All You Need to about Know Section 80C and Its Impact on Income Tax

As a salaried individual, income tax must be a crucial part of your life. With the ever-increasing inflation rate, investing wisely becomes a necessity of the future where you need to have a financial backup. So, while investing your money why not get some tax benefits in return as well? Here is everything you need to know about Section 80C of the Income Tax Act and the eligible tax deductions that you can claim.

Eligible Tax Deductions under Section 80C:

Section 80C of the Income Tax Act, 1961, enables you to claim income tax deductions with a maximum cap of INR 1,50,000 per financial year. There are various investment tools that are covered by Section 80C allowing you to invest in a variety of financial instruments based on your risk appetite. So, let’s look at the investment options that you can choose to get tax benefits under Section 80C:

1.    Insurance

Insurance plans help you in securing your family during medical emergencies and also confers you with tax benefits. The tax-savings options in insurance are life insurance, and Unit-Linked Insurance Plan (ULIPs).

a.     Life Insurance

Life insurance is a policy that safeguards you with a life cover in return for paying the premiums for the plan on a regular basis. Not only do you have the option of availing a pure life cover plan but you can also buy a policy that fulfills long-term wealth creation plans. You can claim the premiums paid towards securing the policy under Section 80C of the Income Tax Act, 1961. Another advantage you get is that the death benefit can also be availed as tax-free under Section 10(10D).

b.     ULIPs

Unit-Linked Insurance Plan or ULIP is a mix of investment along with a life insurance plan. Some amount of the premium gets invested in funds of your choice and the rest is used for providing a life cover. You can choose the investment fund option from equity or debt depending on your risk appetite. The premiums paid for ULIPs can be claimed under Section 80C.

2.    Investments

a.     Equity-Linked Mutual Funds (ELSS)

Equity-Linked Savings Scheme is a mutual fund scheme having a lock-in period of 3 years. Your money gets invested in majority equity funds. By investing in ELSS, you can get tax benefits with an income tax deduction under Section 80C.

3.    Tax-Savings Fixed Deposit

a.     National Saving Certificate (NSC)

National Saving Certificate is a governmental savings scheme that is available at a post office. It has a lock-in period of 5 years where you can claim tax deductions under Section 80C per financial year.

4.    Provident Funds

a.     Public Provident Fund (PPF)

Public Provident Fund is an investment scheme initiated by the government having a lock-in period of 15 years. You get a dual tax benefit by investing in PPF as the money invested can be claimed under Section 80C and the corpus received after maturity can also be deemed as tax-free.

b.     Employee Provident Fund (EPF)

EPF is an option for employees working in an organization that doesn’t have a pension system in place. A small part of the income gets contributed towards EPF to give returns as pension during retirement. You can claim the contributions under Section 80C of the Income Tax Act, 1961.