Tax Benefit Investment: Know about Section 80C Deductions

BLOG | April 11, 2024

What is Section 80C?

When it comes to making a tax benefit investmentSection 80C is a tax-saving, section that was introduced by the Finance Act, 2005. Broadly speaking, this section provides a deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. And while the Income Tax Act of India, 1981, contains more such tax-saving provisions, Section 80C is the most popular as it offers the most benefits.

Tax Benefit Investment – How much Income Tax can I save under Section 80C?

Deduction under this section is limited to up to a total of Rs. 1.50 lakhs only.

Learn all about Section 80C through the below video guide to save income tax

Popular tax saving investment options under section 80C ELSS Funds

1. Investing in ELSS Funds

What is it?

Equity Linked Savings Scheme or ELSS are tax saving mutual funds that are a popular example of a tax benefit investment. These funds invest a minimum of 65% of their assets in the stock market. You can earn an income tax rebate for investments up to Rs. 1.5 lakhs by investing in ELSS funds under Section 80C of the Income Tax Act.

Lock-in period

In regard to the tax benefit investment duration, the lock-in period of ELSS funds is 3 years. It is the lowest among all tax-saving investments.

Returns Expected

ELSS funds don’t offer guaranteed returns, but the past performance of these funds has given 12-15% returns thanks to the power of compounding interest.

Best Feature

ELSS funds are equity-oriented investments, hence all gains on your investments that are held for over one year are completely tax-free, a perfect example of a tax benefit investment. (Click here to know how to invest in ELSS funds in 3 minutes with Sqrrl App Click here to know about the best ELSS funds to invest in 2019 PPF

2. Investments in Public Provident Fund (PPF)

What is it?

A public provident fund is one of the most used ways of income tax deductions under Section 80C – another example of a tax benefit investment. Deposits made in a PPF a/c are eligible for tax deductions under Section 80c for AY 2018-19. It is a saving as well as an investment scheme offered by the Government of India.

Lock-in period

A PPF account has a lock-in tenure of 15 years. Withdrawals post 15 years are tax-free.

Returns Expected

A PPF is a risk-free tax benefit investment and gives guaranteed interest. PPF investments are backed by the Finance Ministry for every FY. The current rate of interest is 7.9%, compounded annually. Returns from PPF are tax-free.

Best Feature

While you can’t withdraw money from your PPF account before its maturity, a user can take loans against their PPF account, depending upon the amount currently stored there.

Employee Provident Fund

3. Investments in Employee Provident Fund (EPF)

What is it?

Employee’s Provident fund allows for income tax deductions for salaried employees and falls under the Section 80C deductions list. The maximum investment for tax rebate allowed is Rs. 1.5 lakhs in a financial year. Under EPF both the employee and employer contribute 12% of your basic salary.

Lock-in period

To avail the tax rebate, the funds must be locked in for a minimum of 5 years. You can make withdrawals at the time of retirement or at the time of changing jobs.

Returns Expected

EPF offers returns based on the current interest rate which is 8.65%.

Best Feature

An EPF account can only be opened by a salaried individual. A tax Benefit investment done in EEP qualifies for deduction under Section 80C of the Indian Income Tax Act, 1961.

Tax-saving fixed deposits - Section 80C

4. Investments in Tax-saving Fixed Deposits (FD)

What is it?

These are like regular fixed deposits, and allow for a person to have an income tax break under the Section 80C of the income tax act. The maximum benefit is Rs. 1.5 lakhs.

Lock-in period

Tax saving FDs have a lock-in period of 5 years in terms of a tax benefit investment.

Returns Expected

Different banks offer different rates of interest on such fixed deposits, but the interest generally ranges from 7-9%.

Best Feature

Tax-saving Fixed Deposits

offer 100% protection of your capital and offer you compounded returns. However, the interest will be added to your taxable income post maturity.

National Pension System - Tax Benefit Investment

5. Investments in National Pension System / Scheme (NPS)

What is it?

NPS or the National Pension Scheme is a scheme by the Government of India. It allows the working professionals & people from the unorganized working sectors to have a pension post their retirement. It offers different plans and a subscriber can pick based on their risk horizon.

Lock-in period

The money under NPS is locked until the time of retirement.

Returns Expected

NPS does not offer you guaranteed returns, and the maximum exposure to equity investments is capped at 50%. The NPS returns upon the time of maturity are taxable, however.

Best Feature

The subscriber gets an option to change the dedicated pension fund managers. You can avail additional tax benefits by investing up to Rs. 50,000 in NPS for tax deductions under Section 80CCD(1B)

National Savings Cetificates - Tax Benefit Investment

6. Purchase of National Savings Certificates (NSC)

What is it?

Another example of a tax benefit investment National Savings Certificates (NSC) allows for income tax deductions for the financial year in which they are purchased. Under Section 80C, investments up to Rs. 1.5 lakhs in NSCs can be used for an income tax rebate.

Lock-in period

NSCs come with a lock-in period of 5 years.

Returns Expected

While the 8% interest (current) is compounded annually, the returns are taxable.

Best Feature

You can purchase NSCs from a designated post office hassle-free. ULIP - Tax Benefit Investment

7. Investments in Unit Linked Insurance Plans (ULIP)

What is it?

Like other tax benefit investments – Unit Linked Insurance Plans or ULIPs are one of a kind investments. They are a mix of insurance and investment. A part of the investment amount is used to provide insurance to the investor and the other part is invested in the stock market. Again, investments up to Rs. 1.5 lakhs are valid for exemption under Section 80C. However, there is no clarity on the breakdown of investment or how much commission or expenses are charged on the investment amount.

Lock-in period

ULIPs have a lock-in period of 5years .

Returns Expected

Returns are not guaranteed. But since ULIPs are equity-linked, past performance has given returns in the range of< 5-10% .

Best Feature

The combination of insurance and investment offers multiple benefits to the user, which is unique amongst all Section 80C investments. Hence, a perfect tax benefit investment to try!

Sukanya Samriddhi Yojna -Tax Benefit Investment

8. Investments in Sukanya Samriddhi Yojana

What is it?

Another example of a tax benefit investment, the Sukanya Samriddhi Yojana account is also eligible for tax deductions up to Rs. 1.5 lakhs. The deposits have to be made for a girl child by the legal guardian or the parent of the girl child.

Lock-in period

The lock-in period for the Sukanya Samriddhi Yojana account is 21 years. However, once the account holder turns 18, they can withdraw up to 50% of the previous year’s total balance.

Returns Expected

The Sukanya Samriddhi Yojana is a government-backed scheme and offers guaranteed returns at 8.4%, compounded annually.

Best Feature

The interest and the receipts upon maturity are completely tax-free. The fact that it offers a stable financial future for the girl child makes it a very progressive and unique tax benefit investment.

Senior Citizens Savings Scheme - Tax Benefit Investment

9. Investments in Senior Citizens Savings Scheme (SCSS)

What is it?

Another popular tax benefit investment, SCSS or the Senior Citizens Savings Scheme is an exclusive scheme for people who are over 60 years old or people over 55 years old who’ve opted for voluntary retirement.

Lock-in period

The lock-in period for this scheme is 5 years.

Returns Expected

The SCSS is a risk-free investment offered by the government and offers 8.6% returns.

Best Feature

Senior citizens can avail of this scheme and invest up to Rs. 1.5 lakhs for tax deductions under Section 80C.

Eligible Payments - Tax Benefit Investment

Eligible Payments: Deductions under Section 80C

As you just saw, Section 80C has an exhaustive list of ways to save on taxes. And this makes planning taxes and claiming deductions, an extremely difficult task. Thus, to break these deductions into a simpler, easy to understand manner, certain subsections were introduced.

So, what are these 80C subsections?

Section 80CCC

The reason to include Section 80CCC was to encourage taxpayers to invest in pension funds and insurance schemes in order to make a tax benefit investment. It kicks in when you buy or continue annuity plans or retirement plans, of any insurance company. And can only be claimed for the year, in which the amount has been paid.

To explain this, let’s say you did not pay any premium to your pension fund for one year. But in the second year, you paid for both (the first and the second) years and now want to claim deductions for both the years. This is not possible. As per the rules, you cannot claim the deductions for the first year, since, under section 80CCC, deductions can only be claimed for the year in which the amount has been paid.

Few other things that need to be taken care of are,

  • Any amount of money that you receive after surrendering your plan, will attract tax.
  • The pension amount that is received is taxable.
  • Any interest or bonus that you earn from this plan will not qualify for deductions.
Section 80CCD

Section 80CCD is particularly geared towards those contributions made towards the schemes notified by the Central government – National Pension Scheme (NPS) and Atal Pension Yojana (APY). Even Section 80CCD has been divided into two subsections:

Section 80CCD (1)

Deductions under this section can be enjoyed by both salaried and non-salaried personnel. The only difference being salaried employees will be able to claim deductions up to 10% of the salary they get in-hand, while for self-employed individuals, the maximum deduction will be 10% of whatever they earn annually.

Section 80CCD (2)

This part is focused on the employer’s contributions to the NPS scheme. Although the limit is again 10%, an employee can claim deductions for the same, in case his/her employer makes payment to the employee’s NPS account. For more details about Section, CCD deductions click here .

Section 80CCF

Section 80CCF concerns long-term infrastructure bonds that have been notified by the central government and provides deductions for the subscription of the same. It was introduced in the budget of 2010 and came into effect in 2011. And due to this, investing in the fledgling infrastructure domain of India has come out as a really attractive proposition. The maximum deduction allowed under is 20,000.

Section 80CCG

Section 80CCG allowed for deductions under Rajiv Gandhi Equity Savings Scheme (RGESS). Starting April 1st, 2018, this has been discontinued by the government.

Investment under section 80C

Sqrrl: Your Tax Saving Buddy

Now that you have a lot of information on the fields where you could Axe Tax, now is the right time for you to save income tax. You can make a tax benefit investment right now with Sqrrl.

We’ve got the easiest way out for you. Download Sqrrl and invest in ELSS funds to save up to Rs 46,350 on Income Tax. All of this takes only a few minutes.

This is what you have to do.

Step 1 : Download Sqrrl by clicking here

Tax Benefit Investment

Step 2 : Complete the 2-minute Signup Process (KYC verification), which is swift, secure and completely paperless!

Step 3 : Axe Tax with Sqrrl.

You can download Sqrrl by clicking here

We hope you are clear about tax benefit investment now. To invest, Download the Sqrrl app now.

Featured Blog

BLOG | February 8, 2024
Why Millennials are Embracing Round-up investing

Millennials, the demographic cohort born between the early 1980s and mid-1990s, have shown a growing interest in Round-up investing, a […]