Tax Saving Investments Under
Section 80C
  • Generating a Tax-Free Income
  • Best 5 Tax Saving Investments
  • Features of Investment Schemes
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How To Save Tax Under Section 80C?

Today, the market is full of investment schemes, which save individuals from the pressure to paying hefty taxes. Buying them helps you to effectively plan your finances for a better tomorrow. Here are some tax-saving options you can invest in to get higher returns.

Best 5 Tax-Saving Investments Under Section 80C

  1. National Pension Scheme

    National Pension Scheme (NPS) is a government-sponsored pension scheme that was launched in January 2004 for government employees but was opened to all in 2009. The scheme is one of the best investment options, where you can invest in your post-retirement life and save tax under Section 80C.

    National Pension Scheme provides tax-exemption under three different sections:

    • Under section 80C of IT Act, the contribution up to the maximum limit of Rs.1.5 lakh can be claimed for tax exemption.
    • Under Section 80CCD (1B), one can get additional deduction up to Rs.50,000.
    • Under Section 80CCD (2), if 10% of the basic salary of the individual is contributed by the employer in the National Pension Scheme, then the amount is not taxed.

    Features

    • The National Pension Scheme allows individuals to make investments via two types of accounts: Tier-I account and Tier-II account. Tier-I Account is a basic and general pension account that comes with limited withdrawals. However, in Tier-II Account, the subscriber is free to withdraw the entire money from the account.
    • NPS gives the investor an option to withdraw their contributions partially in order to meet any financial needs before retirement. (*maximum limit to withdraw from Tier I account is 25%)
    • The NPS offers flexibility to the individuals by giving two investment options to choose from. One is Active Choice, where individuals are allowed to decide how the money can be invested in different assets. And another option is Auto choice, where the default option automatically invests money in line with the age of the subscriber.
  2. Sukanya Samridhi Yojana

    Investments made in Sukanya Samriddhi Yojana are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. Under this investment, the maximum amount invested is up to Rs 1.5 lakh per annum. One can open a Sukanya Samriddhi Yojana after the birth of a girl child till she turns 10. At the moment, investing in SSY offers the highest tax-free return of 8.5%. As a long term investment option, it also provides the benefit of compounding.

    Features

    • The lock-in period of the Sukanya Samriddhi Yojana is 21 years or in the event of the marriage of the girl child (once she attains the age of 18 years). A minimum deposit of ₹250 is needed per year for 15 years.
    • Only one account can be held for one girl child, and a maximum of two accounts can be opened in one family.
  3. Equity Linked Saving Scheme

    The Equity-linked saving scheme is the diversified mutual fund scheme. The investments made under the ELSS scheme are eligible for tax exemption (maximum limit of Rs.1.5 Lakh) under section 80C of Income Tax Act, 1961. To gain long-term capital returns and minimize the risk, one can invest in more than one ELSS. Being equity-links, ELSS has the potential to earn higher returns when compared to other tax-saving investments. This tax-saving investment option offers flexibility and liquidity in investment and is suitable for individuals who are willing to take risks.

    Features

    • The investment made in ELSS has a lock-in period of 3 years.
    • The returns are not fixed in ELSS and vary according to the market performance of the fund.
    • According to one's suitability, the investors can opt for a dividend or growth option in ELSS funds.
    • ELSS investment also offers transparency and ease of investment as one can track his/her investment online in a simple and hassle-free way.
  4. Public Provident Fund (PPF)

    Public Provident Fund is a popular long-term tax saving option, which helps the investors to create a financial cushion for their post-retirement life. The scheme is ideal for those individuals who are willing to earn high and stable returns. Investing in a public government fund provides accumulated returns at the end of the tenure that lasts for 15 years, but if required, an investor can choose to extend this tenure. The entire value of PPF investment can be claimed for tax waiver under section 80C of the Income Tax Act, 1961.

    Features

    • A maximum of Rs.1.5 lakhs can be claimed for tax exemption.
    • An individual can annually invest a minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh in a provident fund scheme.
    • An investor can avail loan against their investment if taken at the beginning of 3rd year till the end of the 6th year from the date of activation of the account.
  5. Unit Linked Insurance Plans (ULIP)

    Unit Linked Insurance Plans (ULIP) serves two goals- investment and insurance. It provides a life insurance cover to the policyholder and allows them to reap the benefits by investing in both the stock market or debt funds.

    However, investing in ULIP is associated with higher charges due to the life cover element. The investment made in ULIP's can be used to claim a tax deduction (up to Rs. 1.5 lakhs) under section 80C of the income tax act.

    Features

    • ULIP's give an investor the flexibility to switch between equity, debt, or mutual funds during the ULIP tenure.
    • ULIP plans come with a lock-in period of 5 years and offer ease of investment.
    • ULIPs offer life cover and also help to grow your money over the long-term.

With proper knowledge, an investor can look for several tax-saving investments that are available in the market. Such investment options will help you generate a tax-free income.

Written By : Naval Goel

Last Updated : December, 2019

Naval Goel is the CEO & founder of PolicyX.com. Naval has an expertise in the insurance sector and has professional experience of more than a decade in the Industry and has worked in companies like AIG, New York doing valuation of insurance subsidiaries. He is also an Associate Member of the Indian Institute of Insurance, Pune. He has been authorized by IRDAI to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.

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