The Income Tax ACT, 1961 offers several provisions for tax deductions on specific investment schemes. One of its most important sections in this regard is section 80C that comes with the maximum deduction limit of INR 1.5 lakh. If you are looking for investment tools that come with lucrative tax benefits under section 80C, read on to know more about your options.
1. Life insurance premium
The premium you pay for your life insurance policy gets tax exemptions under section 80C. Out of the total sum assured, a yearly premium of up to ten percent gets tax deductions under this section of the ITA. Up until 2012, you could have received even twenty percent but there has been a policy change after that. Apart from self, dependent children, and spouse, even members of a Hindu Undivided Family can get the tax exemption benefits. You can use the income tax calculator to get an idea about the deductions.
2. Unit Linked Insurance Plan (ULIP)
These plans offer an advantage in the form of providing twin benefits of insurance and investment. In addition to that, you can claim tax deductions up to INR 1.5 lakh as per section 80C. So, you can get life cover and death benefits as a part of the insurance component. On the other hand, if you play your cards right about the market linked component, then you can earn major benefits from the investment.
3. Public Provident Fund
All contributions you make towards the Public Provident Fund are eligible for deductions under section 80C. Since the PPF comes with the highest deposit limit of INR 1.5 lakh and that’s also the maximum limit of exemption under 80C, you can get the entire amount tax exempted. All voluntary contributions that you make in this fund are also deemed to be eligible under section 80C of the ITA.
4. Tax-saving Fixed Deposits
Fixed deposits are a great investment tool thanks to the lock-in period. As your money is locked-in for five years, you are assured in the knowledge that you have a lump-sum amount saved up. After the lock-in period, you can reinvest the money or use it for any personal reason. You also get tax exemption of up to INR 1.5 lakh under section 80C. But remember that your returns will be eligible for taxation.
5. Equity-Linked Saving Scheme
Just as all other investment types mentioned above, you also get tax exemption of up to INR 1.5 lakh under section 80C for Equity-Linked Saving Scheme. In this case, the lock-in period is three years. It is a type of open-ended mutual fund where the investments are primarily focused on equity or stock market. This scheme has no limit on the tenure of investment, even though there is a mandatory lock-in period.
It is worth noting that each of these schemes have their own risks and rewards. So, it would be a good idea to assess your financial goals as well, along with the tax benefits, before opting for any investment.