You can decrease your tax liability every year by using Section 80C of the Income Tax Act, as given by the government. Under section 80C, NPS funds are one of the tax-saving investments. Visit here to know more.

Options for Tax Savings Under Section 80 C

Section 80C under the Income Tax Act offers tax deductions on different investments up to INR 1.5 lakhs every year from the taxable income. There are several investment schemes that come under this section. Read on to know more about those schemes before you choose one.

The Best Tax-Advantaged Investment Option Under the Section 80C of the Income Tax Act

There are different options that you can select to save taxes under the Section 80C, and some of the popular ones are:

Investments in PPF (Public Provident Fund)

It is a popular and common investment scheme that is used for tax savings. It’s considered a secure investment avenue because of the Central Government of India. It offers a tax exemption of INR 1.5 lakhs annually, and has a locked-in time period of fifteen years.

Investments in EPF (Employee Provident Fund)

EPF is the retirement saving scheme that the Indian government makes available for every salaried employee. Under the scheme, you need to contribute a particular amount and the employer matches your fund contributions. You get a tax exemption of INR 1.5 lakhs annually under Section 80C.

Investments in NPS (National Pension System)

It is the scheme that lets working professionals and people from unorganized sectors get pension benefits after retirement. Apart from annual tax exemptions of INR 1.5 lakhs under Section 80C, you can get additional tax benefits of INR 50,000 under Section 80CCD(1B).

Investments in ULIP (Unit linked Insurance Plans)

These are the financial tools that offer investments and insurance under one package. It helps investors accumulate wealth while offering life insurance. A part of the total corpus stays in the life insurance, whereas the rest goes into debt, equities, or both. Apart from INR 1.5 lakhs, the returns earned have tax exemptions.

Investments in Sukanya Samriddhi Yojana

SSY is aimed at ensuring the development of the female-child. The initiative helps parents save money from the time of their daughter’s birth to meet all the future expenses including education, marriage, and so on. In this case as well, the total amount at maturity gets tax exemptions.

Factors To Consider Before Making Investments Under 80C

There are five factors to consider before making tax-saving investments under 80C:

Eligibility: You need to be eligible for making investments under 80C. For instance, armed forces cannot invest in NPS accounts.

Liquidity: You would want the investments to have greater liquidity to meet your financial needs. The government has recently increased the liquidity of some schemes like NPS, where three partial withdrawals have been made possible after three years.

Rate of Interest: Higher interest rates mean the investment has a greater opportunity cost, which negatively impacts earnings. Thus, the yearly interest rates of the funds have to be compared before investing.

Investment Limit: Every investment has a minimum and maximum limit, which should be within your convenience for you to make the investment.

Tax Treatment: The tax treatment varies from one form of investment to another. For instance, there might be additional tax exemption under some schemes, while the standard INR 1.5 lakhs annually applies in most cases.

FAQs

Is NPS an Affordable Investment?

NPS scheme is an affordable investment because you do not need to invest a hefty amount in it, whereas the compounding factor makes your money grow considerably. Additionally, there are tax exemptions under 80C.

How Much Tax Exemption Is Offered Under 80C?

The tax exemption under 80C varies from one scheme to another. In general, an annual tax exemption of INR 1.5 lakhs is available for most schemes.

Does LIC Come Under 80C?

As per new rules, Section 80C deductions are not available for the premiums paid for a life insurance policy.