Tax Planning: Sec 80C

Sec 80c - The most loved Tax Planning Tool

Of all the sections that offer you tax breaks, Section 80C tends to be most popular, since you get an exemption of up to Rs 1 lakh on contributions to a wide range of investments. Given below are the various options under this section.

• Provident Fund, Public Provident Fund
• You get an assured return of 8% per year on your deposits, which is also exempt from tax
• Remember: Money locked in for at least six years in PPF. PPF are desinged for 15 years lockin
  

• NSCs and 5-year bank FDs
• Assured return of 8-9%. In case of NSCs, the cumulative interest earned every year gets further tax deduction because the interest is deemed to be reinvested
• Remember: Interest is fully taxable. Also, your money gets locked in for five-six years
  

• Life insurance policies
• You get insurance cover and tax breaks on premiums paid, plus all income received is tax free under Section 10D
• Remember: Traditional policies currently give annualized return of only 4-5%
  

• Ulips
• Market-linked returns. Combines insurance with investment. Partial withdrawals are allowed after three years and are tax free
• Remember: Ulips levy high charges of 30-40% of annual premium in initial years
  

• ELSS mutual funds
• Market-linked returns. No entry load on direct investments
• Remember: Withdrawals are allowed only after three years and are tax free
  

• Pension plans
• 33% of the corpus can be withdrawn tax free when the plan matures
• Remember: Money locked up for long term. On maturity, at least 66% gets invested to give monthly taxable pension
  

• School fees
• Fees paid to a recognized school or college (playschools do not qualify) gets tax deduction
• Remember: Tax benefits on fees for only two children
  

• Home loan Principal repayment (Interest part comes under different category)
  
• Especially helpful for taxpayers who don’t have investible surplus to save tax because of large home loan EMI
• Remember:Tax benefit only if the house is self-occupied. Can’t claim benefit along with HRA exemption. But if your job involves constant transfers, then you can claim both HRA exemption and the exemption on Home Loan provided you have bought the house in your permanent place of residence.
  

Extraaa Innings on PPF

Few extra things to understand on PPF

1. The tax saving limit under section 80c is 1 lakh and you can invest 1 lakh. For this you have to open account in the name of your spouse or child. You can save 70,000/- in your account and 30,000/- in other account.

2.The time of 15 years is excluding the FY in which you opened the account so in total the time is 16 years.

3.After 16 years also you can continue with the same PPF account and the extension will be in the phases of 5 years each and you can get extension as many times as you want.

4.In case for few years you don't pay minimum Rs Rs 500/- which is to be paid every year, your account is considered as inactive but you can get it activated by paying penalty of Rs 50/- for the no. of years for which it remained inactive along with 500/- deposit.

5.If you keep on depositing Rs 70,000/- every year till maturity period, and as the deposit will attract 8% interest, so you end up getting 21 Lakhs at the end of maturity period.

Till that time you would have paid Rs 70000 for 15 years. So Total payout = 10 Lakhs 50 Thousands Only.