Smart Financial Planning: Exploring the Best Investments under Section 80C

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Smart Financial Planning: Exploring the Best Investments under Section 80C
Smart Financial Planning: Exploring the Best Investments under Section 80C

New : Individuals and Hindu Undivided Families (HUFs) are eligible to claim a lump sum deduction of up to Rs. 1.5 lakh every year. HUF is considered as a separate entity under tax and is taxed separately from its members, who all create a family unit by pooling together their assets. This deduction under section 80C reduces the taxable income through some tax-saving investments and certain eligible expenses under certain sub-sections such as 80CCC, 80CCD (1) and 80CCD (2). 

Here are some beneficial tax-saving options available under section 80C of the Income-tax Act, 1961. 

1. Equity-linked Savings Scheme (ELSS) Funds

ELSS mutual funds are allocated in equity-linked securities such as listed shares and equity, and optionally fixed-income securities. Investing in ELSS funds allows you to claim a deduction of INR 1.5 lakh in the year of investment and has a lock-in period of 3 years. Investment in ELSS funds offers high returns, however, subject to the market performance of the underlying securities, which counter the effects of inflation. 

2. Public Provident Fund (PPF)

PPF is considered to be one of the safest and most reliable investment options that guarantee retirement corpus while reducing your taxable income. PPF investment has a tenure of 15 years, with investments ranging from Rs 500 to a maximum of Rs 1.5 lakhs. There is a lock-in period of the first seven years, post which partial withdrawal is allowed. To keep the account active, a yearly investment of Rs. 500 is mandatory. The interest and the maturity amount are exempt under section 80C. 

3. National Pension Scheme (NPS)

NPS is an investment vehicle that allocates funds to suitable investment options for building a retirement corpus. Investment in NPS provides a deduction of INR 50,000 under section 80CCD (1b) in addition to the 1.5L deduction provided under 80C.

4. Unit Linked Insurance Plan (ULIP)

ULIP is a combined investment option under which a partial contribution is made towards life insurance plans, and the balance is invested towards long-term schemes. Investors can choose amongst different investments in bonds, stocks and mutual funds as per their financial aspirations and willingness to take risks.

5. Interest on Home Loan

The amount paid towards the repayment of the principal component of the home loan after completion of construction of the house is allowed as a deduction under 80C. Further, the section also allows the deduction of the stamp duty in the same year it was spent.

Things to Be Aware of Before Investing 

The markets are very volatile, and it is essential for individuals and Hindu Undivided Families (HUFs) to study the historical returns and risks involved before investing in any option. Investors should then invest according to their financial and wealth creation aspirations.