Section 80C 5 Best Options to Save Tax under Section 80C of IT Act

Tax deductions help you reduce your taxable income.

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Tax deductions help you reduce your taxable income. Section 80C allows a deduction of up to Rs.1.5 lakh which can be availed by salaried individual and by all categories of taxpayers.

There are several instruments in which a person can invest and claim deductions. The more popular ones have been discussed below

Equity Linked Savings Schemes (ELSS)

ELSS is one of the best tax-saving instruments which has a lock in period of 3 years. These are tax-saving mutual funds.One suggestion would be to invest in the ELSS schemes and opt for dividend option which acts as a profit-booking mechanism and also gives you liquidity where dividends are tax-free in the hands of investors. It not only gives you tax benefits but also helps in capital appreciation which helps you to achieve your nearest goal.

Unit Linked Insurance Plan (ULIP’s)

Unit Linked Insurance Plans provide you with the dual benefit of investment and protection. Investment portion provides you with the market-linked returns while the other part provides you with the life insurance cover. You have the tax saving of Rs.1.5 lakh under this instrument. There is no liquidity for 5 years. The maturity proceeds are tax-free under section 10(10D).

National Pension Schemes (NPS)

NPS savings are mainly done for retirement purpose. Deduction under the NPS scheme gives a tax benefit of Rs.50000 under section 80CCD (1B), which is over and above the limit of Rs 1.5 lakh declared under section 80C. You can do the minimum investment of Rs.500 per month or Rs.6000 a year.

Fixed Deposits (FD)

These are the safest option for investment and claim deduction. The investments made under such instruments do not contain any market volatility risk. You get a fixed return after the maturity. A 5-year bank FDs are eligible for tax deductions up to a maximum amount of Rs.1.5 lakh.

Public Provident Fund (PPF)

Contribution to PPF is eligible for deduction under section 80C of the Income Tax Act 1961. Interest is completely tax-free and the applicable rate of interest for 2016-17 is 8.1%. Unlike other instruments which are eligible for tax deduction under Section 80C, PPF enjoys an exempt- exempt- exempt (EEE) status, where withdrawal on maturity is also not taxed.

Comparison of popular Section 80C investments

InvestmentRisk ProfileInterestGuaranteed ReturnsLock-in Period
ELSS fundsEquity-related risk12-15% expectedNo3 years
PPFRisk-free8.1%Yes15 years
NPSEquity-related8-10% expectedNoTill retirement
FDRisk-free7-9% expectedYes5 years
ULIPEquity-related risk8-10% expectedNo5 years

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