If your monthly salary is more than 30,000, you have to pay income tax based on your salary. You can save money on tax by proper planning of section 80C. Income tax 80C allows deduction of 1.5 lakhs from your salary. It would save 10,000 tax on your salary as well as it would encourage you for investment.
In India, section 80C allows 1.5 lakhs from gross total income for investments,insurance and specified expenses. This 1.5 Lakhs is non taxable to encourage saving and investment among indian citizens. The eligible investments include life insurance, Equity Linked Savings Schemes (ELSS) mutual funds, Public Provident Fund (PPF), National Savings Certificate (NSC), etc., while expenses and outflows can include tuition fees, principal repayment of home loan, among others. Tax planning is process to select best saving and investment option to utilize the tax exemption of 1.5 lakhs in section 80C. Following investment is covered in section 80C(1.5 lakhs).
Public Provident Fund (PPF) : PPF is a scheme provided by the government and the investment in it is eligible for deduction under Section 80C.
Life Insurance Premiums : Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction.
Equity Linked Savings Scheme (ELSS) : There are some mutual fund (MF) schemes specially created to offer you tax savings and these are called Equity Linked Savings Scheme (ELSS). The investments that you make in ELSS are eligible for deduction under Section 80C.
Home Loan Principal Repayment : The equated monthly instalment (EMI) that you pay to repay your home loan consists of two components – Principal and Interest. The principal qualifies for deduction under Section 80C.
Sukanya Samriddhi Account : In this scheme, you can open an account on behalf of your minor daughter till the age of 10. Any amount deposited in this account would be eligible for deduction under Section 80C.
Five-year Bank Fixed Deposits (FDs) : Any term deposit with a tenure of five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable.
Five-year Post Office Time Deposit (POTD) Scheme : POTDs are similar to bank fixed deposits. They are available for different time durations like one, two, three and five years but only five-year POTD qualifies for tax-saving under section 80C.
Contributions to National Pension System (NPS) : Any contribution made by an individual to the National Pension System (NPS) is allowed as deduction under section 80CCD (1).
You can select for any one of these investment for 1.5 lakhs including your PF. You can start your investment and submit the proof to your organization for 80C. Ensure you have investment proof for 1.5 lakhs and pay income tax only for (your annual salary – 1.5 lakhs). It would save at least 10,000 rupees on income tax.
TO ENCOURAGE SAVING AND INVESTMENT :
Section 80C exempt 1.5 lakhs from income tax to encourage investment, saving and insurance. But most of the tax planners keep lump sum only life insurance for tax planning. Life insurance is not an investment, it is saving. Life insurance premium should be maximum of your 5% income. If your salary is 30000 rupees, your insurance monthly premium should not be more than 1500 rupees.
LIFE INSURANCE IS NOT AN INVESTMENT. Do not confuse investment with insurance
ELSS MUTUAL FUNDS :
An Equity Linked Savings Scheme or ELSS is a type of mutual fund which invest money mostly on equity related products. Since it is invested in stock market(equity), returns from an ELSS fund reflect returns of the equity markets. ELSS mutual funds mutual funds gives tax benefits as well as investment in market. Tax planning in ELSS gives you an opportunity to grow your money.
TAX PLANNING IN ELSS GIVES YOU AN OPPORTUNITY TO GROW YOUR MONEY.
In ELSS funds, money would be locked-in for 3 years and invested. After 3 years, it can be withdrawn or continue to grow in the market. ELSS has the shortest lock-in period of 3 years. Other investment products that provide tax benefit u/s 80C like insurance, PPF, National Savings Certificate (NSC), Employee’s Provident Fund (EPF) have a minimum lock-in period of 5 years.
ELSS funds can be start with monthly 500 rupees or lumpsum investment. ELSS funds are very easy to start compare to other tax planning options. ELSS mutual funds can be started by login to the mutual funds portals.
- Best tax planning and investment option for government employees, business persons, senior citizens and salaried employees.
- Can be invested using SIP with minimum and affordable investment amount being just Rs. 500 a month.
- Investment can be done online very quickly and easily.
- Minimum lock-in of just 3 years which is considerably less in comparison to other tax saving options.
- Returns is bit more than traditional insurance and post office saving scheme.
The concept of compounding returns help to earn in multiples of the principal amount invested. - ELSS funds can be used to plan your long term goal.
- Tax saving of up to Rs 46,350 can be achieved by making an investment of Rs 150,000 + investment of Rs 150,000.
HOW TO START IN ELSS MUTUAL FUNDS:
In order to apply for ELSS mutual funds, you should have PAN and Aadhaar number. This is mandatory as per KYC regulations so as to avoid fraud. KYC verification can be done online also. Login to mutual funds portal such as ICICI mutual fund, HDFC mutual fund, SBI mutual fund portal. If you are planning to invest in multiple funds with multiple fund house, login to mutual fund aggregators portals such as groww.in, Zerodha coin, kuvera portals. They charge minimal amount to start the mutual funds. But we can invest in all mutual funds using single portals.
