Common Tax-Saving Instruments
Section 80C of the Income Tax Act, 1961 is one of the most utilised sections for tax saving. Under it, you can claim deductions up to a maximum of ₹1,50,000 per financial year by investing in the following tax-saving instruments: This list includes a variety of instruments such as the equity linked saving scheme, senior citizen savings scheme, and unit linked life insurance policy and plan, each offering unique benefits and tax advantages.
1. National Pension Scheme (NPS)
The National Pension Scheme is a long-term investment scheme that provides investors with a stable pension after retirement. Under 80C, you can deduct NPS investments up to ₹1,50,000. An additional ₹50,000 deduction is also available under Section 80CCD (1B), making total NPS investment and deductions under section 80c go up to ₹2,00,000.
2. PPF
Public Provident Fund is a central government scheme that provides regular interest income on the contributions made to the PPF account opened in a bank or post office. Investors can withdraw the amount after a lock-in period of 15 years.
3. ULIPs
Unit-linked Insurance Plans (ULIPs) are investment-cum-insurance products that invest a certain portion of the contribution towards life insurance and premiums and the remaining in debt and equity funds.
4. Sukanya Samridhi Yojana
Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme in India for the financial security of the girl child. The interest is compounded annually and invested into the SSY account.
5. National Savings Certificate
National Saving Certificate is a fixed-income investment scheme for small and mid-income investors. Upon maturity, the investor receives the principal amount along with accrued interest.
6. Equity Linked Savings Scheme
ELSS is a mutual fund scheme primarily investing in equities and equity-related instruments. ELSS funds have a mandatory lock-in period of three years, the shortest among all tax-saving investment options under Section 80C.
Fixed-Income Tax-Saving Instruments
Your asset allocation strategy must have a safety net to balance the high volatility of equity investments. Fixed-income instruments such as tax-saving fixed deposits and tax-saving bonds can provide a safety net by ensuring a stable income and reduced tax liability.
FDs as Tax-Saving Instruments
Tax-saving FDs are fixed deposits that allow investors to claim tax deductions on the principal amount. Interest varies between 7% to 9% for different banks. The maximum investment limit for tax-saving FDs in a financial year is ₹1.5 lakh.
As per Section 80C, you can deduct the principal amount of tax-saving FDs from your taxable income, up to a maximum limit of ₹1,50,000 per financial year.
Tax-saving FDs have a lock-in period of 5 years with no premature withdrawal facility. They do not offer overdraft or loan facilities.
Frequently Asked Questions
What are the key takeaways from this article?
Section 80C of the Income Tax Act, 1961 is one of the most utilised sections for tax saving. Under it, you can claim deductions up to a maximum of ₹1,50,000 per financial year by investing in the following tax-saving instruments: This list includes a variety of instruments such as the equity linked saving scheme, senior citizen savings scheme, and unit linked life insurance policy and plan, each offering unique benefits and tax advantages.
Who should read this article?
This article is designed for retail investors, first-time bond buyers, and anyone looking to understand fixed income investments in India.
How does this relate to my investment portfolio?
Understanding these concepts helps you make informed decisions about asset allocation and build a diversified investment portfolio.
