5 tax-saving options under Section 80C – Which one should you choose?


Are you a working professional looking forward to saving taxes every financial year? Taxes are an inevitable part of our lives. Although taxes are dreadful, there are ways to save them by investing in specific instruments. Investments vehicles under Section 80C help you to reduce your taxable income wherein you end up paying low tax. Section 80C is the provision in the Income Tax Act, 1961, which will allow you to claim a deduction of upto Rs. 1,50,000 on your taxable income.

As an investor, you can invest in various tools and claim a deduction under Section 80C. Let’s take a look at this list of top five tax saving investments, which can be claimed as a deduction mentioned below:

Unit Linked Insurance Plan (ULIP)

A Unit Linked Insurance Plan is a unique financial product, which offers dual benefits of investment and insurance. Additionally, it is a market-linked product; hence, your returns will vary depending on the market performance. It has a lock-in period of five years. When you invest in a ULIP policy, you are eligible to receive tax-saving benefits on your premium as well as maturity payout. Under Section 80C of the Income Tax Act, 1961, you can claim a deduction of Rs. 1,50,000 on your taxable income. Thus, ULIP plans are a form of tax saving investments.

Equity Linked Savings Scheme (ELSS)

As the name suggests, ELSS is a type of investment option, which channels your invested amount in equities. It has a lock-in period of three years. Moreover, it is specifically designed to not only allow you to save taxes but also receive substantial return on investment. As a policyholder, if you decide to sell your ELSS units after the completion of one year, you can be charged with taxes if your gains are more than Rs. 1 Lakh.

Public Provident Fund (PPF)

Ever since PPFs have been introduced in the market, it continues to be a popular choice of many Indians for long-term investment solution. Since it has a backing of the Government of India, it is the trusted choice. Another reason for its popularity is its attractive tax benefits. Under Section 80C of the Income Tax Act, 1961, these investment plans provide tax benefits on your invested capital. Moreover, the interests earned are absolutely tax-free.

Five-year Fixed Bank Deposit

Many banks might offer tax-savings Fixed Deposit (FD), which are similar to regular FDs. However, the key difference between the two is that a fixed bank deposit has a lock-in period of five years. The interest rates on tax-saving bank deposits might vary depending on different banks. While the returns are guaranteed, your FDs may provide 100% capital appreciation. On maturity, your interest can be added to your taxable income.

Traditional Insurance Policy

Other common types of investment options are your traditional life insurance policies. The primary purpose of a life insurance policy is to financially protect your loved ones in your absence. Apart from its protection benefits, a life insurance policy is also useful for saving taxes. Under Section 80C, the premium paid for the protection of yourself, your spouse, and your kids can be claimed for a deduction. However, you cannot claim a deduction for insuring your parents.

To sum up, tax-saving investment plans are an integral part of your life. Therefore, you should look out for those tax-saving options which provide tax exemption benefits as well as allow you to obtain tax-free income. As an investor, you can start investing early as the financial year approaches so that you have enough time in your hands to plan and utilize the returns from different tax-saving options.