With the arrival of the tax season, taxpayers look for ways to reduce their taxable income through available exemptions. Indian tax laws provide several such benefits on specific investments and expenses. These can help lower the overall tax burden on taxpayers.
To be clear, most of these deductions are applicable under the old tax regime. In the new tax regime, income up to Rs 12.75 lakh is effectively tax-free due to the standard deduction of Rs 75,000. But the new regime doesn't allow for other exemptions and deductions.
For those opting for the old regime, Section 80C remains one of the most widely used provisions for tax savings. Section 80C allows individuals to claim a deduction of up to Rs 1.5 lakh per financial year from taxable income. This benefit encourages long-term savings and investments.
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The government offers many schemes under this section, which can be opted for by the taxpayers. Some popular options include Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF) and National Savings Certificate (NSC). Life insurance premiums and Sukanya Samriddhi Yojana also qualify for deductions under this.
The flexibility of so many options allows investors to choose schemes according to their financial goals. Each option has different risk levels, lock-in periods and returns, so one must compare them before making the investments.
Equity Linked Savings Schemes (ELSS): ELSS are equity mutual funds. They help save tax under Section 80C up to Rs 1.5 lakh. They typically have a 3-year lock-in period and are considered high-risk assets. This scheme mainly invests in stocks for long-term growth and returns.
Public Provident Fund (PPF): PPF is a 15-year government savings scheme in India. It offers tax-free returns around 7.1% per year. It is mainly used for long-term and retirement savings and is one of the most popular investment options. In this scheme, maturity and final corpus, both are tax free. The scheme also allows for loan facility and partial withdrawal.
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National Savings Certificate (NSC): This is a government-backed savings scheme. It offers around 7.7% interest per annum and comes with a five-year lock-in period. Taxpayers can avail this scheme at their nearest post offices. One can invest in this scheme, starting at just Rs 1,000.
Sukanya Samriddhi Yojana: The Sukanya Samriddhi Account Scheme is a savings scheme for a girl child in India. It allows deposits from Rs 250 to Rs 1.5 lakh per year. The account can be opened till age 10 and matures after 21 years. It offers tax benefits under Section 80C and tax-free interest.
Taxpayers must note that deductions under 80C are capped at Rs 1.5 lakh per financial year. This means even if they wish to use more than one of these schemes, the total claim cannot exceed this limit. As a result, it is advised to carefully review and plan your investments in advance to avoid inconvenience and maximise returns.
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