How to fully utilise deductions available under Section 80C investment
Tax-saving can be a challenge; especially if you have just started your journey in the corporate world. Most people do their tax planning at the last moment. This can result in poor investment choices. In this article, we will discuss how you can avail of the maximum tax benefits under Section 80C of the Income Tax Act in light of the latest provisions outlined in Union Budget 2021.
- Life Insurance
Life Insurance is an integral part of financial planning. In the post-pandemic scenario, a Life Insurance policy worth at least 10 times your annual income is indispensable. In addition to this, a Life Insurance policy offers you tax benefits too. If you have a life insurance policy, you can claim a tax deduction up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
- Health Insurance
You can also claim tax deduction on health insurance premiums paid on behalf of your parent, regardless of whether they are dependents or not. Expenses related to health check-ups for senior citizens above 80 years of age are also tax exempt. If you are a senior citizen yourself, you can claim deductions of up to Rs 1 lakh for expenses related to parental health check-ups.
- Residential property
Recent home buyers can claim stamp duty and registration charges under Section 80C. Also, if you have a home loan, the part of your EMI that goes towards the principal balance is also tax deductible.
Investing in Unit Linked Insurance Plans or ULIPs also has tax benefits for you. However, if you are someone who pays a combined total of Rs. 2.5 lakh in premium towards two or more separate plans, you would need to pay tax on maturity. This was among the latest tax policy updates announced as part of Union Budget 2021. However, the rule is only applicable to new ULIPs purchased after 1ST February 2021.
- Provident Fund
Public Provident Fund (PPF) is a popular investment option for many in the country. This is because it offers multiple benefits like steady returns, a high degree of safety, low maintenance costs and even tax benefits.
PPF is not just a savings vehicle but also a tax-saving investment option. The deposits you make in a PPF account are eligible for a deduction of up to INR 1.5 lakh under Section 80C. You can also claim the same tax benefit of INR 1.5 lakh under Section 80C through your Employee Provident Fund (EPF) contribution. Interest on EPF contributions up to Rs 5 lakh is also tax free now. An announcement to this effect was made during Union Budget 2021. Any amount you invest voluntarily over and above this limit will continue to attract tax. However, only the interest earnings on EPF are taxable. Also, your PF balance (including interest) is tax-free provided you have been employed for a minimum of five years.
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- Investing in ELSS
As the name suggests, ELSS is an equity-linked savings scheme under mutual fund. It means that the returns you earn on this fund are linked to the equity market. This might seem a bit risky but this risk can be reduced by investing in the ELSS funds through monthly systematic investment plans (SIPs) and reap healthy returns through ELSS.
In addition to high returns, ELSS is quite popular among investors for its tax benefits. You can claim a deduction of Rs 1.5 lakh under Section 80C of the IT Act for investments in ELSS. Additionally, the returns on ELSS schemes are entirely tax-free, making it an even more lucrative investment option. You can consider investing in a wide range of tax-saving Mutual Funds through HDFC Bank NetBanking to enjoy the dual benefits of high returns and tax benefits.
- National Pension System (NPS)
If you have invested in National Pension Scheme for your retirement, you can claim tax benefits under Section 80CCD. The total deduction you can avail of under this scheme is Rs 2 lakh. You are eligible for tax deduction for your contribution and your employer’s as well.
The Union Cabinet decision on December 6 2018* has made NPS withdrawal completely tax free. With this decision, the government has granted NPS EEE status, that is, it has now become exempt from tax at investment, accumulation and withdrawal stage, making it very tax-friendly.
Section 80C of the Income Tax Act provides various opportunities for you to save tax each year. Make use of these options to claim your tax benefits. The amount you save each year can grow into a large sum over time if you invest in the right avenues.
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.