Section 80C of the Income Tax Act provides a deduction of Rs 1.5 lakh from the taxable income of an individual for certain investments made during the financial year. There are various avenues to make investments and avail deduction under this act. Some are discussed below.
Public Provident Fund (PPF)
Public Provident Fund (PPF) scheme is a long-term investment option that offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax. One has to open a PPFÂ account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.
This is a 15-year lock-in account that can be opened with a bank or post office. The maximum contribution that can be made in a year is Rs 1.5 lakh.
National Saving Certificate
The National Savings Certificate is a fixed-income investment scheme that you can open with any post office. A Government of India initiative is a savings bond that encourages subscribers – mainly small to mid-income investors – to invest while saving on income tax.
A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a secure and low-risk product. You can buy it from the nearest post office in your name, for a minor, or with another adult as a joint account.
They come with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn you a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at a rate of 6.8% per annum. Â
National Pension Scheme
The National Pension Scheme is a social security initiative by the Central Government. This pension program is open to employees from the public, private, and even the unorganized sectors except those from the armed forces.
The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.
Earlier, the NPS scheme covered only the Central Government employees. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.
NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement.
The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD.
Budget 2021 update: It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
ELSS funds
Mutual fund houses have specifically recognized tax saving schemes known as Equity Linked Savings Schemes (ELSS) with a lock-in period of three years. Investments in these schemes of up to Rs 1.5 lakh in a financial year can be eligible for tax exemption under 80C.
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An equity-linked savings scheme or an ELSS fund is the only kind of mutual fund eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961. You can claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds.
Unit Linked Insurance Plan
Unit Linked Insurance Plan (ULIP) is a mix of insurance along with investment. From a ULIP, the goal is to provide wealth creation along with life cover where the insurance company puts a portion of your investment towards life insurance and rest into a fund that is based on equity or debt or both and matches with your long-term goals. These goals could be retirement planning, children’s education, or another important event you may wish to save for.
Tax saving FD
Banks offer fixed deposits that have a maturity period of five years and are designated as tax-saving FDs. These deposits usually carry a lower rate of interest vis a vis other lower maturity deposit.
Top 5 tax-saving bank FD rates
| Bank Name | Interest rate (%) Compounded quarterly | What Rs 10,000 will grow into |
| DCB Bank |
6.75 | 13974.99 |
| IndusInd Bank | 6.50 | 13804.20 |
| Equitas Small Finance Bank Ltd | 6.40 | 13736.44 |
| AU Small Finance Bank | 6.25 | 13635.39 |
| RBL Bank | 6.25 | 13635.39 |
Top 5 tax-saving bank FD rates for senior citizens
| Bank Name | Interest rate (%) Compounded quarterly | What Rs 10,000 will grow into |
| DCB Bank |
7.25 | 14322.61 |
| IndusInd Bank | 7.00 | 14147.78 |
| Equitas Small Finance Bank Ltd | 6.90 | 14078.42 |
| AU Small Finance Bank | 6.75 | 13974.99 |
| RBL Bank | 6.75 | 13974.99 |
Senior citizen savings scheme (SCSS)
Senior Citizen Savings Scheme (SCSS) is a government-sponsored savings instrument for individuals above the age of 60. The Government of India introduced this scheme in 2004 intending to provide senior citizens with a steady and secure source of income for their post-retirement phase.
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Investing in SCSS is a good opportunity for senior citizens above 60 years to make money. This is an effective and long-term saving option that offers security and added features that are usually associated with any government-sponsored savings or investment scheme. These schemes are available through certified banks and post offices across India.
It has been proposed to exempt the senior citizens from filing income tax returns if pension income and interest income are their only annual income source. Section 194P has been newly inserted to enforce the banks to deduct tax on senior citizens more than 75 years of age who have a pension and interest income from the bank.
Sukanya Samriddhi Yojana
SSY aims at tackling a major problem associated with the girl child – education and marriage. It is focused on securing a bright future for the girl child in India by facilitating the parents of a girl child in building a fund for the proper education and carefree marriage expenses of their child. SSY has introduced the Sukanya Samriddhi Account for this very purpose.
Contributions made to the Sukanya Samriddhi account maintained for the girl child are also eligible for deductions and the maximum investment per financial year is limited to Rs 1.5 lakh.
Points to note
- There are other payments such as life insurance premium, principal paid on the home loan, contribution to PF which also make up for the entire Rs 1.5 lakh deduction.
- One needs to take into account the amounts already eligible for deduction as above and can only make fresh investments for the balance deduction if needed
