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Best deductions u/s 80C to slash your income tax

The month of January is close to its end and barely two months remain to make the investments — as specified in Section 80C of the Income Tax Act — so as to claim the allowable tax deduction.

As is often the case, there are still many who haven't made all the necessary investments as yet. If you are one of them, do hurry up. Else you may end-up with wrong products if you leave the matter to the last minute.

However, even among the disciplined tax savers, many are lagging behind.

As you may recollect, the Finance Minister Shri Arun Jaitley had increased the total amount eligible for tax deduction u/s 80C from Rs.1 lakh to Rs.1.5 lakhs. But this enhancement, in the limit, happened much later during mid-year in July (due to elections, the budget was presented in July, as against Feb in the normal course).

To claim this Rs.1.5 lakhs deduction from your taxable income, Section 80C offers you many investment options... and some expenses too.

Specified Investments
- Premiums paid towards Life Insurance policies of self, spouse and children (up to 20% of Sum Assured for policies issued till Mar 2012 and 10% of the Sum Assured for policies issued from April 2012 onward). [This benefit will be reversed if the policy is terminated within 2 years]

- Premiums paid towards Deferred Annuity Scheme for self, spouse and children

- Your total contribution to the recognized Employees Provident Fund A/c (including Voluntary PF contribution, if any)

- Investment in the Public Provident Fund (PPF)

- Contribution to National Pension Scheme (NPS) and other notified Pension Plans 

- Equity Linked Savings Scheme (ELSS) offered by mutual fund companies

- Specified Pension Funds offered by mutual fund companies

- National Savings Certificates (NSC) purchased during the year + Interest accrued during the year on the NSCs purchased in the past

- Contribution to an approved Superannuation Fund

- Premium paid for a ULIP scheme [This benefit will be reversed if the policy is terminated within 5 years]

- Notified 5-year Fixed Deposits with a Scheduled Bank

- Senior Citizen Savings Scheme (of course, only if you are a senior citizen)

- 5-year Post Office Time Deposit 

Specified Expenses
- Principal amount of your home loan repaid during the year, provided the loan is from a specified bank or institution [This benefit will be reversed if the property is sold within 5 years]

- Tuition Fees (excluding any development fees or donations etc.) paid to any university, college or school in India, for admission or thereafter, for up to two children

- Stamp duty and Registration charges paid for purchase of house property (provided it is a ready property or completion happens during the current year itself)

You cannot do much about the mandatory contribution to the PF A/c, home loan principal repayment, term insurance premium and the children's tuition fees. However, the two best products u/s 80C, for the balance remaining limit of Rs.1.5 lakhs are PPF and ELSS. Rest all can be safely ignored (except in some exceptional cases). 

Finally, as has repeatedly been advised by one and all, please start your tax-saving for the next year from April itself. Also, as this time the budget would be announced in Feb itself and the tax provisions known well in advance, you have no excuse for not planning your tax at the earliest.


[This post is an update of the earlier blog posted on Jan 23, 2015]

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