The Income Tax Act has various sections that deal with the nitty-gritties of the tax-paying process and its additional aspects. One of the most well-known sections, especially amongst individuals concerned with tax-saving, is Section 80C. This section mentions multiple ways in which one can enjoy tax deductions up to Rs 1.5 lakhs, either via certain expenditures or by investing in particular financial instruments. Once you have spent/invested the amount within a financial year, you can use an income tax calculator to get an estimate of the deductions you can enjoy in that year. Now, let’s take a look at the instruments that offer these deductions under Section 80C.
Life insurance
Life insurance helps you financially secure the future of your loved ones, so that, even in your absence, they can live a worry-free life. The premium that you pay towards your life insurance policy is eligible for tax deductions up to Rs 1.5 lakhs. So, not only are you saving tax but are also ensuring a financially healthy future for your loved ones. Note that, for the deduction to be eligible, the premium should be paid by you for yourself, your spouse, and your children. Premiums paid for your parents or parents-in-law will not be eligible under this section.
HUFs can also benefit from this deduction; if you are a HUF unit, then do remember to choose the right ITR form from the several types of ITR available.
Employees Provident Fund (EPF) and Voluntary Provident Fund (VPF)
The annual total of the amount that gets deducted from your monthly salary towards the EPF can be used to claim tax deductions. If you are looking for more tax savings in this regard, then you can consider increasing your PF contribution. This additional contribution is referred to as VPF or Voluntary Provident Fund and is also considered for deductions.
Repayment towards home loan
If you have taken a home loan and are making repayment towards it, then the annual total of the payments you make can be used to reduce your tax liability. This Section only considers the principal portion of the repayment and not the interesting aspect. Furthermore, any payments for the purchase of a house to registered housing development authorities also qualify for tax deductions in this section. When computing your taxable income estimated through the income tax calculator, you can add the loan principal repayment amount to get a more accurate estimate.
ELSS (Equity-Linked Savings Schemes)
ELSS comes under the mutual funds category; however, what separates them from other mutual funds schemes is the tax-saving they bring. The investment made towards an ELSS plan is eligible for tax deductions up to Rs 1.5 lakhs under Section 80C. Note that the gains from ELSS are not tax-exempt.
ULIPs (Unit-Linked Insurance Plans)
ULIPs are a unique product combining life insurance and investment. Your ULIP premiums are used to build your life cover and to invest in market-linked instruments. You keep earning returns depending on the asset class you have invested in and the performance of the market. The premium for your ULIP plan is eligible for tax deductions up to Rs. 1,50,000. Another tax benefit of ULIP and other life insurance products is that the pay-outs of the policy are tax-exempted. However, these exemptions figure under a different section of the Act.
ULIPs have a lock-in period of five years. If you surrender the policy before the lock-in period is over, there is a risk of the tax deductions getting reversed and being treated as total income.
Important note:
Section 80C tax deductions are not permitted for individuals who have opted for the new income tax slab rates. Under the new tax regime, several tax deductions and exemptions have been scrapped to make room for a lowered tax rate for each income slab. One can enjoy the deductions mentioned here with the old tax regime. However, this would mean comparatively high-income tax rates. So, do consider these factors before you decide whether you would like to go with the old tax regime or the new income tax slab rates.
Tax benefits are subject to continuously evolving tax laws and changes in terms and conditions. Do consult a tax expert before undertaking any major financial decisions.
