KNOWLEDGE CENTRE Tax Planning / Which Are The Best Tax-Saving Options Under Section 80C?
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Which Are The Best Tax-Saving Options Under Section 80C?


The Indian government has been consistently promoting new and improved savings instruments by including them in the pool of investments that are exempted from the taxable income of individuals.

Different amounts of your expenses and income are exempted from your taxable income under different sections of the Income Tax (IT) Act. Section 80C is one of such sections that enable you to claim your investments in various instruments as exempt from your taxable income. You may claim a maximum of INR 1.5 lakh as an exemption under Section 80C by investing in tax saving funds.

What Are Expense-Based Tax Exemptions?

The three expenses that are exempted from tax up to certain limits under Section 80C include the following:

1. Life insurance premium

Life insurance premium that is less than or equal to 10% of the sum assured on policies in your name, or in the name of your spouse, or children is exempt under Section 80C.

2. Children’s tuition fees

Tuition fees paid to any educational institution in India for a maximum of two children are exempt from your taxable income.

3. Home loan repayment

The principal portion of your home loan is eligible for exemption along with applicable stamp duty, registration fees, and transfer expenses. The interest portion is exempt under Section 24.

What Are Savings-Based Tax Exemptions?

Savings-based tax exemptions are no-risk or zero-risk tax-savings options with guaranteed returns. The returns for some of these are fixed throughout the tenure of the investment whereas for others, it changes from year to year as determined by the relevant authority. The returns are guaranteed nonetheless.

1. Employee Provident Fund (EPF)

Employers deduct 12% of your basic salary and deposit the same in an EPF account that currently earns 8.65% per annum interest.

2. Public Provident Fund (PPF)

TYou may open a PPF account with your bank or post office. Start investing there and gain from tax exemptions under Section 80C. PPF accounts earn 7.6% interest per annum. There is a lock-in period of 15 years and the earnings and maturity proceeds are exempt from tax. PPF is one of the best tax-saving options and immensely popular since decades.

3. Tax-saving fixed deposits (FDs)

These are regular FDs with a lock-in period of five years. The interest earned ranges from 7% – 9% depending from bank to bank and is taxable per your tax bracket.

4. National Savings Certificates (NSC)

NSCs may be purchased from the designated post office. They have a five-year lock-in period. The earnings are compounded annually and are currently at 7.8% per annum.

5. Sukanya Samriddhi Yojna (SSY)

SSY is similar to an FD, but is dedicated to a girl child. A parent or grandparent may open one in the name of the girl child. An SSY has a tenure of 21 years from the account opening date and earns tax-free annually compounded interest. Currently, the interest rate is 8.6% per annum.

6. Senior Citizens Savings Scheme (SCSS)

The SCSS is meant for citizens above the age of 55 years who have taken early retirement or for all citizens above the age of 60 years. The SCSS has a maturity tenure of five years and an interest of 8.4% per annum.

What Are Equity Linked Tax-Saving Investments?

Apart from these, there are some tax-saving instruments that are linked to equity investments. These do not have any fixed or guaranteed returns. Evidently, these investments are riskier than the ones detailed above. These include:

7. National Pension System (NPS)

The Government of India started the NPS to enable professionals from the unorganized sector and independent working professionals to have a pension after retirement. An additional INR 50,000 exemption may be claimed under Section 80CCD (1B) on investments in NPS, over and above the INR 1.5 lakh under Section 80C.

8. Unit-Linked Insurance Policy (ULIPs)

ULIPs are a mixture of insurance and mutual funds. From the premium amount, the life cover expense is deducted, and the balance is invested in the markets. The market investment gives high returns and the risk involved therein is mitigated by the life insurance, thereby giving it a fair risk-return ratio.

9. Equity-Linked Savings Scheme (ELSS)

ELSS investment offer the best returns among all the tax-saving investment options. It is a mutual fund that has a minimum lock-in period of three years and allows for a minimum investment of 65% in equities. Though not guaranteed, historic trends show that they have generated 12% – 15% annualized returns over the long run and come with tax-free earnings at the end of the lock-in period.

Having understood the various investment options eligible for tax exemption under Section 80C, you may profit better from the proprietary investment engine ARQ from the house of Angel Bee. Since the app is free of human bias and takes into account all aspects affecting the investments’ earning potential, it gives you more reliable reports and results. ELSS investments and other instruments are matched with your lifestyle, risk profile, and financial goals.

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