As a Indian we pay more attention to 80c in tax saving, during starting of our career we won’t consider this section much because our salary might be less than 5 lakhs , but as days pass once our gross salary crosses 5 lakhs per annum then TDS will be deducted and remaining salary is going to be a take home salary.

During the above situation , without even knowing where to save or invest ? , will put our hard earned money in some instruments under 80c suggested by a friend or colleague. Later we will regret that we kept money in the wrong one , but regretting later won’t help because most of the investment under 80c is having lock in period and liquidity is difficult.

Behind the limit if you will invest in under 80c then that is considered as wrong investment. So read this post to get clarification on 80c saving and investments. If you already have investments in 80c , don’t hesitate to correct yourself and if you want to start 80c investments, understand it before starting it.

80C investment options

Before discussing the limit will see what options are there in the 80c section to invest.

• Provident Fund Employee contribution
• Housing Loan principal
• Sukanya Samriddhi Yojona
• 5 Years FD in Bank or Post office
• Life Insurance policy
• Equity linked saving scheme(ELSS)
• Unit linked insurance plan(ULIP)
• Public Provident Fund
• Mutual fund pension
• Education tuition fees
• NPS employee contribution
• Senior citizen saving scheme
• Infrastructure bond
• National saving certificate

These are the major instruments available in the 80c section for savings and investments.

80c deduction limit

INR 1,50,000 is the overall limit , you can show your savings and investments up to this limit for tax exemption on top of your Gross salary. To calculate Gross salary refer here.

You can invest beyond this limit but that is not going to be considered for tax exemption. Above 1.5L will be considered as taxable income and tax will be deducted as per your tax slab. Click here to calculate your tax slab.

Tax saving is also important like saving. It will give dual benefit i.e. Tax saving and Investing. You need to select the option based on your goal. I will try to explain the cons and pros of each instrument below , before that we need to understand that 1.5 L is not available for us to invest. Because already employee contribution towards PF is also included by default in this section.

Different scenarios to understand 80c limit

If your PF contribution is 30k per annum, then only 1.2L is available for other investments of 80c. This you cannot change and it will be considered as 80c investment by default. But other things you are having the provision to alter or quit.

Another example to understand the limit : Your PF contribution is 30k and you took life insurance for 20 k then remaining 1L you can do other investments or you can opt for another 1L in other insurance schemes also, meaning there is no sub limit as such to show your investments in each option. You can do all investment in one instrument except contribution to PF, but altogether limited to 1.5 L.

If your gross salary is below 5L , then you don’t invest in 80c options , I am not insisting here that we should not invest itself , you can do it via lock-in free options. In case your gross salary is 6L , you can invest only 1L in 80c including PF that brings your taxable income 5L. Up to 5L no tax will be deducted (0-2.5L – No Tax and 2.5-5L (will be rebated).

Maximum Limit Usage in Tax: Once taxable income will cross 5L even after utilizing 80c , then you have other options like 80d,80ccd etc.. After considering all deductions your gross salary crosses 5L then for 2-2.5L also 5% tax you need to pay and for the remaining amount it will be 20% till 10L. Once your taxable income will go under 30% slab ,your CTC will increase exponentially but net/take home salary will increase in fractions. Understand and accept this fact. Your income will be stagnant in that case and plan your expenses accordingly.

Housing Loan principal exemption in 80c

You can show home loan principal paid during FY under 80c and interest will be covered under section 24 . For tax saving purposes don’t go for a home loan,instead you can use HRA under chapter VI. It won’t save more money for you due to high registration and stamp duties that will also go to the government anyways. We are having a lot more options to invest in 80c. Incase if you want to use this part then go for a lower loan amount with low tenure.

Altogether HRA and Home loan section 24 allow you to save more or less the same tax amount. But seriously building or buying a home is in your top priority then go for it and use your maximum limit if possible in 80c and section 24 in Income tax act.

Key Takeaway: Don’t plan home for tax saving alone then you will be in loss.

Sukanya Samriddhi Yojona

SSY is a central government scheme in India for girl children. One can start investing from1000 to 1.5 Lacs per financial year. Each year the government will decide on the interest rate and it keeps on decreasing from the day it started.

In a way it is better than bank FD or post office deposit , but lock-in period is 18 -21 years of child’s age that is another worry and you cannot liquidate this easily for emergencies. Keeping in mind that investment is not for emergencies you can invest in it if you have a female child in your home.

Key Takeaway : If you are not having enough knowledge in mutual funds then this better option for a girl child’s future.

Public Provident fund

PPF also a central government scheme alternative for PF. For the majority of people this is a good instrument to invest their money and interest will change each year according to government decisions. The interest rate will be higher than Bank FDs but slightly lesser than PF.

Lock period for 15 years is there that makes this instrument non liquidity friendly and after 5th year you can withdraw partially.

Key Takeaway: PPF is a great debt instrument you can keep in your portfolio but keep in mind you should not invest whole money here. 

Fixed deposit tax exemption under Sec 80C Income Tax Act

Bank FD or Post office term deposit for lock-in period of  5 years can show under 80c. Here also liquidity is not possible upto 5 years and the interest rate is lesser than any other investments. Even though it is a debt instrument, the interest rate is very low.

Key Takeaway: In my view this second worst investment under 80c section, the first is ULIP

Unit linked insurance plan

The main problem with ULIPs is you neither get decent returns nor decent insurance coverage,that makes this option worse than other investment options in 80c. You can explore ULIPs and get ideas.

Key Takeaway: Do Not mix insurance and investment. Don’t ever invest in ULIPs at any cost.

Life Insurance policy

Most important thing here is do not consider insurance as investment again.Any life insurance policy premium you can get exemption from 80c section if it won’t cross 1.5 lacs. You might have one or planning to take one. My suggestion is each and every individual who supports their family should have a life insurance policy without fail.

Consider in your absence ,How your family is going to survive?. There comes an insurance policy which will pay an amount that will support financial needs of your family. But there is a checkpoint here, don’t go for money back or endowment plans. Go for term insurance which will take less premium and more coverage.

For a 30 year old person 1 crore cover can cost around 15k. For the same 15k other lic plans will give 2L on your demise or after 15 years of maturity. 1 crore, if your wife or parents will put in bank FD they will get almost 50k/month for their expenses, but How many days will they survive with 2L?. Not even 1 year.

Key takeaway: Please take term insurance do not go for other lic policies. End of the day insurance companies will give returns as low as 3% on maturity.

Mutual Fund Investments in 80C

There are 2 types of mutual fund investments you can show in 80c.They are

• Equity Linked saving scheme – 3 years lock-in period
• Pension based Mutual fund – 5 years lock-in period

My favourite here is ELSS , because of its less lock-in period. In 80c investments mutual fund option is best , both the above options will give returns around 12-15% , out of it pension based funds are having a 5 years lock in period. So according to our goal we need to select funds in this criteria. E.g. If you plan to invest here for children’s education or for retirement one can go for pension funds or you need money for building a home in 3 years then go ELSS funds.

Key Takeaway: If you are a salaried person and your taxable income is more than 5L , consider investing in ELSS without fail.

Children Education tuition fee in 80c

If your kids are going to school or college, then you can show the tuition fees alone in 80c not entire fees. But here you can show a maximum of 2 children fee only , more than that will not be considered under this section.

Key Takeaway:If you have school going children use this option without fail.

NPS in 80c

National pension scheme introduced by the central government for employee pension purposes. But it is having a lock-in period of up to 60 years, which means you can liquidate the pension amount upto your 60th age except in some peculiar conditions. This is better than PPF or SSY because this follows the route of mutual fund mechanism. You can explore more about it before investing.

Key Takeaway: Use 80CCD1B-Additional NPS Employee Contribution up to 50k if you really want to invest for pension. Don’t use 80c, we have a lot of other options to invest in it. But do not invest behind the limit of 50k.

Other Investment options

There are few more options: Senior citizen saving scheme,Infrastructure bond, National saving certificate etc.., In my view you can completely ignore these options because of their less returns and more lock-in period nature. 

 Conclusion:

Be frugal in tax saving investment , don’t do it without knowing the essence of it. Because of lock-in periods these investments are having huge losses if you want to exit prematurely.

If you do it wisely you can save tax and you can get more returns on your investment.