The Income Tax Act, 1961 has provided deductions under Section 80C for various investments. A maximum amount of Rs. 1.5 lakh can be claimed as a deduction under this section. As investments in financial assets are increasing many tax-centric investment schemes have been created to provide investors with the highest tax benefits and returns. Provided below is a list of investments and expenditures that a taxpayer may claim as a deduction under section 80C of the income tax act.
1. Equity-linked saving schemes
Equity-linked saving schemes (ELSS) are mutual fund investments schemes that are designed to provide the investor with the maximum tax benefits. These funds can provide higher returns to the investors as compared to other saving schemes because they are equity-based, this also implies that they come with a higher risk. A maximum deduction of Rs 1.5 lakhs can be provided under section 80C for these investments and they come with a lock-in period of a minimum of 3 years.
2. Life insurance premiums.
Premium paid towards the life insurance policy of a taxpayer, spouse of a taxpayer or the children of the taxpayer can be included as a deduction under section 80C. Life insurance premium paid towards multiple policies by the taxpayer for themselves or their spouse or children can also be included as a deduction under section 80C. If a Hindu United Family (HUF) buys a policy for a family member this may also be included as a deduction under section 80C.
3. National Saving Certificates (NSC)
National Saving Certificates is a tax-saving instrument that allows an individual to invest as low as Rs. 100 per month with no upper limit to the investment. NSC come with a minimum 5-year maturity period and the interest earned in this period in cumulative, thereby, making them tax-free investments until the date of maturity, the interest earned on the date of maturity is taxable. NSCs earn an interest of 8% per annum which is cumulative till the date of maturity.
4. Public Provident Funds (PPF)
The PPF is a government scheme that comes with an assured interest rate. A minimum investment of Rs.500 and a maximum investment of Rs.1.5 lakhs annually can be made in this scheme and the interest earned is tax-free. PPFs come with a maturity period of 15 years and the interest rates may be revised every quarter. The present rate of interest on PPFs effective from October 2018 is 8 % p.a.
5. Employees’ Provident Fund (EPF)
A portion of an individual’s salary is contributed to the EPF by the employer every month. The individual may claim this contribution to EPF as a deduction from the total under Section 80C. Any interest earn above the rate of 9.5 % per annum of the EPF is taxable to the individual and any contribution over 12% of the individual’s income by the employer is taxable to the individual.