how to make best use of section 80c
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Maximise Your Tax SavingsTRANSCRIPT
6/25/2014 How to make best use of section 80C - Maximise your tax savings
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What to Check before investing for Section 80C
or
How to Make Best Use of Section 80C
by
Rajesh Goyal
Most of the Income Tax payee try to save tax by
saving under Section 80C of the Income Tax Act.
However, it is important to know the Section in toto
so that one can make best use of the options
available for exemption under income tax Act. One
important point to note here is that one can not only
save tax by undertaking the specified investments,
but some expenditure which you normally incur can
also give you the tax exemptions. Here are some
tips for you : -
You are saving every year and while saving you normally have some goal in mind, e.g. to meet the expenditure
on education of children, purchase of a vehicle or house or marriage of your children. Therefore, you should
always look at the investments from the angle whether it will meet your specific requirements on maturity. You
should also try to diversify your savings in different instruments.
For instance, if you have already invested a fair portion of your money in equity (shares and mutual funds that
invest in shares), avoid an ELSS. Opting for an ELSS means a huge portion of your investments will be in
equity and that may not be what you want.
(1) Always Check YOUR FORCED SAVINGS / EXPENDITURE ELIGIBLE FOR DEDUCTION :(A) Home Loan :
There is a provision that the payment made for repayment of the principal amount (not interest payment) of
the Home Loan is eligible for a deduction under Section 80C if you have taken a home loan and you fulfill
certain conditions.
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(B) Payment towards Education Fee of the children :
Most of the young couples and middle aged income tax payee incur quite high payments towards the
education fees of their children. The expenditure incurred on education fees is also eligible for a deduction
under Income Tax Act, Thus, if you are incurring expenditure towards education fee of your children, please
check whether these are eligible for deduction under the IT Act.
(C) Payment towards Provident Fund :
Salaried income tax payee are usually have a forced saving which are eligible for deduction under section
80C. A fixed percentage of basic salary (ranges from 8.33% 12%) is deducted by your employer towards the
Employees Provident Fund (EPF). Some employers allow higher deduction towards EPF. Thus, you should
first of all check the total amount that is expected to be deducted towards EPF during the financial year. The
total amount deducted from your salary will be eligible for investments under Section 80C.
(D) Interest on National Saving Certificates :
In case you have purchased NSCs during some earlier years, then the accrued interest as per the tables
released by authorities is eligible for deductions under Section 80C.
(2) Always Check the Lock-In Period of the Investments
Tax saving investments have a minimum lock-in period i.e. the period during which withdrawals are usually
not allowed. If the same are withdrawn, these will be taxable in the year of withdrawal. For example, National
Savings Certificates (NSC) have a lock-in period of five years (earlier it was six years), Public Provident Fund
(PPF) has a lock-in of 15 years, Equity Linked Saving Schemes (ELSS) have a lock-in period of three years.
Insurance policies have even greater period of lock in.
(3) Always Check Whether the investment you intend to make will meet your goals :
Background to Section 80C in the Income Tax Act OR KNOW EVERYTHING ABOUT SECTION 80C OF INCOME
TAX ACT - INDIA:
Earlier there used to be Section 88 providing certain tax benefits. However, now Section 80C has replaced
the old Section 88. However, the investment mix available in Section 88 has remained more or less the same.
The new section 80C became effective w.e.f. 1st
April, 2006. Moreover, earlier section 80CCC on
pension scheme contributions has also been
merged with the new 80C. However, unlike
Section 88, there are no sub-limits and is
irrespective of how much you earn and under which
tax bracket you fall.
Sec 80C of the Income Tax Act states that qualifying
investments, up to a maximum of Rs.1 Lakh, are
deductible from your income. Thus, it means
actually your income gets reduced by this
investment amount (up to Rs.1 Lakh), and you end
up paying no tax on it at all! Most of the lower and
medium Income Tax payee try to save tax by saving
6/25/2014 How to make best use of section 80C - Maximise your tax savings
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under Section 80C of the Income Tax Act.
A review of the various options for savings under section indicates that you can not only save tax by
investing your savings in specified investment options, but also on certain types of expenditure which you
have to normally incur. Therefore, it is necessary to understand the full section so that in case you are short
of funds, you can claim tax benefits even for certain expenditure incurred by you.
There are many small savings schemes like NSC, PPF and other pension plans which are eligible under this
Section. Moreover, the payments towards the principal amount of housing loan are also eligible for an
income deduction. Similarly, there is provision wherein the payments made towards education fees for
children are also eligible for an income deduction. However, in case of premium paid for insurance;-
The benefit for premium is restricted to 20% of actual Sum Assured
The policy has to be continued for at least 2 years or it will result in reversal of benefits taken.
As the benefits under Section 80C are available across all income levels, thus, people who are in the highest tax bracket of
30%, save higher tax.
Saving SchemeSec. under which Tax
Benefit availableReturn
Tax benefits for earnings
(i.e. interest received /
dividend received)
Lock in Period and other Remarks
New Scheme :- Now We have two
types of National Saving Certificates
-
a) For 5 Years maturity ;
(b) For 10 years maturity (started
wef 01/12/2012)
Section 80C
8.50% for 5 years
Maturity NSCs; and
8.80% for 10 years
maturity NSCs (wef
01/04/2013) i.e.
applicable for FY
2013-14
Taxable
Now we have NSCs of 5 years and 10
years maturities (earlier there were
only one type of NSCs maturing in 6
years)
Old Scheme :
National Saving Certificates - (
NSC scheme )
Section 80C
8.40% (increased
from 8.00% to
8.40%wef Dec
2011);
On 10 year NSCs
rate of interest was
fixed as 8.70% in
December, 2011
Taxable
5 years (reduced wef Dec 2011 from 6
years to 5 years for new investments).
- See PS note below
Equity Linked Savings Schemes
(ELSS)Section 80C
Varies from year to
yearDividend is tax free 3 years
Life Insurance Policies Section 80CVaries from year to
year
Varies from scheme to
schemeVaries from scheme to scheme
Unit Linked Insurance Plan (ULIP) Section 80CVaries from year to
year
Varies from scheme to
scheme
Varies from scheme to scheme (15 to
20 years)
Infrastructure Bonds Section 80C
Varies from issue
to issue. These are
around 8%+ in Dec
2011
Taxable 3 to 5 years
Contribution to EPF / GPF Section 80C 8.50%Interest earned is tax
freeTill retirement (loans are permitted)
Public Provident Fund (PPF) Section 80C
Increased to 8.70%
wef 01/04/2013 for
FY 2013-14 (earlier
it was fixed at
8.80% wef
01/04/2012)
Interest earned is tax
free
15 years and extendable. Withdrawals
allowed after 7 years. Yield on PPF will
vary and will be fixed at 25 basis point
above the 10 year government bonds. -
See PS Note below
6/25/2014 How to make best use of section 80C - Maximise your tax savings
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Interest accrued in respect of NSC
VIII issue
Section 80C
8.50% for FY 2013-
14 fir VIII Series (5
years maturity); and
it is 8.80% for IX
series (10 years
maturity) for FY
2013-14
Taxable Till maturity of NSCs
Tuition Fees including admission
fees or college fees paid for full
time education of any two children
of the assessee.
Section 80C Not applicable Not applicable Not applicable
Repayment of Housing Loan
(Principal)Section 80C Not applicable Not applicable Not applicable
Bank Fixed Deposits Section 80CVaries (around
8.00%)Nil 5 Years
Senior Citizens Savings
Scheme 2004 (from financial
year 2007-08)
Section 80C
Decreased to 9.20%
wef 01/04/2013 for
FY 2013-14 (earlier
it was fixed at
9.30% wef
01/04/2012)
Taxable See PS below
Post Office Time Deposit
Account (from financial 2007-08)Section 80C
Interest payable
annually but
calculated
quarterly.
Period Rate
1 yr. A/c 8.20%
2 yr. A/c 8.20%
3 yr. A/c 8.30%
5 yr. A/c 8.40%
w.e.f. 01.04.2013
PS Note: On 4th January, 2012 the Centre clarified that, barring the Public Provident Fund (PPF), the rates of
interest on all small savings schemes will remain fixed throughout the tenure of investment. In an official
statement here, the Finance Ministry said that the interest rates applicable on small savings instruments
schemes would be announced on April 1 each year and that the rate would remain valid till the maturity of the
scheme.
In the case of the 15-year PPF scheme, however, the rate of interest would NOT remain fixed for the entire
period as the interest accruals in the PPF account each year would vary, depending on the interest rate
announced for that particular year. “… although the rate of interest on small savings schemes will be aligned
every year with rates of government securities of similar maturity, with suitable spread, the rates are fixed and
not floating so far as individual investments except PPF are concerned,” the statement said.
To clear the confusion over the returns on investment in small savings schemes, the Finance Ministry pointed
out that the rate prevailing at the time of investments will remain fixed and unchanged till the maturity of the
investment. Any revisions in interest rates in the subsequent years, it said, would only be applicable to the
investments made in the relevant period.
“For instance, investment made in an instrument other than PPF on December 1, 2011, will remain valid till the
maturity of that instrument, irrespective of the revision of the interest rate with effect from April 1, 2012. As
regards PPF, the interest rate fixed every year will be applicable to all PPF accounts,” the statement said.
6/25/2014 How to make best use of section 80C - Maximise your tax savings
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Revision of Interest Rates wef 01/04/2013 for Small Saving Schemes :
Scheme Rate of interest w.e.f.1.04.2012 to
31/03/2013Rate of interestw.e.f.1.4.2013
Saving deposit 4.0 4.001 year time deposit 8.2 8.202 year time deposit 8.3 8.203 year time deposit 8.4 8.305 year time deposit 8.5 8.40
5year recurring deposit 8.4 8.305year SCSS 9.3 9.205year MIS 8.5 8.405year NSC 8.6 8.50
10 year NSC 8.9 8.80PPF 8.8 8.70
Interest Rates applicable from 01/12/2011 to 31/03/2012 for Small Saving Schemes :
cheme Rate of interest w.e.f.1.12.2011
Saving deposit 4.0
1 year time deposit 7.7
2 year time deposit 7.8
3 year time deposit 8.0
5 year time deposit 8.3
5year recurring deposit 8.0
5year SCSS 9.0
5year MIS 8.2
5year NSC 8.4
10 year NSC 8.7
PPF 8.6
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• Reply •
Vinay • a month ago
Hi All,
i am taking a mediclaim policy which provides me cover of 3 lakh per year.
Premium i paid for the same is 9300.
Is this eligible under 80c,if yes then how???
• Reply •
Prasad • 8 days ago Vinay
Its eligible for tax saving but not under 80C but under 80 D
• Reply •
Sornapandian • a month ago
I have invested money in 5 yr Bank FD u/s 80C of IT Act. Whether I should include in my income the amount of
interest accrued every year or I should include in my income the total interest earned in the year of maturity?
Whether the principal is taxable in the year of maturity?
• Reply •
Malathy krishnamurthy • 3 months ago
PPF account is going to finish on this year Dec 2014.(15 years over) could you advise me , whether it may extend for
further?
• Reply •
heera • 4 months ago
let me know about ppf and how cani save tax in 80c
2
• Reply •
CA Prashant Khatri • 4 months ago heera
Contribution to a PPF account in the name of self, spouse and a child is
eligible for deduction under Section 80C. Earlier the annual investment
in PPF was limited to Rs 70,000, thereby limiting the tax deduction
also. However, with effect from 1 December 2011, this limit has been
raised to Rs 1 lakh per year. The annual accretion on the account is
also not taxable.
1
• Reply •
Nikita • 4 months ago
A national Saving certificate was bought on my and my mother's name ( joint certificate). Can I use it for availing
exemption under 80 C for myself?
• Reply •
CA Prashant Khatri • 4 months ago Nikita
yes since its joined name u can claim
• Reply •
deepak tomar • 4 months ago
for assesment year 14-15 who can be tak rebate u/s 87a
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6/25/2014 How to make best use of section 80C - Maximise your tax savings
http://www.allbankingsolutions.com/fin-section80c.htm 7/7
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• Reply •
• Reply •
Pradeep Rajput • 6 months ago
i have invest Rs. 50000 LIC, 15000 in bonds, 40000 school fees, how many benefits received in income tax relief
23
• Reply •
CA Prashant Khatri • 4 months ago Pradeep Rajput
u wil get benefit of 90000/-.
from last year onwards Bonds are not eligible for deduction
• Reply •
sahil • 6 months ago Pradeep Rajput
I think bond investment in allowed in some other section upto 20,000.
• Reply •
disqus_T28ud1ownn • a year ago
Will some one can clarify whether amount of premature withdrawal in PPF account is taxable. As there is divergent
opinion, I am unable to conclude.
5
• Reply •
thesanyamjain • a year ago disqus_T28ud1ownn
Here you go
http://www.indiantaxupdates.co...
1
CA Prashant Khatri • 4 months ago thesanyamjain
There is a lock-in period of 5 years and the money can be withdrawn in
whole after its maturity period. However, pre-mature withdrawals can be
made from the end of the sixth financial year from when the PPF
commenced. The maximum amount that can be withdrawn pre-maturely is
equal to 50% of the amount that stood in the account at the end of 4th
year preceding the year in which the amount is withdrawn or the end of
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