Save Tax this new year through famous section 80 C (See…) !

Save Tax this new year through famous section 80 C (See…) !

Year 2016 is about to end in a few hours and a New year 2017 welcomes us all. Amidst the celebrations, you must now start thinking to make investments for returns and to save taxes as 1st January 2017 along with a new year would mark the beginning of last quarter of the ongoing tax year 2016-2017.

So here we have for you a sneak-peak on the famous section 80 C along with few considerations and tips which you might find handy before deciding where to invest.

Budget 2016 had no change in its pocket with section 80 C. The maximum tax exemption limit under Section 80C has been retained at Rs 1.5 Lakh. We will have a look at the various avenues available to get the most of it.

Happy New Year & Happy Tax saving!

(Please note that the maximum deduction that you can avail under 80 c, with all the below options combined cannot exceed 1.5 lakhs.)

A. Life Insurance Premium

This is unarguably the most popularly considered tool for life insurance and tax savings and due to its popularity, there are numerous insurance plans available by both government and private institutions

Deadline to pay: You can avail a maximum deduction of 1.5 lakhs by paying life insurance premium. To be eligible for deduction for FY 16-17, you must pay the premium before 31st March 2017.

Who can avail: An individual can pay LIP for himself/herself, spouse & children. While in case of a HUF, it can be paid for any member of the HUF.

 

B.Public Provident Fund (PPF):

This is the most popular tool used in India after LIP as it offers an assured return combined with income tax benefits.

Deadline to invest: You can avail a maximum deduction of 1.5 lakhs by investing in PPF. To be eligible for deduction for FY 16-17, you must invest before 31st March 2017.

Who can avail: A resident Individual can invest in his own name, in the name of spouse or in the name of his/her minor children. Non-resident Indians and HUFs are not eligible to avail this benefit.

Things to consider

  1. Return: Contribution to PPF will get you a tax-free interest of over 8%.
  2. Denominations: You can invest Rs 500 to Rs 1.5 lakh every year in a PPF account opened with a post office or any authorised bank and claim deduction for the amount invested.
  1. Lock in period: The minimum lock in period is 5 years for withdrawals and maturity period is 15 years. (Read the tips)
  1. Taxability of maturity proceeds: The maturity proceeds are fully exempt from tax.

Tips:

To withdraw as loan: A loan on the accumulated balance can be obtained after 1 year from the end of FY. However, it can only be obtained for certain purposes such as marriage or buying property, subject to various limits.

Premature closure after 5 years: Though PPF account matures after 15 years from date of opening. However, premature closure of PPF accounts is possible in genuine cases like serious ailment, higher education of kids etc. by paying a penalty of 1% reduction in interest payable on whole deposit.

 

C.National Savings Certificates (NSC)

You can also get deduction under section 80C for the amount deposit in national saving certificates (operated by post offices in India)

Deadline to invest: You can avail a maximum deduction of 1.5 lakhs by investing in NSC. To be eligible for deduction for FY 16-17, you must invest before 31st March 2017.

Who can avail: Only Individuals can invest. Trust and HUF cannot invest

Things to consider

  1. Return: Interest of 8%.
  1. Taxability of proceeds: The interest accrued annually on NSC is taxable as other income – but if you reinvest the interest each year, it will qualify for deduction.

Tip:

These certificates can be kept with bank as collateral security for loans

 

D.Term Deposits

Term deposit or fixed deposits with banks or post office are eligible for the deduction up to a maximum of 1.5 lakhs.

Things to consider

  • Lock in period should be 5 years to avail deduction.
  • Interest earned on the deposits is fully taxable under other sources

 

E. Sukanya Samriddhi Account

This scheme was launched by our Prime minister under ‘Beti Bachao Beti Padhao’ campaign

Deadline to invest: You can avail a maximum deduction of 1.5 lakhs by opening the SSA account. To be eligible for deduction for FY 16-17, you must do this before 31st March 2017.

Who can invest: You can open an account in the name of your girl child (limited to two, unless you have twins triplets) either in a post office or authorized bank, anytime up to her attaining the age of 10 years.

Things to consider

  1. Return: It will fetch you a return of over 8.5 %
  1. Denominations: Initial deposit of Rs 1000. Max. deposit in an year can be 1.5 lakhs. Additional deposits can be made for the next 14 years.
  1. Maturity of Account: The account matures on completion of 21 years from account opening date or the date of marriage of the girl child, whichever occurs earlier.
  1. Taxability of maturity proceeds: The maturity proceeds are fully exempt from tax.

Tip

The scheme allows withdrawal (up to 50% of the balance) before maturity for higher education and marriage (provided she has attained 18 years of age) and the withdrawals so made are also exempt from tax.

 

F.Other options under 80C

1.Tuition fee for children

You can avail deduction under section 80 C by paying tuition fees for your children. The maximum amount of deduction can be up to 1.5 lakhs

  • This can be paid at the time of admission or any time thereafter
  • This can be paid to any university, college, school or other educational institution situated within India
  • It must be paid for full time education
  • The deduction is not available for tuition fee to coaching classes or private tuitions
  • The following expenses are not considered as tuition fees – development fee, transport charges, hostel charges, mess charges, library fees, Late fines, etc.

2.Repayment of Home loan

Deduction up to Rs 1.5 Lakh is allowed on the principal repayment of the housing loan if the house is self-occupied or vacant.

  • The house should be registered in the name of assessee. (He should be one of the owners, in case of joint ownership)
  • The loan should be taken from Banks, NBFCs or respective employers. Loans taken from friends/ relatives does not qualify for this deduction.
  • The house cannot be sold up-to 5 years, otherwise the deduction given is reversed.

3. Apart from the above deductions investment in following securities/deposits are also eligible for deduction u/s 80C of the Income Tax Act, 1961:

  • Mutual Funds
  • 5 year recurring deposits with post office
  • Senior Citizens Saving Scheme
  • 5 year term deposit with Post Office
  • Notified Bonds of NABARD
  • 5 year term deposit with Scheduled Bank

Please write back under the comments sections if you have any query & we will see you soon back with more write ups on tax planning & saving tax.

(DISCLAIMER: Though all efforts have been made to express the above contents error free. Any representative of Moneyboat/Admin/Author are not responsible for any loss caused to anyone due to any mistake/error.)

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