08 May 2011

Investment under Section 80C to save tax : PF & VPF, PPF, NSC, ELSS, Life insurance premiums, Home loan,Stamp duty, registration charges, Fixed deposits (FDs) and Interest paid on education loan

To encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. The section helps you save taxes on investments up to 1 lakh - if you are in the highest tax bracket of 30%, you can save Rs 30,000 in taxes. Here are the options available under the section:
PF & VPF: Provident Fund (PF) is deducted from your salary. Your employer also contributes to it. While the employer's contribution is exempt from tax, your contribution is counted as investment under Section 80C. You can also contribute additional amounts to Voluntary PF (VPF). The EPFO has announced a 9.5% rate of return on deposits for 2010-2011. Also, the interest earned on the investments is tax-free.

Public Provident Fund (PPF): A PPF account can be opened with a nationalised bank or a post office. The rate of interest earned is 8%, which is tax-free, and the maturity period is 15 years. The minimum required contribution is Rs 500 per year and the maximum allowed is Rs 70,000.

National Savings Certificate (NSC): This is small-savings instrument for a period of six years. The rate of interest is 8%, compounded half-yearly. The interest accrued every year is liable to tax, but the interest earned is also deemed to be reinvested and, thus, eligible for tax deduction.

Equity Linked Savings Scheme (ELSS): ELSS schemes are tax-saving mutual funds. The returns are not guaranteed, since an ELSS invests in equities. The money invested is locked in for three years.

Life insurance premiums: Any amount you pay towards life insurance premium for yourself, your spouse or your children can be included for tax deduction. If you are paying premiums for more than one insurance policy, all the premiums can be included. Besides, investments in unit-linked insurance plans (Ulips), which offer life insurance with investment benefits, are also eligible for tax deduction.

Home loan: Your home loan EMI has two components - the principal and the interest. The principal component qualifies for deduction under Section 80C.

Stamp duty, registration charges: The amount you pay as stamp duty when you buy a house, and the amount you pay for registration of the house documents can be claimed as deduction under Section 80C. However, this can be done only in the year of purchase of the house.

Fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are entitled for tax deduction.

Others: Expenses on children's education can be claimed as deduction under Section 80C. However, you need receipts to claim the benefit.

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