Tax saving is an important part of financial planning. Section 80C of the Income Tax Act in India allows taxpayers to reduce their taxable income by investing in certain financial instruments. The maximum deduction allowed under this section is ₹1.5 lakh per year. Individuals can save taxes and grow their wealth over time by choosing the right investments. Below are some of the best tax-saving investments under 80C.
Equity linked saving scheme (ELSS)
It is a type of mutual fund that primarily invests in equities. It offers tax benefits and has the potential for high returns.
- Lock-in Period: 3 years (shortest among 80C options)
- Returns: Market-linked, higher potential returns compared to other 80C options
- Risk Factor: High, as it is equity-based
- Tax Treatment: Gains above ₹1 lakh are taxed at 10% under Long-Term Capital Gains (LTCG)
Investments in tax saving FDs
Tax-saving fixed deposits (FDs) are one of the safest investment options under 80C for risk-averse investors.
- Lock-in Period: 5 years
- Returns: 5% to 7% per annum (varies by bank)
- Risk Factor: Low, as returns are fixed
- Tax Treatment: Interest earned is taxable
Investments in PPF (Public Provident Fund)
PPF is a long-term savings option backed by the government, ideal for those looking for a secure investment.
- Lock-in Period: 15 years (partial withdrawal allowed from the 7th year)
- Returns: Around 7.1% per annum (government revises rates quarterly)
- Risk Factor: Very low, as it is government-backed
- Tax Treatment: Completely tax-free (EEE - Exempt, Exempt, Exempt)
Investments in EPF (Employee Provident Fund)
EPF is a retirement savings investment under 80C for salaried employees, with contributions from both employer and employee.
- Lock-in Period: Until retirement (partial withdrawals allowed under specific conditions)
- Returns: Around 8.25% per annum
- Risk Factor: Low, as it is government-regulated
- Tax Treatment: Tax-free if withdrawn after 5 years of service
Investments in NPS (National Pension System)
NPS is a government-backed retirement scheme offering market-linked returns.
- Lock-in Period: Until retirement (60 years of age, partial withdrawal allowed)
- Returns: Varies (market-linked)
- Risk Factor: Moderate, as it involves equity and debt investments
- Tax Treatment: Partial exemption, with tax benefits on maturity and withdrawals
Investments in ULIP (Unit Linked Insurance Plans)
ULIPs offer life insurance and investment benefits, with a portion of the premium invested in equities or debt.
- Lock-in Period: 5 years
- Returns: Varies based on fund choice (equity, debt, or balanced)
- Risk Factor: Moderate to high, depending on fund allocation
- Tax Treatment: Gains are tax-free under Section 10(10D) if annual premium is below ₹2.5 lakh
Investments in Sukanya Samriddhi Yojana
This scheme is designed for the benefit of the girl child and offers high returns with tax saving under 80C.
- Lock-in Period: 21 years (partial withdrawal allowed for education after 18 years)
- Returns: Around 8.2% per annum
- Risk Factor: Very low, as it is government-backed
- Tax Treatment: Completely tax-free (EEE status)
Conclusion
Investing under Section 80C helps reduce tax liability while also building wealth. The right choice varies based on individual financial goals, risk appetite, and investment horizon. Those seeking high returns can opt for ELSS or NPS, while risk-averse individuals may prefer PPF or tax-saving FDs. A well-balanced portfolio with a mix of this list of investments under 80C can provide financial security and tax efficiency.
Apart from these investments, individuals should also consider medical insurance for additional tax benefits. Under Section 80D, the premium amount paid for health insurance for parents and self can provide further tax deductions, reducing overall taxable income.
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