Income tax can play a vital role in the development of country. They account for a vast portion of the government's income and also fund basic provisions to the citizens.Sometimes, these taxes can be rough on the finances of the taxpayer. Hence the government provides a way to save tax and one of them is Section 80c. According to Income Tax Act- 1961, when an individual earns more than ₹ 2,50,000 the person is expected to pay tax.But under section 80c, you are allowed to file for returns as long as you have invested in any qualifying investment scheme.
Paying Tax is Matter of Pride. Saving Tax is Matter of Right.
The maximum deduction under section 80c for the financial year 2017-18 is ₹ 1,50,000 from your overall taxable income. This is applicable to all categories of tax payers who have invested in the qualifying investments, irrespective of their income source.
Comparison of investments that are eligible to 80c deduction:
1. ELSS – Equity linked Saving Scheme:
ELSS is tax saving mutual funds that invest a minimum of 65% of their assets in equities. You can invest up to ₹ 1.5 Lakh in ELSS and reduce taxable income under section 80c. The best advantage of investing in ELSS funds is the lowest lock in period (3 years) and the profits earned are also tax free.
Also, they assist the investor in earning inflation beating returns over long term because of their equity exposure. ELSS category annualised returns over past 3 years & 5 years are 14.73% and 19.17% respectively.
2. Tax saving Fixed Deposits:
Although these are similar to regular deposits, they come with a lock in period of 5 years. The interest are dependent on bank and can range from 6% - 7.5%.
Interest earned on fixed deposits is taxable, one also has to bear a tax deduction of 10 to 30% on the interest income depending on the range of tax slabs under which the depositor's income is covered. TDS is deducted on the interest only if the interest amount of the FD is greater than Rs 10,000 per year. The rate of TDS is 10 percent on interest income, in case your PAN number is available with the bank. If you have not sent your PAN card details to the bank, TDS is deducted at 20 percent on interest income. That amounts to average 5% returns on FDs delivering maximum returns in the current scenario.
As believed Fixed Deposits are not 100% safe. In case of any bankrupt, FD Depositors are guaranteed for payment up to Rs. 1,00,000 only.
3. PPF – Public Provident fund:
Credits made into a PPF account are qualified for tax deductions and up to 1.5 lakh can be claimed very financial year.PPF has a current interest of 7.6% for this financial year 2017. The investments are compounded annually and have a lock in period of 15 years. The returns are completely tax free. Your investments in PPF can be used to take loan.
4. NPS – National Pension system:
NPS was started by the Indian Government to help the workers of unorganised and professional sectors get pension. Investments in this scheme can avail tax deduction up to ₹ 1.5 lakh under section 80c. An additional of ₹ 50000 can also be availed under section 80CCD(1B). However, the returns are taxable and there is no guarantee of returns earned from NPS. NPS offers many plans for the investors to choose from but the exposure to equity is stopped at 50%
Tier-I Account: It is a basic pension account with limitations on withdrawal. Before attaining 60 years of age, only 20% of the contribution can be withdrawn while the rest 80% has to be necessarily used for buying annuity from a life insurer. Annuity is a series of payments made at fixed intervals of time. Annuity plans necessitate the insurer to pay the insured income at regular intervals until his death or till maturity of the plan.
After attaining the age of retirement also (60 years), close to 60% contribution can be withdrawn and the rest 40% again has to be used to purchase annuity from approved life insurers.
Tier-II Account: It is a voluntary savings option from which a person can withdraw money limitless. Investments in this account are not eligible for tax saving sections.
5. ULIP – Unit Linked Insurance Plans:
ULIP is a blend of insurance and investment. A portion of the capital is paid to provide insurance and the remainder is used to invest in stocks. The capital invested in ULIPs has a lock in period of 5 years and returns are not guaranteed as ULIPs are linked to equity markets.
The major disadvantage here is lack of transparency. The investor is not clarified on how much of the capital is deducted for commission/expenses and where the investments are made.
6. NSC – National Savings Certificate:
Funds used to buy NSCs from designated post offices can avail a tax break under section 80c. NSCs come with a lock in period of 5 years and the returns are taxable. The current interest rate is 7.6%.
7. Sukanya Samriddhi Yojana:
This scheme was opened by the Indian government for the welfare of female children. Deposits in this scheme are eligible for tax deduction and are made by parent or guardian. The interest rates are 8.1% for the year 2017-2018. The returns are completely tax free too and mature after child turns 21 years. When the account holder turns 18, a partial withdrawal of 50% is allowed.
8. SCSS – Senior Citizens Savings Scheme:This scheme is exclusive for retired citizens over 55 years or senior citizens over 60. The maturity period is 5 years and the interest rate is 8.3% Deposits into this scheme are eligible for tax deduction.
|Investment||Risk Profile||Interest rates |
(as on Jan 2018)
|Guaranteed Returns||Lock in Period||Tax on returns||Premature|
|ELSS||Equity Related||Market Linked Returns||No||3 Years||10% LTCG on profits above 1Lac||Not Allowed|
|PPF||Risk Free||7.6%||Yes||15 Years||No||Allowed,but Subjected to Conditions|
|NPS||Equity Related||Market Linked Returns||No||Till retirement||Taxable||Allowed,but Subjected to Conditions|
|NSC||Risk Free||7.6%||Yes||5 Years||Taxable||No|
depending on the bank
|Yes||5 Years||Taxable on Maturity||No|
|ULIP||Equity related||Market linked Returns||No||5 Years||No||Yes|
|Sukanyasamridhi||Risk free||8.1%||Yes||21 Years||No||Yes|
|SCSS||Risk free||8.3%||Yes||5 Years||Yes||Allowed,but Subjected to Conditions|