Best Investments under Section 80C to get Higher returns

Hi Tax payers,

To reduce or avoid income tax on our income, we all people wanna invest some of our savings in different schemes eligible for exemptions provided by income tax authority of india.

Among these, Section 80C is the major one implemented by every tax payer. because it is one of the best way to save our income from tax and it is providing higher exemption limit as per IT Act 1961.

Lets have a look on INVESTMENTS eligible for deductions under section 80C of IT act 1961.

Under Section 80C, individual or Hindu undivided Family (HUF) are eligible to claim the tax benefit.

Maximum tax payers do investments in

Public provident Fund:

Source: PPF scheme is a long term investment option backed by Government of India.

Eligibility: PPF account can be opened by Resident Indian individuals either in their own name or in the name of minor child. It can be opened by both salaried and non-salaried individuals. A HUF or NRI (latest amendment) cannot open a PPF account.

Maturity period: Maturity period of a PPF account is 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years. Premature closure is allowed after 5 years

Rate of Interest (ROI): Current interest rate is 7.8% p.a. (compounded yearly) to be realigned on quarterly basis by GOI.

Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.

National Savings Certificate (NSC):

Source: NSC is a postal department’s saving scheme ranked as ‘highly secured’ in the class of Investments.

Eligibility: Only resident individuals can avail this facility. Non-residents, Trust and HUF cannot invest in this scheme.

Maturity:  NSC comes with a lock-in period of 5 & 10 years

Rate of Interest (ROI): Interest rate is 7.8% compounded annually for 5 year NSC VIII Issue.

Investment Limit: Minimum investment limit is Rs 100. There is no maximum investment limit.

Note: Interest accrued on the amount invested in NSC is taxable but it is counted as fresh investment and hence qualifies for 80C deduction. The investment is eligible for deduction under 80C and maturity amount is tax-free.

Tax Saving Depost at Bank or Post Office:

Source: As the name suggests, it is a type of fixed deposit investment at all Nationalized banks & Post Office.

Eligibility: All resident individuals can open account. Even Senior citizens are also eligible to open this deposit with their special interest benefit (0.5% more than other individuals)

Maturity: Maturity period (Lock in period) is 5 years A person can’t break this FD.

Rate of Interest (ROI): The interest rates vary from time to time. You can check the latest interest rates with the respective bank where you intend to invest. 

Investment Limit: Minimum investment limit is Rs 1000 (Rs.200 for post office FD). No upper limit for investment.

Interest income is taxable on maturity. The investment qualifies for deduction under 80C and maturity amount is exempt from tax.

Senior Citizens Savings Scheme (SCSS):

As the name suggests, this scheme is for senior citizens.

Eligibility: An individual aged 60 years or more is allowed to open the account. An individual of the age of 55 years or more but less than 60 years, who has retired under VRS (Voluntary Retirement Scheme) is also permitted to open account if he/she satisfies 2 conditions. First, the account is opened within 1 month of receipt of retirement benefits. Second, investment amount should not exceed the amount of retirement benefits.

Maturity: Maturity period is 5 years The account can be extended for 3 more years after maturity. Premature withdrawal after 1 year is allowed on deduction of an amount equal to 1.5% of the deposit and after 2 years by deducting 1% of the deposit.

Rate of Interest (ROI): Interest rate offered is 8.3% per annum which is paid on quarterly basis.

Investment Limit: Minimum and maximum investment limit is Rs 1,000 and Rs 15 lakh respectively.

Interest income is taxable and taxes will be deducted at source if it is more than Rs 10,000 p.a. Maturity amount is exempt from tax.

Sukanya Samriddhi Scheme:

Sukanya Samriddhi Scheme is one of the best investment options available today.

Eligibility: Parents/guardians can open account in the name of a girl child till she attains the age of 10 years Maximum of two accounts can be opened by natural or legal guardian for 2 different girls. Account can be opened at public sector banks and post offices.

Maturity: Deposit should be made every year till the end of 14 years from the year of opening the account. Partial withdrawal are allowed up to 50% of the balance in the account as per the end of the previous financial year, for the purposes of higher education or marriage after attaining the age of 18 years.  Maturity period is 21 years post opening of the account.

Rate of Interest (ROI): Rate of interest currently being offered is 8.3%, compounded annually.

Investment Limit: Minimum & maximum investment limit is Rs 1,000 & Rs 1.5 lakh p.a. respectively.

Employee Provident Fund: 

Eligibility: If the employee’s basic salary exceeds Rs 15,000 per month, he has an option to join the scheme, otherwise he/she has to compulsorily contribute towards provident fund.

Liquidity: A person cannot withdraw his/her PF balance for as long as he/she continues to work except in special circumstances(flat, construction, marriage/education of children etc.). In case, he/she quits the job and does not take up employment within two months with an employer covered by PF Act, then he/she can withdraw the entire balance.

Rate of Interest (ROI):The current rate of interest is 8.65% p.a. to be realigned on quarterly basis.

Investment Limit: Both employer and employee hve to contribute a minimum 12% of Basic Pay + D.A. Employee can voluntarily increase his own contribution up to 100% of Basic Pay + D.A.

Employer's & Employee’s own contribution qualify for deduction under section 80C. Entire accumulated balance (including interest) of PF is tax exempt if withdrawn after continuous service of 5 years

Mutual Funds:

There are some products in mutual funds offered by respective financial institutions in india, are eligible for Tax exemption under Section 80C. Among them, ELSS is an open-ended Equity Mutual Fund that helps save tax, and also provides an opportunity to grow money at a comparatively faster rate. ELSS provides inflation-adjusted growth in the long-term. (And some more Tax gain schemes in mutual fund to get exemptions)

Eligibility: Anyone with a Demat account can invest in ELSS.

Maturity: Minimum lock-in period for this scheme is 3 years

Rate of Interest (ROI): As the return on investment is directly linked to stock market performance, in the long run ELSS has wide potential to provide you the best return on your investments. It is more suitable for the person with appetite to take a bit more risk due to market factors

Investment Limit: The minimum investment limit is Rs 500. There is no upper limit for investment in this scheme.

Unit Linked Insurance Plan (ULIP):

Unit Linked Insurance Plan is a life insurance product that is a combination of investment and insurance. That means a portion of the money invested in ULIPs will be used to provide risk cover and the balance amount will be invested in the stock market.

Eligibility: An investor can buy ULIP for self or spouse or child. Child can be married or unmarried, dependent or independent and minor or major.

Liquidity: Partial withdrawals are allowed after 5 years

Rate of Interest (ROI): Rate varies because it is market-linked.

Investment Limit: An investor can invest an amount higher than Rs 1.5 lakh but deduction will be allowed only up to Rs 1.5 lakhs.

Tax Treatment: Investment and withdrawals & maturity amount are tax-free.

Note: Infrastructure Bonds & NABARD Rural Bonds are some more options to get exemption eligibility on your investment under section 80C.

Some Expenses eligible for deductions under 80C:

Life Insurance Premium:

In general, you cannot withdraw the PF balance as long as you continue to work.

Eligibility: All individuals and HUF can invest in insurance policy.

Liquidity: If you have invested for a minimum of 2 years then the withdrawals will be exempt from tax u/s 10 but, generally you will have to pay the premium for minimum 3 years before you can surrender it.

Rate of Interest: Average return on the life insurance policies ranges between 4.5 – 6%.

Investment Limit: Minimum investment amount depends on your entry age and life cover. No upper limit for investment.

Investment is tax-free. Maturity amount is exempt from tax u/s 10(10D).

Children’s Tuition Fees:

Tuition fee of full-time education of children is eligible for deduction. Conditions for eligibility:

The tax deduction on tuition fee is available for two children only.

The development fee/capitation fee is not included under this section.

The education institute should be situated in India.

Repayment of Principal for Home Loan:

The principal repayment of a home loan either to buy a home or to build a residential property qualifies for tax deduction.

Stamp Duty and Registration Charges for House Property:

Apart from the principal repayment of home loan, expenses incurred on stamp duty and registration charges for purchase of house property also qualify for tax deduction.

After all these, where you have to invest to get higher returns with exemption under section 80C of income tax act 1961. 

Lets compare our smart investment options:

1. Insurance - 2% to 8%
2. NSC / KVP (Postal Deposits) - 7% to 8%
3. PPF (Public Provident Fund) - 7.80%
4. Sukanya Samridhi Yojana - 8.30%
5. Senior citizen Savings Scheme - 8.30%
6. Infrastructure Bonds - 8% to 10%
7. Bank Tax avoid Deposits - 8% to 9.5%
8. Mutual Funds - 20% to 40% ( But not Guaranteed)
9. Mutual Funds through SIP (Systematic investment plan) - 10% to 25%.

Choose smart investment option, which is suitable for you.

Please share your suggestion or experience in comments below