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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