- Investments in Tax Saving FDs
Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.
Eligibility: Can be opened by Resident Indian individuals.
Liquidity: Fixed Deposits have lock-in period of 5 years.
Rate of Interest: FD interest rate across different banks ranges from 5.5% to 7.75%
Investment Limit: Minimum investment limit is Rs 1000.
Tax Treatment: Interest earned is taxable.
- Investments in PPF (Public Provident Fund)
PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.
Eligibility: Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.
Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.
Rate of Interest: Current interest rate is 8.0% p.a.
Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.
Tax Treatment: Interest earned is tax-free.
- Investments in NPS (National Pension System)
The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C
Eligibility: Can be opened by every Indian citizen between the age of 18 and 60
Liquidity: Partial withdrawals are allowed after 15 years but under special conditions
Rate of Returns: Returns rate on the NPS varies between 12% – 14%
Investment Limit: No limit on maximum contribution
Tax Treatment : Employer contributions are tax-free
- Investments in ULIP (Unit linked Insurance Plans)
ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C
Eligibility: An investor can buy ULIP for self or spouse or child
Liquidity: Interest rate varies as it is market linked
Rate of Returns: Return rate on the ULIP varies between 12% – 14%
Investment Limit: No limit on maximum contribution
Tax Treatment: Investment and withdrawals & maturity amount are tax-free
- Investments in Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana/Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country
Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years
Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 8.5%
Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year
Tax Treatment : Investment and withdrawals & maturity amount are tax-free
Payments eligible for tax saving deductions under Section 80C
Payments in LIC – Life Insurance Premium
The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.
Payments in Children’s tution fees
The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.
Repayment of Home Loan
The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees and transfer expenses.
Section 80CCC – Insurance Premium
Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer
Section 80CCC provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB). Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.
Section 80CCD – Pension Contribution
Deduction for Contribution to Pension Account
- Employee’s contribution under Section 80CCD(1)
You can claim this if you deposit in your pension account. Maximum deduction you can avail is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or Rs 1.5 lakh – whichever is less.
- Deduction for self-contribution to NPS – section 80CCD(1B)
A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.
- Employer’s contribution to NPS – Section 80CCD(2)
Claim additional deduction on your contribution to employee’s pension account for up to 10% of your salary. There is no monetary ceiling on this deduction.
- For the purpose of Section 80CCD(1)&(2), salary means = Basic Salary + Dearness Allowance (in Terms)
- As per Section 10(12A) any payment received by Assessee on closure of his account is exempt to the extent of 40% (60% is taxable) of total amount payable to him at the time of closure. In case of employee or Non-employee, any amount received from NPS by the nominee legal heir on death of assessee is Fully exempt.
- The subscribers from recognized provident funds and super- annuation funds would be able to transfer their corpus from these funds to National Pension Scheme(NPS) without any tax implication.
- To provide relief to an employee subscriber of NPS, section 10(12B) provides that any payment from National Pension Scheme Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made there under, shall be exempt from tax to the extent it does not exceed 25% of amount of contribution made by him.
- Section 80CCE: Aggregate deduction u/s 80C+80CCC+80CCD(1) is restricted to Maximum Rs. 1.50 Lakhs.