Individual taxpayers, particularly those who are salaried, tend to rely on the deductions or exemptions allowed under section 80C to reduce their taxable income by Rs 1.5 lakh in a financial year. Some pre-defined investments can help in availing these exemptions.
These financial instruments offer the double advantage of saving taxes while generating interest income. The Institute of Chartered Accountants of India (ICAI) wants the exemption limit to increase from Rs 1.5 lakh to Rs 2.5 lakh in a year.
Let’s have a look at some of the common financial instruments that provide tax exemption benefits under section 80C:
1. National Savings Certificate (NSC)
A person can claim any investment made under the NSC under section 80C up to a a maximum of Rs 1.5 lakh.
2. Life Insurance Corporation (LIC)
Upon purchasing any life insurance policy, an individual can claim a deduction of 80c on the premium paid towards the plan, as long as the policy is for the taxpayer or immediate family members, such as spouse and children.
3. Public Provident Fund (PPF)
One can claim tax exemption up to a maximum of Rs 1.5 lakh if invested in the PPF. In addition, the interest from this investment scheme is tax-free.
4. Employees Provident Fund (EPF)
The contribution made by an employee towards the EPF is eligible for tax exemptions. However, the employer contribution towards EPF is not eligible for 80C exemption.
5. Unit Linked Insurance Plan (ULIP)
ULIP offers the dual benefit of insurance and investment. So, any investment made for this will allow you to claim an exemption under Section 80C.
6. Equity Linked Saving Scheme (ELSS)
This scheme has a three-year lock in period. you can gain exposure to equity instruments through this investment.
7. National Pension Scheme (NPS)
Contributions to this scheme are tax deductible under Section 80CCD, a part of Section 80C. However, the combined deduction under these sections cannot exceed Rs 1.5 lakh. Also, under 80CCD(1B), an additional deduction of Rs 50,000 can be claimed over and above of Rs 1.5 lakh.
8. Loan Principal Repayment
If you have taken a home loan from a bank, you can use the principal amount as a deduction under Section 80C.
9. Sukanya Samridhi Yojana (SSY)
This is a saving scheme for girls child under 10 years of age. Any investment in this plan is eligible for a section 80C exemption.
10. Registration and stamp duty
If you have purchased a house and have paid the registration fees and stamp duty, then you can claim these as deductions under section 80C of the Income Tax Act.
