Investments qualifies u/s. 80C of income tax Act,1961
Under this section you can save Tax by investing a maximum of Rs 1.50 lakh. You can choose the various investment options or one which is suitable as per your future needs under this section of 80c of income tax act,1961.we will discuss one to one here under:-
Public Provident Fund (PPF): Interest earned is fully exempt from tax without any limit. Annual contributions qualify for tax rebate under Section 80C of income tax. Contributions to PPF accounts of the spouse and children are also eligible for tax deduction. Balance in PPF account is not subject to attachment under any order or decree of court.
But, Income Tax authorities can attach the account for recovering tax dues. The highest amount that can be deposited is 1,50,000. Tax bracket for PPF is EEE (i.e. Exempt,Exempt,Exempt). So contribution is exempted under 80C, Interest earned is tax exempted and withdrawal is also tax exempted.
One can withdraw the investment made in 1st year only in 7th year. However, loan against investment is available from 3rd financial year. If liquidity is not an issue, you should invest as much as you can in this scheme before looking for other fixed income investment options.
Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C.
If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.
Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.
Equity Linked Saving Schemes (ELSS) of mutual funds are diversified equity funds that have a lock-in period of three years and provide tax benefit. Since a major portion of the corpus is invested in equities / equity stock markets , the earning potential is higher (though at a higher risk) as compared to other tax saving investments.
Investors can invest up to 1,00,000 in an ELSS fund and deduct the investment from their taxable income u/s 80C of Income Tax Act, thereby effectively reducing their tax liability. Long-term capital gains and dividends received on these investments are tax-free in the hands of the investor as per the current tax laws.
Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF).
Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of theIncome Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage