Tax saving countdown – With 2 months to go, options to consider under 80C

• Investing in ELSS not only aids in tax reduction but also offers the opportunity for wealth accumulation through equity exposure.
• Investing in PPF provides a secure avenue for long-term savings, with a fixed tenure of 15 years and the option to extend in blocks of 5 years.
• Investors opt for 5-year FDs due to their stability and assured returns, making them suitable for those seeking low-risk investment options.

Now that we have stepped into the new year, there are just three months left before the current financial year draws to an end. Those who have made investment declarations to their employees to save funds under section 80C, would have another month or two to show proof of investments to their employers. One needs to give evidence of investments to his/her employer by a certain time. This helps your employer calculate your taxable income and the amount of tax to deduct from your salary.

“If you forget to submit the proof of investments to your employer, you can still claim those investments when you file your income tax return. Just make sure the investments were made before the end of the financial year,” says Archit Gupta, Founder and CEO, Clear, a fintech company

It always helps to plan early, but in case you have not, here is a guide on how you can invest to avail section 80C tax deductions. Remember, that would apply to you only if you have opted for the old tax regime.

Before making 80C investments, it is important to remember that the maximum deduction that you can avail is ₹1.5 lakh.

Your contribution to the employee provident fund (EPF) is eligible for 80C deductions. So are your insurance premiums. If you have a home loan, the amount you pay towards the principal component of the home loan is also eligible for deductions under section 80C. So, when planning for 80C investments you need to first understand the amount you need to invest, which would in most cases be less than ₹1.5 lakh.

Let us take a look at 5 investment options to avail 80C deductions in 2024.

Equity Linked Savings Scheme

Equity Linked Savings Schemes (ELSS) serve as a tax-saving avenue under section 80C of the Income Tax Act, offering benefits like a lower lock-in period of three years compared to other tax-saving instruments. ELSS primarily invests in equity and equity-related instruments, providing potential for higher returns over the long term.

“ELSS helps you save tax and grow money at the same time,” Suneel Dasari, CEO, EZtax.in.

However, it's essential to acknowledge the risks inherent in equity investments, including market volatility and fluctuations. The returns aren't guaranteed and can vary based on market performance.

ELSS funds as a category have given returns of 26.57%, 19.55% and 17.13% in one, three and give years respectively.

Public Provident Fund

The Public Provident Fund (PPF) is a government-backed long-term savings scheme offering tax benefits under Section 80C. It allows contributions up to ₹1.5 lakh annually, making the invested amount tax-deductible.

Investing in PPF provides a secure avenue for long-term savings, with a fixed tenure of 15 years and the option to extend in blocks of 5 years. It offers a 7.1% rate compounded annually.

The risks associated with PPF are notably low due to its government backing, ensuring safety and stability. However, the lock-in period of 15 years and limited liquidity might pose constraints for individuals seeking shorter-term investment options.

National Pension Scheme

The National Pension System (NPS) is a voluntary retirement savings scheme offering tax benefits of up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD (1B), providing substantial tax savings.

Investing in NPS is ideal for retirement planning, offering a choice of investment options across equities, corporate bonds, and government securities. Its unique feature includes two accounts: Tier I (non-withdrawable till retirement) and Tier II(withdrawable at any time).

While NPS provides the opportunity for market-linked returns, it also carries market risks associated with investment in equity and debt instruments. Additionally, the Tier I account has a lock-in period until retirement, restricting liquidity.

“Tax benefits will be applicable only to the investments under Tier 1 NPS Accounts. Tier 2 NPS accounts are not eligible for tax benefits,” says Dasari.

Tax saving FDs

A 5-year Fixed Deposit (FD) offers a secure investment avenue with a fixed interest rate for the specified tenure, typically ranging from banks to post offices. The invested amount is eligible for deduction under section 80C.

Investors opt for 5-year FDs due to their stability and assured returns, making them suitable for those seeking low-risk investment options.

However, these FDs may have lower returns compared to market-linked instruments like equity-based investments. Additionally, the lock-in period of 5 years limits liquidity and flexibility.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme designed for the financial security of the girl child. It offers tax benefits under Section 80C of the Income Tax Act, allowing contributions up to ₹1.5 lakh annually to be tax-deductible.

Investing in SSY provides a dual advantage of tax savings and creating a corpus for a girl child's future expenses like education or marriage.

The scheme offers an attractive interest rate(8.2%) and has a maturity period of 21 years from the date of account opening or until the girl child reaches 18, whichever is earlier. “For higher education purposes you can withdraw 50% of the amount deposited,” says Dasari.

The risks associated with SSY are minimal as it's a government-backed scheme.