investments taxation

8/2/2019 Investments Taxation

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DEDUCTIONS UNDER SECTION80C FOR INVESTMENTS IN THE

INDIAN IT ACT 1961

Prepared By,

NABAJIT GHOSHAL & SAURABH MAITRA


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SECTION 80C

Under this section, you canInvest a maximum of Rs 1 lakh

and if you are in the highesttax bracket of 30% (Earning

Above Rs 8,00,000) you save atax of Rs 30,000


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VARIOUS INVESTMENT OPTIONS

Provident Fund (PF) & Voluntary Provident Fund (VPF)

PF is automatically deducted from your salary. Both

you and your employer contribute to it.

While employers contribution is exempt from tax,your contribution (i.e., employees contribution) is

counted towards section 80C investments.

You also have the option to contribute additional

amounts through voluntary contributions (VPF).

Current rate of interest is 8.5% per annum (p.a.)

and is tax-free.


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PUBLIC PROVIDENT FUND

Among all the assured returns small saving

schemes, Public Provident Fund (PPF) is one

of the best.

Current rate of interest is 8% tax-free and the

normal maturity period is 15 years.

Minimum amount of contribution is Rs.500

and maximum is Rs.70,000.

A point worth noting is that interest rate is

assured but not fixed.


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LIFE INSURANCE PREMIUM

Any amount that you pay towards life insurancepremium for yourself, your spouse or your children

can also be included in Section 80C deduction.

Please note that life insurance premium paid by you

for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C.

If you are paying premium for more than one

insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from

Life Insurance Corporation (LIC) even insurance

bought from private players can be considered here.


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EQUITY LINKED SAVINGS SCHEME

ELSS is part of the Section 80C instruments that are

cumulatively eligible for a deduction from income up to Rs 1lakh. This gives tax payers benefits from 10% to

30%(excluding the E.C) based on their current tax slab.

An ELSS (Equity Linked Savings Scheme) is a mutual fund thathas to invest a minimum of 80% in equity shares. The balance

20% can be in debt, money market instruments, cash or even

more equity.

There is a minimum three year lock-in period for the ELSS

mutual funds before which the investment cannot be closed

or switched, which ensures that one stays invested.


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EQUITY LINKED SAVINGS SCHEME

Salaried people with a tight budget can opt for a monthly

investment (SIP using ECS). The automatic investment from

the bank through ECS makes it an easy way to invest.

Those who want an income in between can opt for the

dividend option. This is particularly suitable for senior

citizens. Also, the ELSS gives a tax-free return [under the EEE

regime] compared to a bank or company deposit, which is

taxable.

The top five ELSS funds have given returns from 22% to 26%

compounded annually over the past five years. This is again

higher than the market returns over the same period, which

is at 19%.


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HOME LOAN REPAYMENT PRINCIPAL

The Equated Monthly Installment (EMI) that you pay every

month to repay your home loan consists of two components

Principal and Interest.

The principal component of the EMI qualifies for deduction

under Sec 80C.

Even the interest component can save you significant income

tax but that would be under Section 24 of the Income Tax Act.

SUGGESTION

Please read Income Tax (IT) Benefits of a Home Loan / Housing

Loan / Mortgage, which presents a full analysis of how you can

save income tax through a home loan.


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STAMP DUTY AND REGISTRATION CHARGES

FOR A HOME

The amount you pay as stamp duty when you

buy a house, and the amount you pay for

the registration of the documents of the housecan be claimed as deduction under section 80C

in the year of purchase of the house.


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NATIONAL SAVINGS CERTIFICTE (NSC)

National Savings Certificate (NSC) is a 6-Yrsmall savings instrument eligible for section 80C tax

benefit.

Rate of interest is 8% compounded half-yearly, i.e.,

the effective annual rate of interest is 8.16%.

If you invest Rs. 1,000, it becomes Rs. 1601 after six

years.

The interest accrued every year is liable to tax (i.e. tobe included in your taxable income) but the interest

is also deemed to be reinvested and thus eligible for

section 80C deduction.


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INFRASTRUCTURE BONDS

These are also popularly called Infra Bonds.

These are issued by infrastructure companies,

and not the government. (E.g LICInfrastructure Bonds under SEC 80 CCF)

The amount that you invest in these bonds

can also be included in Sec 80C deductions.


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PENSION FUNDS

Tax benefit Under SEC 80CCC Section 80CCC investment limit is clubbed with the

limit of Section 80C , it means that the total

deduction available for 80CCC and 80C is Rs. 1 Lakh.

This also means that your investment in pension

funds upto Rs. 100000 can be claimed as deduction

u/s 80CCC.

However, as mentioned earlier, the total deductionu/s 80C and 80CCC can not exceed Rs. 1 Lakh.


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5 YEAR BANK DEPOSITS FDS

Indian government announced in 2006 that, bank fixed deposits

booked by an individual/HUF for 5 years and up to Rs. One Lac or

Rs. 100,000/- will be eligible for exemption. This exemption would

be under section 80C of the income tax act 1961, provided the

investor makes necessary declarations.

The fixed deposits can be purchase for a minimum amount of Rs.

100, and then in multiples of Rs. 100. The maximum amount

eligible under a tax saver fixed deposit is Rs. 100,000 for a financial

year.

This tax saver fixed deposits do not have the sweep-in facility. It

means that this fixed deposit cannot be linked to a savings account

and the surplus funds available under the savings account cannot

be automatically invested in this fixed deposit.


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5 YEAR BANK DEPOSITS FDS

In case two people invest in a tax saver fixed deposit, and

become joint holders of the same, the tax benefits under

the section 80C of I.T act will be available to the 1st holder.

The interest rates on tax saving fixed deposits are generally

calculated on a quarterly basis and the interest is

reinvested into the fixed deposit. So, after every quarter

the principal increases by an amount earned as the interest

in the last quarter.

The fixed deposits which were giving interest rates up to

14% or more a decade back have recently slump to around

8.25% for normal citizens and 8.75% for senior citizens.


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SENIOR CITIZEN SAVINGS SCHEME

2004 (SCSS)

A recent addition to section 80C list, Senior Citizen

Savings Scheme (SCSS) is the most

lucrative scheme among all the small savings schemes

but is meant only for senior citizens.

Current rate of interest is 9% per annum payable

quarterly.

IMPORTANT NOTE

The interest is payable quarterly instead of compoundedquarterly. Thus, unclaimed interest on these deposits

wont earn any further interest. Interest income is

chargeable to tax.


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5 YEAR POST OFFICE TIME DEPOSITS

(POTD) SCHEME

POTDs are similar to bank fixed deposits.

Although available for varying time duration like 1

year, 2 year, 3 year and 5 year, only 5-Yr post-officetime deposit (POTD) which currently offers 7.5 %

of interest qualifies for tax saving under section 80C.

Effective rate works out to be 7.71% per annum

(p.a.) as the rate of interest is compounded quarterlybut paid annually. The Interest is entirely taxable.


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NABARD RURAL BONDS

There are two types of Bonds issued by

NABARD

1.National Bank for Agriculture.

2.Rural Development

NABARD Rural Bonds and Bhavishya Nirman

Bonds (BNB). Out of these two, only NABARD

Rural Bonds qualify under section 80C.


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UNIT LINKED INSURANCE PLAN

(ULIP)ULIP stands for Unit linked Saving Schemes.

ULIPs cover Life insurance with benefits of equity investments.

They have attracted the attention of investors and tax-savers not only

because they help us save tax but they also perform well to give

decent returns in the long-term.


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OTHERS

Apart form the major avenues listedabove, there are some other things,

like childrens education expense (for

which you need receipts), that can be

claimed as deductions under Sec 80C.


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THANK YOU

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