The Income Tax Act in India provides certain deductions that one can claim. You get to make tax saving investments for yourself and at the same time get a deduction from your taxable income. Resultantly, you have to pay less tax. Let us have a look at the investments that you can make under Section- 80C, 80CCD, and 80D of tax saving investments.
Credits- ET Money
Section – 80C of tax saving investments
This is hands down the most utilized provision of tax saving investments by tax-payers. You can claim a deduction of up to 1.5 lakh rupees from your taxable income by making any of the investments listed below:
- Fixed deposits- Lock in your money for at least 5 years and earn a fixed return of 3% to 6%.
- National Savings Certificate- You could invest in government bonds through post office banks and earn a good fixed return of 6.8%. The lock-in period is for a minimum of 5 years.
- Public Provident Fund- Open a PPF account with your bank to get a sure return of 7.1%. 15 years is the minimum lock-in period. You can automate this investment wherein the monthly PPF installment will be credited to your PPF account from your Savings account.
- ELSS- Equity Linked Saving Scheme is an equity-oriented mutual fund on which you get a tax deduction. The minimum lock-in period is 3 years. The general interest to be earned on this is about 12%-15%. However, returns are not guaranteed since it is a mutual fund, subject to market risks.
- National Pension Scheme- You can invest in this scheme wherein your money is allocated towards 8% to 10% equity. The returns are guaranteed regardless of equity investment as this is a pension scheme backed by the Central government. You have to invest in this scheme till your retirement.
Section- 80CCD of tax saving investments
This section is a sub-section of Section-80C discussed above. It allows deductions for the contribution made either
- by the employee or;
- self-employed or;
- the employer towards the National Pension Scheme (NPS) or Atal Pension Yojana (APY).
Click to read about yet another beneficial tax saving investments here- Tax saving mutal funds
The maximum deduction allowed under Section- 80CCD of tax saving investments:
- 10% of the salary (Basic + DA) or 10% of the gross income of the salaried individual.
- For self-employed individuals, this deduction limit is 20% of the gross total income. This deduction shall not exceed 1.5 lakh rupees in a financial year.
- Under Section-80CCD (1b), both salaried and self-employed individuals can claim an additional deduction of Rs.50000/- for the contribution towards the NPS account.
- In case, the employer is contributing towards the NPS account of the employee, provision of Section-80CCD (2) prevails:
- It states that the employer’s contribution is allowed for deduction up to 10% of basic salary + DA or is equal to the contributions made by the employer towards the NPS.
Section- 80D
In order to get the tax benefit and tax saving invesments from this section, you need to purchase a health insurance policy.
CASE 1: If the taxpayer aged below 60 years pays the insurance premium for themselves, their spouse, and their children, the taxpayer shall get a tax deduction of Rs. 25000/-. If such a taxpayer has purchased medical insurance for his parents, he shall get an additional tax benefit of:
Rs.25000, if the parents are normal citizens i.e., below 60 years of age. Or; Rs. 50000, if the parents are senior citizens i.e., above 60 years of age.
CASE 2: If the taxpayer is above 60 years of age, then he too shall get a tax benefit of Rs. 50000/- for the insurance premium he pays for himself, his spouse, and his children. In such a case, his parents would also be older than 60 years, hence the taxpayer shall also get a tax benefit of Rs.50000/- for the premium paid for his parents. Thus, a taxpayer can get a maximum tax benefit of Rs.1,00,000 under Section-80D.