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What to Check before investing for Section 80C

CA Deepak Jain 
on 03 May 2008

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What to Check before investing for Section 80C 

or

How to Make Best Use of Section 80C

Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act.  However, it is important to know the Section in toto so that one can make best use of the options available for exemption under income tax Act.   One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions.  Here are some tips for you : -

(1) Always Check  YOUR FORCED SAVINGS / EXPENDITURE ELIGIBLE FOR DEDUCTION :

(A) Home Loan : 

There is a provision that  the payment made for repayment of the  principal amount  (not interest payment) of the Home Loan  is eligible for a deduction under Section 80C if you have taken a home loan and you fulfill certain conditions.

(B) Payment towards Education Fee of the children :

Most of the young couples and middle aged income tax payee incur quite high payments  towards the education fees of their  children.  The expenditure incurred on education fees is  also eligible for a deduction under Income Tax Act,   Thus, if you are incurring expnediture towards educatin fee of your children, please check whether these are eligible for deduction under the IT Act.

(C) Payment towards Provident Fund :

Salaried income tax payee are usually have a forced saving which are eligible for deduction under section 80C.    A fixed percentage of basic salary  (ranges from 8.33% 12%) is deducted by your employer towards the Employees Provident Fund (EPF).   Some employers allow higher deduction towards EPF.  Thus, you should first of all check the total amount that is expected to be deducted towards EPF during the financial year.     The total amount deducted from your salary will be eligible for investments under Section 80C.

(D) Interest on National Saving Certificates :

In case you have purchased NSCs during some earlier years, then the accrued interest as per the tables released by authorities is eligible for deductions under Section 80C.

 

(2) Always Check the Lock-In Period of the Investments

Tax saving investments have a minimum lock-in period i.e. the period during which withdrawals are usually not allowed.  If the same are withdrawn, these will be taxable in the year of withdrawal.  For example, National Savings Certificates (NSC)  have a lock-in period of six years, Public Provident Fund (PPF) has a lock-in of 15 years,  Equity Linked Saving Schemes (ELSS)  have a lock-in period of three years.  Insurance policies have even greater period of lock in.

 

(3) Always Check Whether the investment you intend to make will meet your goals :

You are saving every year and while saving you normally have some goal in mind, e.g. to meet the expenditure on education of children, purchase of a vehicle or house or marriage of your children.  Therefore, you should always look at the investments from the angle whether it will meet your specific requirements on maturity. You should also try to diversify your savings in different instruments.

For instance, if you have already invested a fair portion of your money in equity (shares and mutual funds that invest in shares), avoid an ELSS. Opting for an ELSS means a huge portion of your investments will be in equity and that may  not be what you want.




Category Income Tax
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CA Deepak Jain 

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