Section 80C of the Income Tax Act allows us to have certain investments and expenditures which can be exempt from tax. We can plan our investments such that we can invest in appropriate investment options specified in this section and avail of maximum tax benefit. Rs.1,50,000 is the maximum investment amount that can get us tax exemption in one year.Â
 You can also read – last-minute tax guide
| Instrument | Definition | Advantages | Disadvantages |
| PPF | Public Provident Fund is a safe long-term investment option backed by the government. It is suitable for all as the minimum yearly investment is Rs.500 and the maximum is Rs. 1,50,000. | It is easy to open a PPF account as it can be opened in many of the nationalized banks and requires only Rs.100. PPF can be used to take a loan and is a high-safety investment option. It gives an interest rate of 7.1%
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It is not liquid The interest rate might go down in the future |
| EPF | Employee Provident Fund (EPF) is a voluntary investment avenue for salaried people. The amount is deducted from the salary every month. | There is no limit on the amount that you can invest. It is easy to maintain.
It gives an interest rate of 8.50% and you can save a big sum if you continue for a long time. The amount got at the end will be tax-free  |
Returns are not market linked which might be a disadvantage if the markets are doing well. It is not liquid. |
| ELSS | Equity Linked Savings Schemes are tax planning mutual funds that invest in the market. There are many types of tax planning mutual funds depending on the stocks they invest in. There is a lock-in period of 3 years. | They usually give higher returns when the markets do well compared to other schemes. They are non-taxable | There is risk/volatility involved as the funds invest in stocks. |
| Bank FDs | You can invest in Fixed deposits in banks for interest. There are fixed deposits for durations ranging from 7 days to 5 years. | It is a safe form of investment if you invest in reputed banks. It is hassle free to maintain.You can take a loan against FDs in some banks | It is illiquid. The returns are taxable and therefore not the most lucrative. |
| Pension Plans | Insurance companies offer pension plans and you can avail of tax exemption if you invest in them. You pay premiums and the corpus will pay out a pension to you post retirement. | Capital is protected. You will have a steady flow of income post retirement. | Investment is costly.Returns are not high as compared to ELSS or retirement funds from Mutual funds.
You cannot invest beyond the age of 60. |
| NSC | National Savings Certificate (NSC) is a 5-year savings investment option. A minimum investment of Rs.100 is required and there is no upper limit on the amount. | It is available easily. Interest rate is 8.50%. It can be offered as collateral for loan. If the interest is invested back in NSC, it is eligible for tax exemption. | The returns are taxable as per the tax slab that you fall under. |
| Life Insurance policies | If you buy a life insurance policy for self, spouse or children, the you will spend an amount used to purchase. The yearly premium can be included in Section 80C for deduction | The life insurance plan is a good cover for the family in case of unfortunate events.One can avail of a loan against the insurance policy. | Traditional life covers are only covered in this. Insurance policies should be bought as a cover for emergencies and unfortunate events. There are plans that are better suited for this purpose like term plans. |
| Home Loan –Principal Amount | If you take a home loan, the EMI that you pay has 2 parts – Principal and Interest. The principal amount qualifies for deduction under Sec 80C. | The amount invested creates a valuable asset and at the same time helps in saving tax payment. | Buying a house is a big financial decision and one has to be careful in choosing the right property at the right time. |
Most of us rush to make last-minute investments just before filing the returns. This is incorrect and can lead us to make investments without thinking about all aspects. We should make the investment plan at the beginning of the year and start making investments from the beginning. This will allow us to have a proper investment strategy that can be fine tuned throughout the year and will also get interest from the beginning of the year.
Not many knows, but you can claim registration and stamp duty paid to purchase house once in the financial year you purchased it.
Yes, I have done that for this financial year. It comes as real life saver for me.
I had a question How can you take a loan against your insurance policy? how much are you eligible for?
As regards PPF , the maximum amount you can invest is Rs 1,50,000 per year & not Rs 100000.
For the past 3 years, I am investing around RS.30000 in Reliance tax saver ELSS Fund in the last minute to save tax. Now for the coming year I would like to go for SIP from the beginning itself around RS. 5000 per month. Shall I invest in the same fund or I have another option, Axis long term equity fund. Please advise me.
Regards
Uma
can l invest 1.50 thousand in each of my, my wife and my two sons above 18 years of age & whether all maturity in all 4 accounts are taxfree
Dear Nitesh,
Yes the maturity amount of PPF is completely tax free.
Hello,
can you please suggest some debt fund for tax saving under 80 c
Thanks,
Bhushan
Dear Bhushan,
There is no debt fund for tax saving. You can invest in fixed deposit in bank that is similar to debt fund.
Thank you so much sir. Also I wanted to know that there is any other possibility like section 80 C which help us to reduce some amount of tax.
Dear Anupam,
You can save tax under sec 80D by paying health insurance premium up to Rs 25000 for self, spouse and children & Rs 30000 for parents (Senior Citizen) also you can avail benefit under sec 80E in respect of paying interest on education loan.
Under the various schemes eligible for 80 C,you have not mentioned about SENIOR CITIZEN SAVING SCHEME at Post Office,which fetches 9.3% interest.To avail maximum benefit of Rs.30,000 under Section 80 C ,don’t you think this is a better option ,as the interest rate is more attractive ? Please reply to me
Dr. T.K. Raman,
Yes investment under SCSS does qualify for tax benefit under sec 80C. But this product is available beyond age 60 only. So for senior citizens, yes, the tax benefit under this scheme is an advantage to avail.
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