Tax Saving Schemes - 80C

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Tax Saving Schemes - 80C
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SECTION 80C lists down the instruments, which you can invest in order to save tax. You can invest a maximum of Rs 1.5 lakh in all these instruments put together and the entire amount of Rs 1.5 lakh will be deducted from your taxable income.

You can get a deduction for the following investments you make :
  1. A Life Insurance policy or a unit-linked insurance plan (ULIP). The lock-in period for ULIPs is 5 years and the returns vary depending on the performance of your fund. However, if your annual premium exceeds 120 per cent of the sum assured on your policy, your deduction will be restricted to 10% of the sum assured. Moreover the amount received on maturity will be fully taxable in case the premium paid in respect of the policy exceeds 10% of the sum assured in any of years.
  2. A Retirement Benefit Plan offered by mutual funds. Examples are UTI Retirement Benefit Plan and Templeton India Pension Plan.
  3. A Provident Fund, provided that the fund is covered under the Provident Fund Act. This would mean investments made by you through salary deduction in the Employees Provident Fund (EPF) account or as direct payment as also investments that you make directly in the Public Provident Fund (PPF). You can invest up to Rs 1.5 Lakhs in the PPF account. The current rate of return on EPF is 8.75 per cent while that on PPF is 8.7 per cent.
  4. An approved Superannuation Fund. Usually your employer, on behalf of you, does this by deducting the investment amount from your salary.
  5. National Savings Certificates (NSCs).
  6. Equity Linked Savings Scheme (ELSS) offered by mutual funds.
  7. Pension policies offered by insurance companies where benefits were earlier available under section 80CCC within the overall limit of Rs. 1.5 lacs. Earlier, there was a limit of Rs 10,000 on such investments; however that ceiling has now been removed.
  8. Bank fixed deposits that provide the Section 80C tax benefit. They come in with a lock-in of 5 years. Apart from the investments mentioned above, you can also get a deduction on certain expenses that you incur. Mainly, these include the principal repayment on your home loan and the tuition fees you pay on your children's education.
Rajiv Gandhi Equity Savings Scheme (RGESS)

Rajiv Gandhi Equity Savings Scheme or RGESS is a equity tax advantage savings scheme for equity investors in India, with the stated objective of "encouraging the investment of savings of the small investors in the domestic capital markets."

The tax deduction in terms of RGESS guidelines shall be available to a 'new retail investor' who complies with the conditions of the RGESS and whose gross total income for the financial year in which the investment is made under RGESS is less than or equal to twelve lakh rupees.

Maximum Investment permissible
The maximum Investment permissible for claiming deduction under RGESS is Rs. 50,000.

Tax Benefit
The investor would get a 50% deduction of the amount invested from the taxable income for that year u/s 80CCG. The benefit is in addition to deduction available u/s Sec 80C.

Lock-in Period
The total lock-in period for investments under the RGESS would be divided into 'fixed lock-in period' and 'flexible lock-in period'.

The initial period of lock in shall be known as Fixed Lock-in Period, which shall commence from the date of purchase of such securities in the relevant financial year and end on the 31st day of March of the year immediately following the relevant financial year.

The period of two years beginning immediately after the end of the fixed lock-in period shall be called the flexible lock-in period.
New Pension Scheme

For instance one can get an additional tax benefit of Rs 50,000 if you park money in the scheme, which is now a part of Sec 80CCD.

The other benefit that one gets is that one can now invest in the scheme in equity as well. So, you can make a choice if you want to invest in equity or debt depending on your own risk profile, age etc. But, the limit here is capped to 50 per cent not more to probably protect the interest of investors.

While some are skeptical others feel that it would help to channelise savings into the stock market, which could be a good move, since stocks are highly under owned in India.