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What are the various tax-saving options under Section 80C?
S. Vinayak wants to know which investments qualify for tax deduction under Section 80C. Here are the avenues he can avail of.
One can save tax by investing up to Rs 1 lakh a year under Section 80C of the Income Tax Act. The amount invested during a financial year is deducted from the gross income while computing the net taxable income of the individual. For instance, if a person’s gross annual income is Rs 4.5 lakh, and he invests Rs 90,000 in options under Section 80C, his net taxable income would be Rs 3.6 lakh.
One can invest in any of the following options to avail of the tax benefit. Each has a different lock-in period, risk profile and returns potential. Choose whichever suits you best.
Apart from these, there are certain other expenses that qualify for deduction under Section 80C. These include:
School fee: The tuition fees of two children of the taxpayer.
Home loan: Repayment of the principal portion of the home loan.
While there are no sub-limits any longer on the amount that can be invested under different options, in PPF there is still an annual limit of Rs 70,000. Also, there is a difference in the taxability of the income from these investments. The interest earned on PPF and PF is tax-free. Similarly, the income from insurance plans and taxsaving mutual funds is exempt from tax. However, the income from NSCs and fixed deposits is to be added to the income of the individual and is taxed at the applicable rate.
Can I save income tax after I have exhausted the Section 80C limit?
Onu Krishnan pays Rs 7,000 per month as tax after saving Rs 1 lakh under Section 80C. He wants to know how he can reduce it further.
If you have exhausted the Rs 1 lakh limit under Section 80C, the only way you can reduce the tax outgo is through a home loan, an education loan or medical insurance. If you meet certain conditions, you can avail of tax deduction. But these shouldn’t be bought just to save tax as the tax benefits only bring down the cost of the loan or insurance.
Home loan: Up to Rs 1.5 lakh paid as interest on a home loan in a financial year is eligible for tax deduction if the house is selfoccupied. There is no tax deduction if the taxpayer lives in another house or on rent and claims deduction for house rent allowance.
Education loan: You can claim deduction for the interest paid on a higher education loan, yours or that of your spouse or kids. There is no deduction for the principal repaid. The deduction is available for eight years starting from the year in which you start paying interest.
Medical insurance: As much as Rs 15,000 premium for insuring self and dependants, and Rs 20,000 for senior citizen parents, are eligible for tax deduction.