Under Section 80C, the Government of India allows taxpayers to reduce their taxable income and save on taxes. At present, taxpayers can invest up to Rs. 1.5 Lakh on eligible tax-saving schemes for claiming deduction under this section. Apart from diversifying your portfolio for stability, you can save taxes as well by investing in these long-term debt schemes.

How Can Section 80C Help You Save Taxes?

Let us understand this with the help of an example - Let's assume you are in the 30% tax slab with a taxable income of Rs. 10 Lakhs or above. Thanks to section 80C, you can save up to Rs. 46,800/- (including Cess) in taxes by investing a sum of Rs. 1.5 Lakhs in schemes that fall under this section. Similarly, if you belong to the 10% or 20% tax slabs, you can save up to Rs. 15,600/- and Rs. 31,200 respectively.

Now that you know the tax-saving potential of Section 80C, let's look into some fixed-income investment options you can choose from:

1. Public Provident Fund (PPF):

Being a Government-backed scheme, PPF is one of the go-to choices for investing under 80C by many taxpayers since its launch in 1968. It offers steady returns and long-term stability of your investment. To invest in PPF, you need to open a PPF account with an initial deposit of Rs. 500. Earlier, PPF accounts were available only at Post Offices or Nationalized Banks, but now some private banks offer PPF account facility as well.
  • Lock-in Period: The lock-in period of the investment in the PPF account is 15 years, and upon maturity, you can extend the duration in blocks of 5 years.
  • Rate of Interest: Regulated by the Government, currently at 7.9%.
  • Tax implications: Investment as well as the interest on maturity is tax-free.

2. Sukanya Samriddhi Yojana (SSY):

Aimed for the betterment of the Girl child, the Government of India launched Sukanya Samriddhi Yojana (SSY) in 2016. Any natural/legal guardian of a girl child below 10 years of age can open an SSY account. You can open the account for up to two girl children except for three accounts in case of twin girls in second birth or a triplet in the first birth. After an initial deposit of Rs. 250, you can deposit in multiples of Rs. 150 up to the annual ceiling of Rs. 1.5 lakhs per account.
  • Lock-in Period: After opening an account, you can deposit up to 15 years, and the tenure of the deposit is 21 years from the date of account opening.
  • Rate of Interest: Regulated by the Government, currently at 8.4%.
  • Tax implications: Investment as well as the interest on maturity is tax-free.

3. Voluntary Provident Fund (VPF):

Apart from the mandatory 12% contribution towards their Employee Provident Fund (EPF), employees can contribute voluntarily up to 100% of their basic salary (plus the dearness allowance) through VPF. VPF is a safe investment option and promises high returns. Further, if you change your job, transferring your VPF account is simpler from one employer to the other. The Government regulates the rate of interest annually for VPF.
  • Lock-in Period: 5 years
  • Rate of Interest: The interest rate for VPF, currently at 8.65%, is probably the highest for any fixed-income tax savings schemes under Section 80C.
  • Tax implications: Investment as well as the interest on maturity is tax-free.

4. Senior Citizens' Saving Scheme (SCSS):

To provide an additional tax-saving scheme among senior citizens, the Government of India introduced SCSS for individuals above 60 years of age. Further, individuals opting for voluntary retirement, and defence personnel can start investing in SCSS at the age of 58, and 50 years respectively. Both the spouses can open individual accounts separately or jointly with each other by an initial deposit of minimum Rs. 1000/- and a maximum of Rs. 15 lakhs.
  • Lock-in Period: The lock-in period for the scheme is 5 years with an option to extend it by 3 years once after its maturity.
  • Rate of Interest: Regulated by the Government, currently at 8.6%.
  • Tax implications: The interest received under the scheme is taxable, but senior citizens can claim deduction under section 80TTB for the maximum up to Rs. 50,000 in a financial year.

5. Tax-saving Bank Fixed Deposits:

All leading banks offer tax saving deposit schemes as the last-minute option to save taxes. Rather than investing in market-linked options, these fixed deposit schemes offer a safe route to invest.
  • Lock-in Period: 5 years.
  • Rate of Interest: Regulated by the issuing banks, varies from 5.5% to 7.5%.
  • Tax implications: The interest earned is taxable.

6. National Saving Certificate (NSC):

Issued by the Post-Office, NSC is another popular tax-saving investment option. Any adult or minor above 10 years of age can buy these certificates either individually or jointly with others. For investing in NSC, you have to invest a minimum of Rs. 1000/- and in multiples of Rs. 100/-. There is no upper limit on your investment, and the rate of interest varies every quarter.
  • Lock-in Period: 5 Years
  • Rate of Interest: Regulated by the Government, currently at 7.9% compounded annually but paid after maturity
  • Tax implications: The interest received in NSC is taxable, but since the interest is reinvested, an individual can claim deduction under section 80C on maturity.

Tax-Saving Instruments: Safety and Growth

The fixed-income investments mentioned-above are bankable and stable tax-saving options under Section 80C of the Income Tax Act in India. These instruments provide an excellent alternative to have a disciplined investment without taking any risks of the market. Hopefully, after knowing them in detail, you will be able to make an informed decision to build a long-term corpus to realize your financial goals and save tax under Section 80C.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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