List of Tax Saving Investments and Deductions under 80c – Which is better for you?
List of Tax Saving Investments and Deductions under 80c – Which is good for you?
One of the best ways to save income tax and grow money is investing in 80c investment options. You might be salaried person or business man, one can save income tax by opting for these 80c lists of investments. While there are a list of 80c investments, you can also claim deductions in 80c which are purely expenses in nature. In this article we would provide a comprehensive list of tax saving options under 80c and also indicate the list of investments and deductions in 80c.
What are Tax Saving investments and deductions under 80c?
One can invest / spend up to Rs 1.5 Lakhs in the eligible list of 80c deductions and save income tax. One can save as much as Rs 46,800 tax by investing in these 80c investments.
A) List of tax saving investments 80c – These are investments done in respective options where you would get tax exemption and your money would also grow. Here are the list of 80c investments.
B) Deductions under 80c – These are not investments. These are items where you spend money, but you are eligible to claim as a deduction under 80c. Here is the list.
A) List of Tax Saving Investments under 80c – Which is better for you?
Now let us check 80c investment, their features, benefits, expected returns and lock-in period.
#1 – ELSS / Tax Saving Mutual Funds
This is one of the best tax saving 80c investments in India.
One can invest in ELSS/ Tax saving mutual funds to save tax as well grow your money faster compared to other tax saving options.
Historically, these tax saving mutual funds have delivered higher returns compared to other tax saving investment options like PPF, NSC or tax saver FDs.
ELSS Funds can deliver 12% to 15% annualized returns though not guaranteed. This would depend on the tenure of the investment.
One can invest in ELSS funds either lump sum or SIP, and get tax exemption.
ELSS Funds have lowest lock-in period of 3 years. In case you are investing through SIP, each SIP would be counted as separate investment and 3 years lock-in period would apply for each of such SIP investments.
ELSS returns are taxed like equity funds where 10% of the returns are taxed on maturity (growth option).
One can consider Top performing ELSS Tax Saving mutual funds for medium to long term investment.
#2 – Tax Saving Fixed Deposit Scheme
As the name suggests these fixed deposit schemes are aimed for tax saving. Here are the key features.
Tax Saving Fixed Deposits are like any other fixed deposit schemes, however, has a tenure of 5-10 years.
Tax Saving FDs offer interest rates in the range of 5% to 7.5% per annum depending on the bank. The interest received is known upfront when you are investing.
Tax saving fixed deposit scheme is offered by banks as well as by post office.
These are considered as a safe investment option as banks are governed by RBI and post office investments are backed by Govt of India.
From taxation perspective, the interest received from such tax saver deposit needs to be added to individual income and pay tax based on individual income tax slab.
#3 – PPF – Public Provident Fund
PPF was one of the favorite investment options all along. This has lost its shine this quarter when Govt of India has reduced the interest rate drastically.
PPF has 15 year lock-in period. You can make a partial withdrawal from PPF after 7 years based on certain terms and conditions.
You can invest a minimum of Rs 500 and maximum of Rs 1.5 Lakhs in PPF at the beginning of the financial year and get interest for the entire year.
Interest received from PPF is tax free.
Many investors were considering PPF as one of the best retirement tool till few months back. Currently, due to fall in interest rate, investors might feel it is not that attractive. However,I would suggest to continue PPF as this is the investment option where you get tax exemption on saving plus tax free returns on maturity.
#4 – NPS – National Pension System
Govt of India has started NPS for unorganized sector and for working professionals in India to provide an opportunity of pension on their retirement.
Any individual in the age group of 18 to 60 years can subscribe to NPS.
One can invest up to Rs 1.5 Lakhs in NPS and get income tax exemption u/s 80c. One can claim an additional tax exemption for investment upto Rs 50,000 u/s 80ccd beyond Rs 1.5 Lakhs indicated above. There is no maximum limit to invest in NPS, however tax exemption is capped to this limit.
Partial withdrawals are allowed after 15 years based on certain terms and conditions.
NPS is like any other mutual fund scheme which invests in government bonds, corporate bonds, equity etc. depending on the nature of the scheme selected.
NPS returns would be in the range of 12% to 14% though not guaranteed.
If the employer is contributing to NPS, it is tax free.
There is a mixed reaction from experts whether to invest or not in NPS. Currently PPF interest rates are being reduced. ELSS mutual funds are high risk. Hence my recommendation would be that one can invest small amounts in NPS regularly to diversify your retirement portfolio.
#5 –National Saving Certificate (NSC)
NSC is issued by post office or by any major banks in India.
Minimum investments are Rs 1,000 and no maximum limit. However, one is eligible to get tax exemption upto Rs 1.5 Lakhs of investments in 80c.
NSC interest rates would vary every quarter as Ministry of finance would publish the interest rates. Once invested, the rate stays for the entire duration of NSC.
The current NSC interest rate in May-2020 is 6.8%. If you invest Rs 1 Lakh, the maturity amount after 5 years would be Rs 1.389 Lakhs.
NSC has a lockin period of 5 years.
I quoted a story in this blog in several instances. One of my ex-manager used to buy NSCs every year for tax saving for continuous 5 years and post that he never invested a single penny for tax saving. The 1st year tax saving money received after 5 years was re-invested in NSC and got the tax exemption for the 6th year. What an idea sirji !!
#6 – Employee Provident Fund (EPF)
The amount invested in an employee provident fund is eligible for 80c exemption.
The current EPF rate is 8.5%.
The investment in EPF up to Rs 1.5 Lakhs is exempted u/s 80c.
You have very little control on the amount to be invested, as this would depend on your basic salary based on which your employer would compute EPF amount.
#7 – Sukanya Samriddhi Yojana Account (SSA)
SSA is one of the popular schemes floated by Govt of India for the girl child.
One can invest in Sukanya Samriddhi Account till the girl attains 10 years of age.
The maturity amount is paid after girl attains 21 years of age.
The SSA interest rate in 2020 is 7.6%.
One can invest a minimum of Rs 250 and maximum of Rs 1.5 Lakhs in a financial year and get income tax exemption u/s 80c.
One can invest in this account for 15 years from the date of opening the account.
A parent can open maximum of two accounts if they have two girl children.
Premature withdrawals are allowed on the occasion of the girl marriage after 18 years of age. This should be done 1 month before or within 3 months after the marriage.
#8 – Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance plans are like insurance-cum-investment policies where one can get risk coverage along with growth in your investment.
ULIPs have several charges like premium allocation charges, fund management fees, admin charges, ULIP charges, switch charges, mortality charges. They collect some of these charges up front during 1st or 2nd year of your policy. Hence the amount allocated in your investment portfolio by the insurance company for the initial years is very low.
ULIP returns would vary between 5% to 9% per annum depending on the policy and the features.
I would personally believe ULIPs are not that favorable tax saving options owing to high ULIP charges. If you still believe in investing in ULIPs, you can invest in low cost ULIPs.
#9 – Pension Funds
Investments done in pension funds are also eligible for income tax exemption u/s 80c. Instead of pension funds that might have higher charges, one can use retirement tools like PPF, NPS etc. for retirement planning.
#10 – Senior Citizen Saving Scheme (SCSS)
Senior citizens above 60 years of age can invest in SCSS and get income tax exemption u/s 80c upto Rs 1.5 Lakhs per annum.
SCSS interest rate is 7.4% for Apr to June 2020.
SCSS has 5 years lock-in period.
Interest received from SCSS is fully taxable. One has to pay income tax on interest based on their individual income tax slab.
B) List of Deductions under 80c (Other than investments) – Which is better for you to utilize?
#11 – Life Insurance Premium
Life insurance premiums paid for self and family are eligible for deduction u/s 80c. This is like an investment for your family. When you are not in this world, your family would not have financial problems.
One can claim life insurance premiums up to Rs 1.5 Lakhs in a financial year a tax deduction.
The deduction is valid only if the premium is less than 10% of the sum assured.
I would advise you to go for some of the good term insurance plans in India and avoid any ULIPs or insurance-cum-investment policies that are aimed to benefit only insurance agents and not individuals. These term insurance plans comes with high risk coverage and with low premiums.
#12 – Children Tuition Fees
Tuition fees paid for the education of 2 kids are eligible for tax deduction u/s 80c. Again, this is not an investment, it is an expense, but for your child’s future.
Such fees paid can be any school, college or university that is located in India.
Such education should be in a full time course only.
If you have paid fees for your kids, you should claim this as deduction under 80c first.
#13 – Principal Home Loan Repayment
You would have taken home loan to purchase a house or flat or for the construction of a house. The principal repayment home loan amount can be claimed as a tax exemption u/s 80c upto Rs 1.5 Lakhs. You can claim principal repayment + stamp duty + registration fees + any transfer expenses.
If you have taken home loan, you should claim this as deduction u/s 80c first before looking for other options.
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Thanks a lot KP Sir
Good Bir that you liked it. Which tax saving option you are investing to save tax?
Point no. 2 Pls read remaining 50k NPS amount deducted from salary under 80CCD(1B)
Good evening KP sir..I found the article very informative. I have one question sir, if total NPS deducted from salary is suppose 70K and the same amount is also contributed by the employer and PPF contribution is Rs. 1.30 lakh, then can I claim these:-
1. 1.50 lakh under sec 80C (PPF -1.30lakh+NPS 20K deducted from salary out of 70K).
2. 50K remaining NPS amount deducted from salary under sec 80 CCD(1).
3. 70K employer NPS contribution under sec 80 CCD (2).
Sir Pls. guide.
Pls reply sir
Overall amount is Rs 1.5 Lakhs u/s 80c and Rs 50K more in 80ccd for NPS alone. = Rs 2 Lakhs. including all in all including NPS
Very informative….great effort