Albert Einstein once said, that, “the hardest thing to understand in the world is the income tax“. But in my opinion, it is not, if planned smartly.

We graduate to earn a handsome salary from a decent job and that is where the real tussle of Paying vs. Saving income tax starts. As good citizens, all of us must pay the taxes on income earned by us because the money collected by the way of Income tax is the propelling fuel for the economy. This is the money that supports various kinds of development and growth initiatives of a country like an Infrastructure, Research & Development, Education, Healthcare, Security etc.

Though we should pay our taxes timely, there is nothing wrong if we could save some part of our income going into the taxes and put it to earn for us in the form of investment returns. And, when we come to selecting the best income tax saving options, then the real confusion arises from the varied viewpoints on different investment instruments.

But, don’t worry now, as this blog is written to solve your confusion by highlighting the key facts related to various investment products which qualify for income tax rebate u/s 80 (c) of the Income Tax Act, 1961.

What is Sec. 80(C) on Income Tax Act, 1961?

Let’s first understand the basics of this section i.e., Sec. 80 (C) of Income Tax which states that a taxpayer i.e., any HUF or an individual can claim tax deductions up to Rs. 1.5 lakh per fiscal year which means that these deductions are not available to companies, partnerships and other corporates.

By investing in any of the below-mentioned investment products to claim the income tax deduction u/s 80 (C), one can easily save up to Rs. 46,800 (inclusive of cess at 4%) from getting deducted as a tax:

• Investment in Public Provident Fund (PPF).
• Investment in Employee Provident Fund (EPF).
• Opening 5-year tax saving Fixed Deposit with any Scheduled Bank.
• Investing in 5-year post-office time deposit, Senior Citizen Savings Scheme (SCSS).
• Investing in National Savings Certificate (NSC).
• Contribution to NPS Tier II account.
• Payment of Life Insurance policy (including ULIP) premium for self, spouse or children.
• Investing in Equity Linked Savings Scheme (ELSS) of a mutual fund.
• Repayment of Housing Loan principal, the amount paid for stamp duty, registration fee etc.
• Payment of tutition fees for the education of children (upto 2 child) in any university, college, school or other educational institution located in India.
• Contribution towards ULIP of LIC Mutual Fund.

Investment Option	Interest Rate (as of 2022)	Lock-in Period	Tax-free returns	Risk Involved
ULIPs	8% – 12%	5 Years	Yes (Premium up to Rs. 2.5 Lakhs)	High
ELSS	14% – 16%	3 Years	Yes (up to Rs. 1 Lakh Long-term gain in one FY)	High
NPS	8% – 11%	Till 60 Years of Age	Yes (60% corpus at the time of retirement)	High
PPF	7.1%	15 Years	Yes	Low
Senior Citizen Saving Scheme	7.4%	5 Years	Yes	Low
Tax Saving FD	5% – 6.2%	5 Years	No	Low
Sukanya Samriddhi Yojana	7.6%	Till girl child reaches 21 years of age	Yes	Low
National Saving Certificates	6.8%	5 Years	No	Low
Life Insurance Policies	5% – 6%	3 Years (with surrender clause and penalty)	Yes	Low
Pension Plans	6% – 9%	Lifelong	No	Low

Pros and Cons of Famous Tax Saving Investment options:

1. Unit Linked Insurance Plan (ULIP):

ULIPs, as the name says, are Market-based Insurance plans wherein the premium paid has two components i.e., investment for buying units of mutual fund and mortality charges for providing the life insurance cover.

2. Equity Linked Saving Scheme (ELSS):

ELSS is nothing but investing into a Mutual Fund Scheme which is locked in for 3 years and qualifies as the tax-saver as per Income tax rules. As per the SEBI guidelines, at least 65% of the ELSS funds have to be invested in the equity market. The best practice to invest in the ELSS scheme is via SIP mode i.e., contributing small amounts every month for buying the units.

3. National Pension System (NPS):

The government of India launched the National Pension System which is a pension cum investment scheme to provide old age security to Citizens of India. The scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA).

Under this scheme, the subscriber contributes regularly to her Tier-2 account to create the retirement corpus and to get the income tax benefits. 60% of this corpus can be withdrawn at the time of retirement which is tax-free and the remaining 40% will get converted into an annuity for pension.

You can even forecast your retirement corpus in the NPS account by using the NPS Calculator provided by NPS trust.

4. Public Provident Fund (PPF):

PPF is a 15-year lock-in scheme that qualifies for the rebate from income tax u/s 80(C) of Income Tax Act, 1961. This account can be extended indefinitely for a duration of 5 years at one instance. Interest earned in the PPF account is tax-free u/s 10.

In one Fiscal Year, only 12 deposit transactions are allowed for the PPF contribution. And, if you do it before the 5th of the month then you will earn interest on the full deposited amount because interest is allowed on the lowest balance at the credit of an account from the close of the 5th day and the end of the month.

One can only have 1 PPF account opened in their name. But for a minor, this account can be opened by either of the parents i.e., Father or Mother.

5. Sukanya Samriddhi Yojana (SSY):

Sukanya Samriddhi Yojana is an initiative of the government of India for the upliftment of girl children in the country under the Beti Bachao Beti Padhao campaign with the main aim of securing the future of a girl child.

The tenure of the SSY account once opened in 21 years but the amount can be withdrawn tax-free once the girl child attains the age of 18 years. This account can be opened for up to 2 Girl children only but a third account is allowed if 2 girl children are twins.

6. National Savings Certificate (NSC):

One of the most popular Government-backed tax-saving instruments which come with a sovereign guarantee and assured returns, although the rate of interest is very low. The NSC scheme can be availed through any of the Post Offices. The government of India has launched this scheme only through post offices so that individuals can make small and medium savings along with some tax benefits.

Any Indian citizen can avail of the benefits of this scheme but HUFs and Trusts are not allowed to participate in it. The minimum contribution amount is Rs. 100 with a lock-in period of 5 years. The other available denominations are Rs. 500/-, Rs. 1000/-, Rs. 5000/- and Rs. 10,000/-.

7. Tax Saving Fixed Deposit:

One can open a 5-year lock-in tax-saving fixed deposit in any of the scheduled commercial banks but the only disadvantage is that the maturity is taxable apart from the very low-interest rates. These options are mostly taken by those who have delayed their tax planning and are now running around searching for the best investment option. So, this is the saviour in the last moment of your tax savings plan.

Note: One can’t invest in another’s name through their Internet banking.

Conclusion:

One can select any of the above mentioned most famous tax-saving investment options to claim the rebate under section 80(C) of the Income Tax Act, 1961 but you should understand their advantages and disadvantages properly before investing. All the investment types don’t suit all as per Risk-Return expectations.

A young 24-year-old person would find ELSS or ULIP suitable for them by looking at the returns but that might not be the wise choice for a senior citizen or for someone who is risk averse. Before deciding ask yourself that how much risk to the principal amount you are ready to take?, what is the lock-in period you are comfortable with? and how much returns you can happily digest?