Investments for Section 80C

You can claim maximum deduction of Rs 1.5 Lakhs

u/s 80C (including Sections 80CCC, 80CCD) by
investing in eligible instruments. Unfortunately
investments and expenditures allowed u/s 80C is too
crowded and that makes the choice difficult for most
people.
Below is the list of investments/expenses eligible for
deduction u/s 80C:
1. Provident Fund (EPF/ VPF)
2. Public Provident Fund (PPF)
3. Sukanya Samriddhi Account
4. National Saving Certificate (NSC)
5. Senior Citizens Saving Scheme (SCSS)
6. Tax Saving Fixed Deposits (for 5 Years)
7. Life Insurance Premium
8. Pension Plans from Mutual Funds
9. Pension Plans from Insurance Companies
10. New Pension Scheme (NPS)
11. Tax Saving Mutual Funds (ELSS)
12. Central Govt. Employees Pension Scheme
13. Principal Payment on Home Loan
14. Tuition Fees for up to 2 children
15. Stamp Duty for registration of Home
Expenditures Eligible for Tax Benefit:
The first step is to check all expenditures which are
eligible for tax deduction. Below is the list:

1. Tuition Fees for up to 2 children

The expenses on tuition fees for full time courses for
maximum of two children is eligible for deduction u/s
80C. However, the deduction is not available for tuition
fee to coaching classes or private tuitions. The
following expenses are not considered as tuition fees
Development Fee, Transport charges, hostel charges,
Mess charges, library fees, Late fines, etc.
2. Stamp Duty for registration of New Home
Stamp duty and registration charges up to Rs 1.5 Lakh
can be claimed for deduction u/s 80C. The payment
should have been made in the same financial year for
which the tax is being paid. i.e. the deduction cannot be
carried forward to next year. Also the house should be
in the name of assesse claiming deduction.
In case you have paid stamp duty for new home, you
most probably would exhaust your 80C limit for the
year and no further investment might be required.

Compulsory Deductions:
There are some compulsory deductions that are eligible
for tax benefit u/s 80C. Check if you contribute in any
of such deductions:

1. Provident Funds (EPF/VPF)

EPF is a compulsory deduction for most salaried
employees. The deduction can be 12% of the basic
salary & dearness allowance or Rs 1,800 every month.
Look at your salary statement to know how much have
you contributed for the year. Count only your
contribution. Employers contribution is not eligible for
tax saving investment.
You can also have some amount contributed
through Voluntary Provident Fund (VPF), which can
be up to 100% of the basic salary & DA.

2. National Pension Scheme (NPS)

NPS (Tier 1) is compulsory for most Government
employees who joined after 2004. Look at your salary
slip to check your deduction. Again only your
contribution is valid deduction. Employers contribution
is not eligible. The good thing is you can use this
contribution to claim additional tax deduction up to
Rs 50,000 under the newly introduced Section
80CCD(1B). We have explained this at the last
paragraph of the post.

Recurring Deductions:

There are some deductions which happen year on year

like home loan repayment, insurance premium etc.
1. Home Loan Principal Amount
Are you paying home loan? The principal component
paid every year is eligible as tax deduction. For this you
can download the tax statement from banks website. In
case not get it from the loan provider. This would give
you an estimate of principal and interest paid for the
financial year.
2. Insurance Premium
Have you bought life insurance products like ULIP,
Endowment Plan or Term Insurance where you need to
pay the premium for subsequent years? If you want to
continue investing in the same you can continue to
claim tax benefit.
3. PPF (public Provident Fund)
If you have PPF account you should contribute
minimum Rs 500 in a financial year. In case you dont
do, a fine is levied.
Also read: What is the Maximum Income Tax You can
Save for FY 2015-16?

4. Sukanya Samriddhi Account (SSA)

Minimum deposit of Rs 1,000 needs to be made every
year else penalty of Rs 50 is levied.
5. NPS
Do you have NPS account? A minimum contribution of
Rs 6,000 is required every financial year to keep the
account active.
For many people the 80C deduction limit is reached
by this time. In case not, choose from the list below
depending on your risk profile and investment goals:

New Investment for 80C:

1. Term Life Insurance
Do you have dependents? Would they survive
financially in case something happens to you? Do you
have enough life insurance? If no go get a term
insurance first. Its important to opt for protection first.
Useful Tips:

Online term plans are much cheaper than offline.

So it makes sense to go for online plans.

Do not provide false information in the insurance

form. The insurance claim can be rejected for wrong
information.
Do not buy anything other than Term Plans from
insurance companies. No money back, endowment
plans!

2. ELSS (Equity Linked Saving Scheme)

Popularly known as Tax saving Mutual Fund. These are
equity based mutual funds and one of the best
investment options to create wealth in the long run
while saving tax. In case you can digest the volatility
of stock market, this is the recommended option.
Lock-in Period: 3 Years
The Good:
Among the tax saving investments, ELSS has least
lock-in period of 3 years.
The gains on ELSS Fund is Tax Free.
Convenient to buy and manage as ELSS can be
bought and redeemed online.

The Bad:

There can be considerable volatility in returns and

you can get negative returns at the end of 3 years.

Helpful Tips:

Invest through SIP (Systematic Investment Plan).

This helps in tiding over volatility to some extent.
Choose Growth option over Dividend Payout
as this creates wealth in the long run.
Try to invest directly to fund as this would give you
0.5% to 1% higher returns as compared to when you
invest through broker (How to Invest Direct in
Mutual Funds?)
If doing lump-sum check for stock market
valuations. If you invest at high valuations, you
might see very low or negative returns at the end of 3
years.
Avoid closed-ended ELSS NFOs which are
launched at this time of the year.

3. PPF (Public Provident Fund)

PPF is another popular tax saving investment option for
80C, especially for people without any other provident
fund.
Lock-in Period: 15 Years. However partial withdrawal
is allowed from 7th year
The Good:
The interest earned on PPF is Tax Free
After opening the PPF account, investment can be
done online every Year (for some banks)
Highest Safety backed by Govt. of India

The Bad:

The lock-in is for 15 years but there is partial

liquidity from 7th year on wards.

Helpful Tips:
Investment done till 5th of the month earns interest
for the month. So deposit your money before 5th of
month
You can use combination of PPF and ELSS for tax
saving investments. In case you find stock market
over-valued, PPF is good option.

4. Senior Citizens Saving Scheme (SCSS)

SCSS is good option for senior citizens (above 60 years
of age) as it gives regular quarterly interest income
directly in bank account.
Also read: All about Senior Citizens Savings Scheme
Lock-in: 5 years
The Good:

Highest Safety backed by Govt. of India

The interest rate offered is highest among the small
saving schemes

The Bad:

The interest received is taxable.

TDS would be deducted if the total interest in a

year is over Rs 10,000. However, if eligible Form
15H can be submitted to avoid TDS.

Helpful Tips:
SCSS account can be closed after 1 Year (with
penalty) but in case you have availed Sec 80C
benefit, it would be reversed.
The joint account can be opened only with your
spouse. There is no age limit applicable for the joint
account holder.

5. Sukanya Samriddhi Account (SSA)

SSA can be opened by parents of girl child subject to
certain conditions. SSA can be a good option for fixed
income investment for child. However you should also
invest in ELSS or other equity mutual funds for goals
related to child.
Also Read: All about Sukanya Samriddhi Account
Lock-in: Deposit to the account to be made for 14 years
and account matures at 21 years from date of opening
The Good:
The interest earned on SSA is Tax Free and also
higher than that offered to PPF
50% withdrawal allowed when girl turns 18 for
marriage/higher education

Highest Safety backed by Govt. of India

The Bad:

No provision of Loan or pre-mature withdrawal

unlike PPF

Helpful Tips:
Minimum deposit of Rs 1,000 needs to be made
every year else penalty of Rs 50 is levied
Account can be closed before 21 years in case of
marriage

6. National Saving Certificate (NSC)

NSC can be bought at post offices to save tax u/s 80c. It
is available for 5 years (NSC VIII) and 10 Years Tenure
(NSC IX). The interest offered is 8.5% for 5 Year and
8.8% for 10 Years.
Lock-in: 5 Years/ 10 Years
The Good:
The interest is higher than most tax saving bank
fixed deposits.
Certificates can be kept as collateral security to get
loan from banks
No Tax deduction at source
The interest accrued for NSC qualifies for Sec 80C
deduction in subsequent years

Highest Safety backed by Govt. of India

The Bad:

The interest earned is taxable

You need to visit Post office for buying and
redeeming NSC units. This can be a hassle for people
who shift addresses frequently.

Helpful Tips:
You can buy NSC in denominations of Rs 100, 500,
1000, 5000 and 10000
NSC is better tax saving option than banks Tax
Saving FD (offering similar interest) as interest
accrued for NSC qualifies for Sec 80C deduction in
subsequent years

7. Tax Saving Bank Fixed Deposits

India loves fixed deposits and FD which saves tax is
obviously very popular.
Also Read: Highest Tax Saving Bank Fixed Deposit
Rates U/S 80C across 41 banks
Lock-in: 5 years
The Good:

Convenient to invest. Many banks offers online

facility for Tax Saving FD

High Safety FD up to Rs 1 Lakh is insured by

RBI

The Bad:
The interest received is taxable. (Tax treatment of
Fixed Deposits)
Cannot be withdrawn prematurely
Cannot be pledged to secure loan or as security

Helpful Tips:
The minimum tenure is of 5 Years. Some banks
offer special schemes for longer tenures with slightly
higher interest rates
Dont be mislead by banks advertisements about
their yield on Tax Saving FDs. Those are
manipulative calculations. [SBI Tax Saving Deposit
Scheme Interest & Annual Yield]
Be cautious of small co-operative banks as they
have higher risk than bigger private and public sector
banks.

8. Pension Plans from Mutual Funds

There are Pension plans from mutual funds which offer
tax benefit u/s 80C:
1. Templeton India Pension Plan
2. UTI Retirement Benefit Pension Fund
3. Reliance Mutual Fund Pension Plan

The above funds are hybrid or balanced mutual funds

the first two funds are debt oriented mutual fund while
the one from Reliance has two funds one debt
oriented and other equity oriented.
Lock-in: 5 years
Helpful Tips:
Reliance Mutual Fund Pension Plan is better option
among the three funds as you use Wealth option
(which is equity oriented fund) to create the corpus
and then switch to Income option (which is debt
oriented fund) for regular income after retirement.
All 3 funds levy exit load to discourage people
from exiting early

Investments to Avoid for 80C:

Below are some investments that I would recommend
to stay away as they have poor returns and/or can
hold you in complicated tax tangles. Also you would
hear multiple horror stories on how these investments
were miss-sold and people are now struck.
1. Pension Plans from Insurance Companies:
Unit Linked Pension Plans (ULPP) is offered by
insurance companies as a investment to take care of
your retirement. The broader product structure is, you
invest in the product for first few years and then the

insurance company pays you some lump-sum amount

and then a regular annuity after certain period.
Why you should not invest in ULPP?
1. These are long term products and you would need
to pay premium for a long period of time.
2. The returns on ULPP are miserable.
3. If you want to surrender these, you loose a lot in
terms of returns.
4. The tax benefit claimed is reversed if the plan is
surrendered mid-way.
5. Only one third of amount at maturity/surrender can
be taken as lump-sum. Two third amount has to be
necessarily used for buying annuity.
2. Life Insurance (Endowment Plan/ ULIP)
ULIP and endowment plans are other investment which
is miss-sold very often. People do not understand the
complex product and later suffer heavily.
Also Read: Not all Life Insurance/ULIPs Offer Tax
Benefit?
Why you should not invest in ULIPs?
1. These are long term products and you would need
to pay premium for a long period of time (at least 3 to
5 years)
2. The returns endowment plans are miserable (lesser
than fixed deposits)

3. In case you want to discontinue your investment,

the surrender value is pathetic.
4. The tax benefit claimed is reversed if the plan is
surrendered mid-way.
3. NPS (National Pension Scheme)
Some of you might have to contribute compulsorily to
NPS. In this case you can take deduction up to Rs
50,000 under the newly introduced Section 80CCD(2).
And then you can choose more efficient investment for
80C.
Here is an example:
Mr Amit is Government employee and has compulsory
NPS deduction of Rs 60,000 every year. Until last year
this NPS was part of Section 80C deduction. After
introduction of Section 80CCD(1B), he can claim Rs
50,000 deduction under this section. Rest of Rs 10,000
(Rs 60K 50K) can be claimed as deduction u/s 80C.
And he can additionally make investment of Rs 1.4
lakhs in other 80C instruments like PPF, ELSS, etc
taking his total deduction to Rs 2 lakhs [Rs 1.5 lakhs
from 80C & Rs 50,000 from Sec 80CCD(1B)]
However for people who do not have NPS account, it
might NOT make sense to open one just for newer
introduced tax benefit u/s 80CCD(1B). You would do
better to pay tax and invest the remaining amount in
good equity mutual fund.

Why you should not invest in NPS?

1. The investment is locked-in till the time of
retirement of till the subscriber turns 60. If you close
the account mid-way only 20% is offered lump-sum
and buy compulsory annuity for rest 80%. So in case
of early retirement, this money is not going to work
for you.
2. NPS entire lump sum withdrawal is taxable.
3. On maturity at least 40% of amount needs to buy
annuity which offers low returns and is taxable.