is eligible for tax exemption.
3. Equity Linked Savings Scheme (ELSS)
ELSS, also known as Tax Saving Mutual Funds, come with a three-year lock-in period, providing tax benefits on the invested amount and gains. Each SIP installment is locked for three years.
4. Term Life Insurance (Term plan)
Premiums paid for term life insurance plans are eligible for tax exemption under Section 80C, offering substantial coverage at nominal premiums. Annual renewal premiums are also eligible for tax exemption.
5. Unit Linked Insurance Plan (ULIP)
Combining life insurance and investment, ULIPs provide tax benefits on the entire premium paid. However, they come with a five-year lock-in period. Remember, you cannot withdraw any money before five years.
6. Traditional Life Insurance/Money Back Plan
Premiums paid on traditional life insurance or money-back plans are eligible for tax benefits under Section 80C, subject to certain conditions. Annual premiums should not exceed 10% of the sum assured.
7. Five-Year Bank Fixed Deposit
This investment avenue is commonly referred to as an Income Tax Saving Fixed Deposit with a fixed tenure of 5 years. Investors are not allowed to redeem their fixed deposits before the completion of the stipulated five years. It’s important to note that income tax is applicable on the interest earned from this investment.
8. National Savings Certificate (NSC)
NSC, with a maturity period of six years, provides tax benefits at the time of investment, while interest earned is taxable. Interest earned in the initial years is considered eligible for tax exemption under Section 80C.
9. Senior Citizens Savings Scheme (SCSS)
Exclusive for senior citizens, SCSS has a maturity period of five years, and premature withdrawal is allowed with penalties. The interest rate is announced quarterly by the Finance Ministry.
10. Home Loan Principal Amount
The principal payment of a home loan is eligible for tax benefit under Section 80C, provided the construction is complete or it’s a ready-to-move property. Stamp duty and registration charges are also eligible for tax exemption.
11. Tuition Fees for Children
Tax benefits under Section 80C can be availed on school/college tuition fees for two children. The fees should be paid to a recognized educational institution in India.
12. Sukanya Samriddhi Yojana (SSY)
Launched under the Beti Bachao-Beti Padhao scheme, SSY is a great option for the girl child, offering tax benefits at the time of investment, on interest, and on withdrawal. The interest rate is announced quarterly.
13. Pension Scheme of Insurance Company (Section 80CCC)
Investing in pension plans of insurance companies provides tax benefit up to Rs 1.5 lakh. Surrendering the pension scheme before maturity incurs income tax liability.
14. National Pension Scheme (NPS)/Atal Pension Yojana (APY) (Section 80 CCD)
Investing in NPS under Section 80CCD(1) and Atal Pension Yojana provides tax benefits. The total amount for tax benefit under Section 80C and 80CCC cannot exceed Rs 1.5 lakh.
15. Five-Year Post Office Deposit
Similar to bank fixed deposits, this income tax-saving product falls under Section 80C. If you decide to withdraw it within the first 5 years of investment, the associated income tax benefits will be revoked. The interest rate for these deposits is revised every quarter by the Finance Ministry.
Crucially, the interest rate set at the time of deposit remains unchanged for the entire five-year duration. Fluctuations in interest rates do not impact the returns on your investment. As of now, the interest rate stands at 7.4 percent.
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