Income Tax Act – Section 80C

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C.
One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall. The over all limit under Section 80C is Rs 1 lakh.
Education expense of children is increasing by the day. How does it sound to know that you can claim deductions on their school fees? Under this section, there is enough provision that makes payments towards the education fees for children eligible for an income deduction.
An individual say ‘I’ has taken a home loan and spends around Rs 50,000 towards principal repayment. Deductions up to a limit of Rs 1 lakh can be claimed for payments towards principal repayment of housing loans.
Tax payers like ‘I’ try to save and explore various investment avenues so that they can minimize taxes and increase their disposable income. An integral part of financial planning is tax planning, where tax payer’s research on tax breaks offered.
Small savings schemes are usually preferred by the risk-averse. With returns on debt instruments dropping, these deductions provide all the more reasons to remain invested. Even if the returns are not on par with returns from equity markets, it makes sense to plan and invest in them for the tax advantage. National Savings Certificate provides eight percent interest compounded half yearly. Period of investment stands at six long years, however there is no upper limit of investment.

Kisan Vikas Patra promises to double money in eight years and seven months. With no upper investment limit, the interest rate is eight percent compounded quarterly.
Equity-linked savings schemes (ELSS) are a good option to consider for those with appetite for risk. ELSS tax savers are like any other diversified equity fund, but with a three-year lock-in, providing benefits under Section 80C. Suppose at the end of three years the market is seeing a great unfortunate fall. An average investor, who is keen to move out at the end of three years, may be stuck, unable to redeem at the low NAV.
Hence, it is imperative that investors make a comparative analysis and pick top performers amongst numerous tax-savings funds offered by almost all fund houses. For instance, Prudential ICICI Tax plan has benefited from its mid-cap and small-cap oriented portfolio with 97 percent of investments in equities.
If one has not yet started making investments for tax planning, it is time to get on track. Explore PF, PPF, insurance plans, ELSS, NSC, home loans and other instruments that get you benefits under Section 80C. —

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