Little known schemes U/s 80C of Income-tax Act

As a society, saving habit comes naturally to most of us. The Government of India also encourages saving by allowing tax benefits, if taxpayer invests in specified tax saving schemes. Most of the taxpayer have been taking tax benefit U/s 80C of Income-tax Act by investing in LIC, PPF, PF, repayment of housing loan etc. The overall limit of deduction for Investment in various schemes covered U/s 80C is restricted to Rs. 1,50,000/-. As the old saying goes, “One should not put all the eggs in one basket”, it is advisable to explore other tax saving investment options to ensure prudent investment.

Let’s have a look at some of the lesser known investment schemes U/s 80C of the Income tax Act for the Financial Year 2015-2016.

• Sukanya Samridhhi Account:

To harmonize with ‘Beti Bachao Beti Padhao’ campaign of Government, a new scheme has been introduced known as “Sukanya Samridhhi Account” which is a deposit scheme for a girl child. The Taxpayer can invest in this account,  minimum of Rs. 1,000 to maximum of Rs. 1,50,000 every year. This account currently fetch an yearly interest of 9.1%.

• ULIP:

ULIP stands for “Unit Linked Insurance Plan” which covers dual benefit of Life Insurance with Equity Investment. This could be a great investment opportunity since it gives nice returns too.

One of the pre-condition is that the policy should be taken on own life, life of spouse of any child.

Just the way it is done for Mutual Funds, here the premiums collected by insurance provider is invested in various market instruments (equity & debt) in varying proportions and in return ULIP holders are allotted units and each unit has Net Asset Value declared on daily basis.This option is more suitable for young taxpayers since they can benefit from Upward market trend in long term, which can beat inflation.

• ELSS:

ELSS stands for :Equity Linked Saving Scheme”. Basically this is an investment in mutual fund, once you opt for this scheme you can not redeem (sale) the investment within three years of date of investments. There are 2 options available- i) Investors who wants to maximize their wealth, can go for Growth Option, ii) Investors who wants stable income, may have Dividend option.

Mutual Fund companies invest the funds in equity shares of listed companies, hence the potential returns from ELSS are quite good, as compared to other available options. Also profit on sale of ELSS held for more than 12 months and dividend earned from ELSS are exempt from tax. This option is also more suitable for young taxpayers since they can benefit from Upward market trend in long term, which can beat inflation.

• NSCs and KVPs at Post office:

National Saving Certificates (NSC) and Kisan Vikas Patra (KVP) is a saving bond primarily used for small investment purposes. These bonds are available at Post office with 5 or 10 years maturity periods. Further, these bonds could be mortgaged to banks for availing short term loans. Interest earned which is reinvested is taxable as Income from Other Sources, however the same is deductible u/s. 80C.

• Contribution to deferred annuity plan:

In common parlance , this is a standard pension plan eligible for 80C deduction.

Deferred Annuity has two phases: Saving Phase & Income Phase. During the 1st phase, money is invested in the annuity fund. In 2nd phase, payments including benefits are received. It is important to know that, monthly annuity (pension) received in Income phase is taxable as Income from Other Source.

HDFC standard life, Jeevan Suraksha of LIC etc are some of the known deferred annuity schemes.

• Investment in Specified Bonds or deposits:

Bonds issued by certain companies are popularly acknowledged as ‘tax saving Bonds’. Investment in these bonds is deductible u/s. 80C. These bonds also fetch good returns and that’s why this might be an effective investment option for you.

Further, 5 years deposits with scheduled banks or post office term deposits i.e. FDs is also available.However, interest on these bonds and deposits is taxable as Income from Other Source.

• Tuition Fees:

In recent era, cost of education is increasing rapidly. One small respite is that, your payment of Tuition fees to school, college or educational institution for any full time education grade of your children is eligible for deduction u/s. 80C. However, out of total fees paid, only portion of tuition fees is eligible for deduction u/s.80C and other elements of fees like Library fees, Gymkhana fee, parking fee etc are not eligible for deduction.

• Housing Loan Principal Repayment:

The monthly EMI for Housing loan repayment, comprise of two parts viz Interest and Principal. You must be knowing that interest paid on housing loan is deductible under Income from House Property, whereas payment of principal portion can also be claimed u/s.80C.

• Stamp duty & Registration charges on House Property:

Most of the taxpayers are unaware but amount paid towards stamp duty, registration fees and other expenses at the time of acquisition of house property also qualifies for deduction u/s. 80C.

We are still in the first quarter of new financial year and we are sure that the above mentioned tips will help you invest prudently to maximize returns as well as tax savings. You may also write to our tax experts through our mobile app service “ask a question” for further assistance. We wish you a prosperous new Financial Year.