5 Tax Saving Investments Under Section 80C that Salaried Employees Should Consider

Majority of the Indian population still lacks financial awareness. They are still not familiar with the tax-saving instruments, owing to which, they end up paying more taxes. To cope with this scenario, there is a section called Section 80C Income Tax Act, 1961. According to this section, mentioned in chapter  VI – A of the Indian Constitution, any person entitled as a tax-payer can reduce their taxable amount up to Rs. 1,50,000 by investing in any tax saving investments under section 80C.

Tax saving investment allows an individual to invest in a few selected products. So, if a person invests in any of the tax schemes, say ELSS, the amount invested can be reduced by the total gross income subject to the limit specified. Therefore, effectively a taxpayer will be paying less tax on his income. One thing to notice is that these tax saving schemes are commonly traded instruments and easily available on the stock market. No prior approval from any authority is required. These schemes generally come with some lock-in period,i.e. minimum holding period to avail the exemption, failing to which will result in taxability of income earlier exempted.

List of 5 tax saving investments under section 80C

1.  ULIP (Unit Link Insurance Plan)

It is one of the most flexible tax saving investments offered by various insurance companies. It is an amalgamable variant of investment because the insurance companies place a part of the investment into insurance to ensure safety and life coverage. The other part is placed into funds on the basis of equity or debts which, in turn, assists in wealth creation.

It comes up with a lot of benefits for the taxpayers because in this long term investment they get the chance to switch their funds from debts to equity or vice-versa during the lock-in period. In this modern era, this financing option is widely available as an employee can ask his employer or any insurance company to swap their funds into this insurance plan. Moreover, it assists a limited salaried individual to invest his money into something fruitful and gain two-fold benefit. It’s easier availability and flexibility has made it one of the most appealing tax saving investment plans among the masses.

2. PPF (Public Provident Fund)

It is one of the popular schemes for the taxpayers as it facilitates them to save money from the minimum range of Rs. 500 to Rs. 1,50,000 per annum. This is one of the tax saving investments which is widely used because any individual residing in India can open PPF account or it can also be opened on behalf of any minor to ensure his prosperous future. The normal duration of the scheme is upto 15 years but it can extend for 1 to 5 years.

The PPF is suitable for a salaried employee as they get the opportunity to plan their retirement. The retirement plan is doable due to its beneficial characteristics like long-term tenure, tax-free saving with a higher rate of interest,i.e. 7.90%, availability of loan and withdrawal facility.

3. ELSS (Equity Linked Savings Schemes)

It is an equity-based mutual fund where the taxpayer can save up to Rs.1,50,000, free of tax, each year during the shortest lock-in period of 3 years. According to this tax- saving investment if one is not willing to invest the entire amount of Rs. 1,50,000 in the equity fund, then they can still avail the tax benefits under Section 80C through some expenses like education charges of children, insurance premiums or contribution to Provident Funds etc.

Since this type of tax-saving investment is appropriate for both big or small investors, it is one of the most welcomed tax saving plans for salaried employees. Unlike other tax-saving investments, ELSS is the only one which can be done online without any paperwork. It is a boom in today’s era as the taxpayers can save a lump sum of money in a year with a good return and also instils saving habits among the individuals.

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4. EPF (Employee Provident Fund)

It refers to the policy in which every employee is required to contribute a given percentage of their income to EPF. The same percentage is also deducted from the employee’s salary, generally on a monthly basis towards the fund. Most private sector organizations implement such policies in their companies so that they can promote the habit of savings and provide financial security. Currently, the rate is 12% of the basic, with an upper bar of Rs. 15000.

An individual can contribute more but, any amount excess of 12% of basic is taxable. So, it is not advised as it will be added to the taxable amount. It is one of the best possible ways to save money and meet any uncertain calamity.

5. NSC (National Savings Schemes)

It is a government-backed scheme which can be purchased from any nearest Post Office. This scheme has schemes in terms of maturity periods, i.e. either five years or ten years. Like PPF, any Indian citizen is eligible to avail this scheme, or it can be purchased on behalf of the minor. Here, the purchaser gets the tax benefit under Section 80C. NSC comes up with a wide range of benefits like low-risk factor, no limit on investment, rate of interest is huge and the nominee can avail the matured amount if the holder ceases to exist.

Tax saving investments are a boost for the economy as it encourages the habit of savings among the individuals and also educates them on how to manage their finance smartly and create a sound financial plan. Therefore, the amount invested on various tax saving investments under Section 80C not only saves taxes on the earned amount but also provides long term benefits in the form of interest which is again exempted from tax in most of the cases.