Section 80C Deduction: 9 Types of Tax Saving Investments

Under Income Tax Act in India, you can take the benefit of tax savings deductions under section 80c by invest in small savings investments.

Government has provided a list of deductions in which you can avail deductions (including related to expenditure and investment).

So you can plan your expenditure and investment to obtain a claim under section 80c of Income Tax.

Section 80C Deduction: 9 Types of Tax Saving Investments

You can claim major tax benefit from a section 80c but the maximum limit under section 80c is rupees 1.50 Lakhs.

Deduction under section 80c is allowed to an Individual or H.U.F. whether resident or non-resident. It is allowable on actual payment basis i.e. you can take deduction in the year in which the payment was made.

9 Types of Tax Saving Investments and Deduction under Section 80C

1) Investment in Fixed Deposit Account

Amount invested in Tax Saving Fixed Deposit (FD) with a scheduled bank is eligible for deduction under section 80c, but this FD must be in lock-in period of 5 year or more.

Principal amount received on maturity is exempt from income tax, but interest earned is taxable on an accrual basis.

2) Investment in Post Office Time Deposit Account (5 years FDR’s of post offices)

Amount deposited in a post office time deposit account just like a “Tax Saving Fixed Deposit account” for 5 years is eligible for deduction under section 80C (Principal amount), but interest income on this amount is taxable.

3) National Saving Certificate

Deduction can be claimed on investment in National Saving Certificate. It is issued by the post office with a lock in period of range from 5 years - 10 years. Principal amount received on maturity is exempt from income tax.

The interest rate on this is just the same as fixed investment like FD, PPF etc. Interest on this investment is accumulated and reinvested.

No TDS is deducted on the interest amount, so while calculating total income under the Income Tax Act this interest is first added to income and then claimed as deduction under section 80c.

So, amount invested in NSC as well as interest accrued on NSC is eligible for deduction.

4) Investment in Public Provident Fund (PPF)

Investment in PPF account is the best way for tax saving, minimum amount to be invested is rupees 500 and maximum it can be rupees 1.50 Lakhs per annum. The lock-in period of PPF deposited is 15 years before which you cannot withdraw.

But withdrawal is permitted only after expiry of 5 years is in specified cases. Principal amount received on maturity is exempted.

Interest earned on this investment is also exempted from income tax.

Amount can be deposited in PPF for Individual (self, spouse, children) and HUF (any members).

5) Payment of Children Tuition Fees

Payment of tuition fees to school, colleges, University etc. in India is eligible for taking deduction under section 80c. The condition is that payment of tuition fees should be for full time education.

Deduction is allowed for a maximum of two children.

Part time education, Distance learning, private tuitions are not covered under this deduction.

6) Subscription to Sukanya Samriddhi Yojana Scheme

Sukanya Samriddhi Yojana Scheme is the best scheme for investment for girls' futures and tax saving. The amount deposited in this account eligible for deduction under section 80c.

Parents / Guardian can open an account with the nationalized bank of a girl child till she attains the age of 10 years. You can deposit minimum rupees 1000 to maximum rupees 1.50 Lakhs within a year.

This account can be open for a maximum two girl’s child. The maturity period is till the age of 21 years of girl for whom investment made. Interest income on this account is exempt from income tax.

Further withdrawal from this account is also fully exempt from tax. So it is a popular scheme and best for investment.

7) Investment in Senior Citizen Saving Scheme

It is a government-backed Saving Scheme for Senior Citizen i.e. age of 60 years or more. The maturity period of this scheme is 5 years. This scheme gives best interest rates. Here interest is paid on quarterly.

So investment made in the scheme is eligible for deduction under section 80c and maximum deduction can claim upto rupees 1.50 Lakhs. Interest income is fully taxable.

Those who have opted for voluntary retirement scheme are eligible to invest in Senior Citizen Saving Scheme after the age of 55 years.

8) Payment of Life Insurance Premium

Deduction is allowed for the payment of premium of the policy taken in the name of self, spouse and any children, but deduction is not allowed for the payment of premium of your parents.

HUF can take deduction of payment of policy taken in the name of its members. Maximum limit of deduction is as follows:

If policy issued before 1/04/2012 – deduction amount is (1) Premium paid or (2) 20% of Policy Value, whichever is lower.
If policy issued on or after 1/04/2012 – deduction amount is (1) Premium paid or (2) 10% of Policy Value, whichever is lower.
If policy issued on or after 1/04/2013 for person with disability (u/s 80U) or person suffering from specified disease (u/s 80DDB) – deduction amount is (1) Premium paid or (2) 15% of Policy Value, whichever is lower.

9) Repayment of Housing Loan

If assesse has taken loan for purchase or construction of residential house property than you can claim deduction under section 80c on repayment of loan.
Deduction under section 80c is allowed only for the principal amount.
It is immaterial that such house property is self-occupied or let out.
For taking deduction under the section the construction of house property should be completed and should be chargeable under the head “house property”.
Loan should be taken from Banks or Financial Institution (not from relatives)
Stamp duty, Registration fee for acquisition of house property is also eligible for deduction.

Other deductions

1. Investment in Equity Linked Savings Scheme (ELSS)

Mutual funds provide a best scheme called Investment in Equity linked savings scheme (ELSS), which is tax saving investment the same as mutual funds, Investment in ELSS Mutual Fund eligible for deduction under section 80c.

Lock-in period is 3 years.

2. Infrastructure Bonds

Amount invested in Infrastructure Bond is eligible for deduction under section 80c.

Investment in Bond issued by NABARD notified by the central government is eligible for taking deduction.

3. Unit Linked Insurance Plans (ULIPs)

Investment in Unit Linked Insurance Plans (ULIP) in the name of self, spouse and children is eligible for deduction.

Lock-in period is 5 years.

4. Contribution to SPF/PPF/RPF

Employee’s contribution to Statutory provident fund, Recognised Provident fund or Approved Superannuation Fund is eligible for deduction under this section.

5. Notified units of Mutual Funds or UTI

Subscription towards notified units of mutual funds or UTI is eligible for deduction.

6. Contribution to notified pension fund set up by mutual fund or UTI

7. NPS Tier – II

Contribution by employee of Central Government to specified account under NPS referred in Section 80CCD for fix period of 3 years or more.

8. Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008

Subscription to any deposit scheme or Contribution to any pension fund set up by National Housing Bank under said scheme is eligible for deduction.

Conclusion

Before investing for tax saving investments, one should know every detail of deduction, so maximum deduction under section 80c is rupees 1.50 Lakhs. You should plan your investments every financial year so that you can save the more tax by using the benefit of deductions.

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