Are you scared of section 80C? Here are easy ways to handle it

NEW DELHI: Deductions from your taxable income can lower tax liability and result in savings. The most common deduction is under section 80C of the Income-Tax Act, 1961. Here, you can claim a deduction of up to ₹1.5 lakh per financial year. Using it, you can save up to ₹46,350 a year in taxes if you are in the highest tax bracket of 30.9% (including cess). Those in the tax bracket of 20.6% and 10.3% can save up to ₹30,900 and ₹15,450, respectively. It is not necessary to make investments to claim this deduction—several expenses also qualify for the benefits under section 80C. A look at the expenses that are eligible for deduction from your taxable income under this section.

EXPENSES FOR CHILD’S EDUCATION

If you have children, the tuition fee you pay for up to two children can be deducted under section 80C. The fees can be for full-time courses in any school, college, university or educational institute in India.

If you have purchased or constructed a house and paid stamp duty and registration fee to register it in your name, you can claim them as deductions under the section. If you have a home loan, and you repay its principal, include that in your 80C-eligible deduction as well.

EXISTING CONTRIBUTION, INVESTMENT

If you contribute to the Employees’ Provident Fund, which is deducted directly from your monthly salary, you have already made some 80C-compliant investment. Besides that, premiums paid for life and health insurance can also be deducted from taxable income.

Before you make any fresh investments to save tax using section 80C, evaluate all your expenses and existing contributions. You may have exhausted the deduction limit by contributing to EPF, and paying tuition fees and life insurance premiums. If the net value of all these was less than ₹1.5 lakh in a year, you can save more tax by investing in 80C-eligible schemes (see table). LOOK AT AVAILABLE INSTRUMENTS Your choice should be based on your need for diversification and return on investment. Income tax savings should be incidental and not the primary objective for making investments. Make sure you take into consideration the lock-in period of each product, your future liquidity needs and the riskreward equation.

Among the various products that qualify for deduction under section 80C, there are some that have shorter lock-in periods, such as equity linked savings schemes, which have a lock-in of three years.

Others like Public Provident Fund (PPF) have longer lock-ins.

Before investing, also look at your cash flow requirement.

If you need funds after three years, you cannot put that money in PPF. In ELSS, while you can take out the entire money after three years, it may not be advisable to do so as three years is too short to earn a decent return on an equity-oriented product.