How to Maximise Your Deductions from Section 80C

You may be well aware that there are certain tax-saving investments under 80C that you can benefit from before the tax filing deadline comes along. With them, you can not only boost your investment portfolio and future finances but also reduce your total taxable income. 

Here is a complete guide on understanding tax-saving investments and  maximising your deductions. 

Section 80C includes certain investment options providing a tax benefit of up to ₹1.5 lakh, enabling financial growth in the long run. That’s not all. 

You can get additional tax benefits under Section 80CCD(1). It provides tax relief of up to 10% (including Dearness Allowance) for salaried individuals and 20% for self-employed taxpayers. 

These provisions act as additional steps on your financial ladder, helping you save on taxes while investing for the future.

To reduce your total taxable income, you can diversify your investment portfolio by choosing avenues that come with different lock-in periods. Some of the best investment options under Section 80C to save tax are listed below. 

Disclaimer: The information provided is for informational purposes only. Details such as the interest rate and lock-in period may change from time to time, so please check the latest information. 

Apart from tax savings investment options, Section 80C also mentions deductions for other contributions and expenses. You can save on tax in the following ways: 

• Employee Provident Fund (EPF): This is a government-mandated savings and investment scheme where you contribute 12% of your basic salary towards retirement and your employer contributes 3.67%. The current interest rate on EPF is 8.25% and this investment also allows you to claim tax benefits under Section 80C.
• Life Insurance Premiums: When you opt for life insurance for yourself, your children or your spouse, the premiums paid up to ₹1.5 lakh per annum are eligible for tax benefits. Additionally, all returns are exempt from taxation under Section 10 (10D) if they are received on maturity or premature death of the insured.
• Home Loan Principal Payment: You can claim a tax deduction of up to ₹1.5 lakh on the principal you’ve repaid on your home loan as well as on stamp duty and registration charges under Section 80C. In case your home is under construction, you can claim it after the property’s construction is complete.

The deduction limit under Section 80C is ₹1.5 lakh, which you can claim as an individual taxpayer and a member of Hindu Undivided Families (HUF). Companies, LLPs and partnership firms cannot avail of this tax benefit. 

In addition to this, some sub-sections of 80C, such as 80CCD(1B), allow additional deductions of ₹50,000 for an NPS contribution over the limit as per Section 80CCE. In addition, 80CCC allows tax savings of ₹1.5 lakh towards pension fund payments. 

Here is a brief guide on some investments that you can make as per your appetite for risk to save more this financial year. 

• ULIP: Unit-linked Insurance Plan is an investment-cum-insurance plan that comes with long-term benefits. You can claim exemptions on this investment if you pay an annual premium of more than ₹2.5 lakh in a year. 

• Tax Saving Fixed Deposit (FD): You can invest in these FDs with banks and post offices. While the lock-in period is 5 years, the amount you invest offers tax exemptions under Section 80C. 

• SCSS: If you have crossed the age of 60 years and still wish to invest while saving on taxes, you can choose the Senior Citizen Savings Scheme. With a minimum 5-year lock-in period, it offers a maximum tax exemption of ₹1.5 lakh. 

• NSC: Another low-risk investment, the National Savings Certificate helps you earn interest semi-annually and comes with a maturity period of 5 years with no maximum limit. At the moment, it offers an interest of 7.7% p.a.

• SSY: The Sukanya Samriddhi Yojana aims to help meet the financial requirements of girl children. It has a lock-in time of 21 years and the girl child must be 10 years or younger to start an account. 

These two investment options stand out in terms of deductions and potential earnings. Here’s how to utilise them smartly to decrease your tax liability:  

• ELSS: It is a mutual fund where 80% of the amount is invested in equity. With the potential to earn higher returns, the exposure to risk is correspondingly high, too. However, it has a lock-in time of 3 years, which is comparably less than other schemes. It is best for long-term goals, such as buying a home or investing in your child’s college education. As such, it can play an important role in your financial planning strategy. 

• NPS: What makes this a must-have investment is that you can plan your retirement with regular and disciplined contributions. You can enjoy market-based returns and benefit from a deduction of ₹1.50 lakh along with an additional ₹50,000 in a year. What’s more, it falls under the EEE category of investment, which means you can save on tax, gains and redemption. 

Now that you have an idea of the deductions included under Section 80C, you have some options to choose from. Based on your long-term and short-term financial goals, you can evaluate and make the best investment. The next step is to know how to claim said deductions, maximise them to save more and some precautions to take. Read Part 2 of the Section 80C guide to know more!

• Enjoy tax deductions of up to ₹1.5 lakhs under Section 80C by investing in tax-saving instruments like ELSS, PPF, NSC and NPS while also securing your financial future.

• Beyond the ₹1.5 lakh limit, you can claim an extra ₹50,000 deduction under 80CCD(1B) & 80CCC for NPS contributions and tax relief for pension fund payments.

To save tax, some of the best investment options include: 

• Equity Linked Savings Scheme (ELSS)

• National Pension Scheme (NPS)

• Unit Linked Insurance Plan (ULIP)

• Tax Saving Fixed Deposit (FD)

• Public Provident Fund (PPF)

• Senior Citizen Savings Scheme (SCSS)

• National Savings Certificate (NSC)

A salaried individual who is a taxpayer can claim deductions up to ₹1.5 lakhs under Section 80C by investing in various tax-saving instruments or paying health/life insurance premiums. These investments, expenses and contributions are listed under the 'Computation of Income and Tax’ section of the ITR. 

According to the Income Tax Act 1961, the maximum deduction under Section 80C is ₹1.5 lakhs every financial year. However, some schemes like NPS allow additional deductions. 

Yes. Tax exemptions under Section 80C for insurance premiums are available for a maximum of ₹1.5 lakhs every year. For this, the policy must be brought for self, spouse or children. 

Yes. You can claim both PPF and ELSS investment deductions under Section 80C of the Income Tax Act 1961. However, the total deduction is limited to ₹1.5 lakhs in a year. 

To maximise deductions under 80C, you can consider all eligible investments and contributions. Keep an eye on the deduction limit and plan your and your spouse’s/ family member’s finances together to reduce your taxable income.

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