Smart Year-End Moves: Use Your Diwali Bonus For 80C Investments

Diwali is a time of celebration and togetherness. The festival of lights marks the victory of good over evil. Deepavali is considered an auspicious occasion for new beginnings. Families come together to decorate their homes with diyas and rangoli, exchange gifts and enjoy festive meals.

During the Diwali season, many employees receive an annual bonus and other financial incentives from their employers as a token of appreciation. 

While it could be tempting to spend the bonus on shopping or festivities, it’s also a great opportunity to invest a portion of this bonus. Instead of spending the money on shopping and other festive purchases, investing a portion of the bonus amount could help in building wealth while enjoying tax benefits. In the second half of the current financial year, investing the Diwali bonus in tax-saving instruments could be a prudent decision as it can bring down overall tax liability.

Under Section 80C of the Income Tax Act, 1961, taxpayers can claim deductions up to Rs 1.5 lakh in a financial year on eligible investments. This not only helps in saving taxes but also in building long-term wealth. However, these tax benefits can only be claimed under the old tax regime.

Under Section 80C of the I-T Act, some of the common deductions include life insurance premiums paid for self, spouse, or children. It also includes deposits made in a Public Provident Fund and investments in five-year tax-saving fixed deposits or government-approved bonds. Contributions to superannuation or the Employee Provident Fund also qualify for tax benefits.

The National Savings Certificates, tuition fees for up to two children, home loan principal repayment and investments in equity-linked savings schemes are among other investments that can be claimed within 80C. These deductions help reduce taxable income and encourage long-term savings and investments.

From PPF to ELSS, different investment schemes suit different financial goals. Taxpayers can choose these investment options based on their risk appetite and investment horizon. For instance, PPF has a lock-in period of 15 years, making it a suitable long-term investment tool. On the other hand, ELSS typically comes with a lock-in period of three years, making it more ideal for medium-term investments.

If one wants to use their bonus for insurance, they can consider different products based on their needs. This can include health insurance, life insurance, Unit-Linked Insurance Plans and certain term plans.

Meanwhile, taxpayers can also claim deductions on the principal amount repaid towards a home loan. This is an ideal option for those who are paying equated monthly instalments. There is a separate section under the I-T Act that allows for deductions on interests paid on home loans.