Investments to save tax under Section 80C

Investments are the best way to multiply the value of your assets, increase your worth, and improve your financial security. But, when it comes to tax saving, you might get confused about the options that you should opt for. Saving tax on the investments you make will reduce financial distress and encourage you to invest more profoundly. Then a question might pop up in your mind – “What are the best tax-saving investment options that one should opt for under section 80(c) of the Income Tax Act, 1961?”

While tax saving might seem like a lucrative scheme, you also need to keep in mind the security, safety, and returns. A smart approach towards tax planning is to start investing in the early quarters of the financial year. This will provide you enough time to plan your tax and help you reap the maximum out of the investment plan. 

This article will let you know about section 80(c) of the Income Tax Act, the best tax-saving investment options, and the right approach to avail maximum out of different schemes. 

Understanding the provisions under Section 80(C) of the Income Tax Act, 1961:

Out of all the sections that are based on tax-saving investments, most plans function under the parameters of section 80(c). There are other sections related to tax saving as well, but the most prominent is this section. 

According to section 80(c), an investor is allowed tax exemption up to 1.5 lakh rupees for the investment he or she makes. If you invest in some specific schemes, you will be exempted from paying tax, up to the aforementioned maximum limit. 

The different investment schemes are Equity Linked Saving Schemes or ELSS, Public Provident Funds or PPF, Fixed Deposits, Life Insurance, National Savings Schemes, National Pension Schemes, etc. 

We will be discussing all of these tax-saving investment schemes in detail in the coming part of the article. 

What are the different tax-saving investment schemes that you should invest in? 

There are many to name, but here we are going to mention the 5 best tax-saving investment schemes to help you reap the maximum benefits. 

1. Equity Linked Saving Scheme or ELSS:

This is considered one of the best tax-saving investment options to help you save more tax and reap bigger benefits. They help you get dual tax benefits and receive higher returns on investment. You can save up to 46 thousand rupees by investing in ELSS for the lowest locking period. The locking period is about 3 years only. In addition, ELSS delivers more returns than Public Provident Funds, and Fixed Deposits and the interest you earn is partially taxed. 

2. Fixed Deposits or FD:

Besides being one of the safest options for investment to yield higher returns, Fixed Deposits are eligible for a tax break of up to 1.5 lakhs. Any individual resident can open up a fixed deposit account and the lock-in period is about 5 years. It has a low rate of interest which is about 5 per cent to 7 per cent per annum. On top of that, it is a risk-free, tax-saving investment option where the minimum investment amount is as low as 1000 rupees.

3. Public Provident Fund or PPF:

Public Provident Funds are a government-approved investment scheme where you invest money for a long tenure and break it after maturity. You get some tax benefits by investing in PPF under section 80(c), like the interest you earn from the corpus is tax-free. The lock-in period is about 15 years, which you can extend to 5 more years and partial withdrawals are allowed after 7 years. The best part is the minimum investment limit in this tax-saving investment option is only 500 and the interest rate is around 7.1 per cent per annum. 

4. Employee Provident Fund or EPF:

EPF is a very good, retirement benefit, and tax-saving option for salaried individuals whose monthly salary is 15 thousand or above. The most significant advantage is that the entire PF including the interest you earn is exempted from tax provided that you withdraw after continuous service of 5 years. The interest rate is 8.1 per cent for the year 2022 and you only have to contribute a minimum of 12 per cent of your basic pay and your dearness allowance. 

5. National Pension Scheme or NPS:

It is a tax-saving investment scheme that ensures the financial security of both the employees of the unorganised sector and working professionals post-retirement. There are two tax benefits of investing in NPS: 

1. Investments up to 1.5 lakh rupees can be used rightly to avail tax benefits, which comes under section 80(c).
2. An additional deduction of about 50 thousand rupees is also applicable on investments made under the provisions mentioned in section 80(c).

With that, the return rate is quite promising, which is around 9 per cent to 12 per cent per annum. There is no maximum investment limit, and all employer contributions are exempted from tax, provided that you put 10 per cent of your salary including your Dearness allowance. 

In a nutshell:

Section 80(c) under the Income Tax Act of 1961, exempts investors from taxes and promotes them to invest more to reap maximum returns. The provisions help you in tax saving, but most importantly, the whole mechanism works better when you are efficient at tax planning. There are several tax-saving investment schemes mentioned above with different outcomes. You should compare different options and see what suits your investment criteria.