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Deduction Under Section 80C of Income Tax Act

by Varun Advani | 3 July 2015

Under section 80 C, the income tax act allows the taxpayer, a deduction for making investments in listed tax saving instruments amounting to a maximum of Rs. 1, 50,000. This deduction limit was raised to 1.5 lakh from assessment year 2015-16 onwards. The maximum deduction under this section up until assessment year 2014-15 was 1, 00,000. Now this section has been used by many a taxpayer over the years, to save on his/her taxes. At the same time, investment opportunities offered under this section have also always been very attractive as far as the return on investment is concerned. But now that the maximum deduction limit under this section has been increased to Rs. 1.5 lakh, the important aspect to look at is if the additional amount of deduction amounting to Rs. 50,000 is being utilized properly to generate maximum tax benefit. Many of the salaried employees, by virtue of being covered under the provident fund act, invest a part of their salary, which is mandatorily deducted every month, in their respective employee provident fund accounts. Hence it’s imperative that the salaried employee accounts for the same and invests only the balance amount to get a deduction of Rs. 1.5 lakh u/s 80 C.  Following are most attractive investment avenues for taxpayers looking to not only save tax u/s 80 C but also attain the best possible return on investments :-


1. Equity linked saving schemes – There’s never been a better time to take the plunge and enter into the stock market, and there’s no better way to do so than by investing in equity linked savings schemes. The average returns on popular funds such as the HDFC growth fund or ICICI Blue chip equity fund have averaged between 15%-21% p.a.  More importantly the long term capital gains from these funds are completely tax free in the taxpayer’s hands. Therefore given the facts, I think it’s very evident that an equity linked savings schemes don’t just help one save on his/her taxes but also presents to the taxpayers, a very good opportunity to grow their money.


2.  PPF A/c – If you’re investment habits are risk averse and you want you want to ensure that your principal does not get eroded, investing in a PPF A/c is the best option available at the moment. Let me explain why that is. Let‘s compare investing in a PPF A/c (8.7% per annum) to investing in a fixed deposit that gives you a return of 10 per cent p.a. Now since the interest received from a PPF A/c is completely tax free, it is imperative that we compare the pre-tax rates of return of both the investment option. Therefore the pretax ROI of the PPF A/c (assuming the taxpayer is in the highest tax bracket) becomes 12.43% p.a. This data clearly depicts how investing in a PPF A/c not only saves you taxes but also gives you a better rate of return as compared to your standard fixed deposit.


3. Sukanya Samriddhi Account – Do you have a daughter? Would you like to secure her future and save on taxes at the same time? Then the Sukanya Samriddhi account is the answer to your worries. As compared to a PPF A/c, the Sukanya Samriddhi account scores many more points as far as the liquidity aspect is concerned. The Sukanya Samriddhi Account can either be closed or full withdrawal is possible after the girl child in completes the age of 21. If account is not closed after maturity, the balance will continue to earn interest as specified for the scheme from time to time. In case of Sukanya Samriddhi Account, up to 50 per cent of the accumulated amount can be withdrawn after the girl child completes 18 years of age. Only one account per girl child is allowed. Parents can open this account for a maximum of two children. Account can be opened in post offices or authorized bank branches.

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