Section 80C Tax Saving Schemes

by Manshu on January 5, 2011

in Tax

With the tax season fast approaching, I thought I’d do a post with the tax rates for the current year, and the investing options that can avail you tax deductions. These don’t include things like loss from house property, or disability deductions, but are deductions that can be claimed under Section 80C or 80CCF when you invest a certain amount in some tax saving instruments.

First, let’s take a look at the tax slab for the current year:

Income Tax Slab:

Income Tax Rate
Up to 1,60,000
Up to 1,90,000 (for women)
Up to 2,40,000 (senior citizens older than 65)
0%
1,60,000 – 5,00,000 10%
5,00,000 – 8,00,000 20%
More than 8,00,000 30%

Education Cess: 3% of income tax & surcharge if the taxable income is more than 160,000.

The cess is levied on the tax itself, so whatever is your final tax liability – take 3% of that and add to your tax to arrive at the tax due.

Tax Saving Schemes

The table that follows lists out tax saving schemes that entitle you to a reduction on your taxable income.

What this means is that if you have a taxable salary of Rs. 9,00,000 and invest Rs. 1,00,000 in any of these tax saving schemes then your taxable salary gets reduced by 1,00,000, and you pay tax as if you only earned Rs. 8,00,000 in the year.

The maximum investment column in this table indicates that the tax benefit ceases to exist for an amount in excess of what’s indicated there. So, if you invest more than 70,000 in PPF – you will still be entitled to tax benefit on only Rs. 70,000.

Also, note that the combination of these options will give you a maximum tax benefit of Rs. 1,00,000, so if you have already bought insurance worth Rs. 1,00,000 investing another Rs. 1,00,000 for ELSS will not get you additional tax saving.

The only exception to this is the 80CCF Infrastructure Bonds, which reduce your taxable income by Rs. 20,000 over and above the Rs. 1,00,000 saved by the other options.

Regular readers know it all too well, but it’s my duty to remind you that I’m not a tax expert, and in fact hire someone else for my own taxes, so you need to keep that in mind while looking at this list, and consider it nothing more than a starting point.

S.No. Name Maximum Investment Notes
1 Life Insurance Premium Paid 1,00,000 Policy should either be in your name, spouse’s name or children’s name
2 Contribution to Public Provident Fund 70,000 You can’t add the employer’s contribution to PF under this head.
3 Investment in NSC (National Savings Certificate) 1,00,000 Post office scheme with guaranteed returns.
4 Contribution to ULIPs 1,00,000 Do your due diligence before getting into these.
5 Contribution to ELSS Mutual Funds 1,00,000 Link to a post on ELSS here.
6 Contribution made to notified pension funds 1,00,000 UTI Pension fund is one example of this
7 Amount spent on children’s education 1,00,000 For tuition fee only, and  a maximum of 2 children
8 Annual Repayment of Housing Loan 1,00,000 There are a lot of conditions in this that I’m not fully familiar with, so you need to consult an expert before banking on this.
9 Tax Saving Fixed Deposits 1,00,000 Term of 5 years (Full post here)
10 Premium Paid Towards Jeevan Suraksha 1,00,000 Pension plan with annuity for life.
11 Section 80CCF Infrastructure Bonds 20,000 This is over and above the 1,00,000 mentioned above. (Full post here)

 

After writing this post I also created a detailed graphic that makes these tax saving schemes easy to understand, and also includes the details on home loan and education repayment which are not present here. You can view the 80C tax saving infographic here.

Update: Premium Paid towards Jeevan Suraksha does not come under Section 80C benefits as listed in this post, but is covered under Section 80CCC.

Thanks to R P Sarathy, and Nilesh Gupta for pointing out the error, and my sincere apologies for my mistake.

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{ 138 comments… read them below or add one }

Kumar January 11, 2012 at 10:20 am

Hi,
Please tell me the procedure of making gold gift to my spouse to reduce tax. is there any limit for glod gifts? whether jewel to be purchased under my name or my spouse name? i have invested Rs 72,000 in LIC. what are the other ways to reduce my tax. my annual income is 9 lakhs.

Reply

Manshu January 12, 2012 at 2:51 am

No idea about that I’m afraid.

Reply

Gaurav January 11, 2012 at 6:11 pm

Hi,

I have done some maths for investing in a LIC scheme against a tax saver FD and found that tax saver FD gives better returns if both are considered under investment. Banks are offering interest rates upto 9.5% towards FD while LIC is giving a mere 8% overall return and that too over a minimum period of 15 years. Please suggest which is a better option to invest looking at my maths.

The maths done by me-
I took a case where if I apply for a 15 year money back policy (106-Jeevan Surabhi) sum assured 4lac, I need to pay somewhere around 42k as annual premium for 12 years and I will get 30%, 30% and 40% cash back at the end of 4, 8 and 12 years resp. Accrued bonus will be paid at the end of 15 years equal to 2,04,000 (based on last year bonus which was 3.4% of sum assured for entire term) totaling my return to 6,04,000. Now, if the same annual premium amount if invested in FD each year @ 9.5% gives me a return of around 7.5lac at the end of 16 years (12 FDs each @ 9.5% and amount equal to the annual premium of LIC).

Reply

Manshu January 12, 2012 at 2:32 am

In general, it is a good idea to keep investment and insurance separate and I have compared a few insurance plans here as well and doesn’t look like they are very attractive as far as returns are concerned.

Reply

arun January 24, 2012 at 10:50 am

@ Gaurav

I would like to tweak your maths on Jeevan Surabhi .The 30% which you get at the end of 4 years (around 1 lac) if put for a 10 years FD will fetch you 2.55 lacs on maturity.So at the end of 14 years (4 years+ 10 years FD) you would get 3.55 lacs.You still have two more years for Jeevan Surabhi to mature.So this 3.55 lacs if put in FD for two years will yield to 4 lac 30 thousand.So at the end of 16 years you will get 6,04,000 from your LIC maturity + 4,30,000 from your FD=10,34,000 . The 30 % and 40 % which you get at the end of 8th and 12th year may also be invested wisely to fetch you good returns.

Reply

Ganesh February 11, 2012 at 7:53 pm

Thank u!

Reply

Varun February 22, 2012 at 9:12 pm

Let us suppose I invested 70,000 in my current year (2011-12) but did not claim tax rebate for this investment in this year. Can I claim this amount and show it as investment in my next year(2012-2013) under PPF Investments ?

Reply

Andy March 2, 2012 at 2:25 pm

Thank you so much for kindly sharing knowledge. A Good heart is hard to find – Quote from a song.

Reply

Gaurav March 2, 2012 at 5:24 pm

@Arun
Dude, agreed with your point. But I have not considered the reinvestment for FDs as well. Just considered the 5 yr maturity amount of each FD without reinvesting.

Considering the reinvestment part, at the end of 16 years, all LIC premium investments will give u a consolidated return of 11.2 lac after deducting applicable taxes on interest whereas same investments in FD will give you 14.5 lac.

I don’t comprehend LIC completely as it also gives you a good life cover along with returns. But if somebody wants to invest for the purpose of returns, FD is always a better choice :)

Reply

Joginder March 3, 2012 at 3:31 pm

I receveived a cheque of amount Rs. 12,750 as survival benefit of the LIC policy. Please let me know whether this amount is counted towards income for the tax pupose or not?

Reply

K V Subba Rao September 20, 2012 at 4:52 pm

Not taxable

Reply

shyamala March 22, 2012 at 2:18 pm

thank you so much for our sharing information.

Reply

satish March 22, 2012 at 4:41 pm

Hi Sir,
Please let me know
Is Gold ETF’s come under tax saving funds or not ?

Reply

Manshu March 24, 2012 at 11:38 pm

No, it does not.

Reply

Jalapati Rajesh July 23, 2012 at 1:08 pm

Is There Any TAx Liability On the Matured Amount On Recurring deposit And Fixed deposit Received

Reply

Manshu July 29, 2012 at 2:08 am

Yeah RD maturity amount includes interest amount as well so tax is applicable on that part if you haven’t already paid it.

Reply

Jalapati Rajesh July 23, 2012 at 1:10 pm

What Is the Meaning Of”
Closing Of SN” In Bank Terminology

Reply

Joginder September 21, 2012 at 11:04 am

Sir
I think a maximum limit on the PPF deposit P/a is now Rs. 1,00,000.

Reply

khajamynuddin January 19, 2013 at 8:52 pm

I have paid lic on my mothers name for amount 1 lakh… can i show this amount under 80c deductions

Reply

h rajesh June 20, 2014 at 8:27 pm

Very good combo investment plan. After getting this investment plan no one need to go for any life insurance forever and can make a huge amount in comming years with systemetic transfer plan and traditional plan. Those who can save monthly minimum 4000 and more contact to get for finential analysis and investment at 08253020181 .only in bhopal.

Reply

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