Tax Planning for Beginners: How Section 80C Can Be Your Financial Ally

For most taxpayers in India, the term Section 80C is the stuff of legends. It is what most of them turn towards when it comes to saving their money, investing wisely, and planning their taxes better. If you are preparing to file your taxes for the first time ever or are ever so curious about this topic, then here’s an important titbit to start things off: Section 80C is a section that falls under the Income Tax Act, 1961. And it can be your biggest financial ally!

Yes, there are many reasons why Section 80C is one of the most popular and effective ways to reduce your tax burden without making it needlessly complicated. How? Because it allows you to claim deductions of up to Rs. 1.5 lakh per year from your taxable income by investing in certain eligible instruments. The result? Once you invest under Section 80 C, you can reduce your tax liability and also grow your wealth over time. That’s what we call a win-win situation!

A Deep Dive in Section 80C for Beginners

If you are a taxpayer, any HUF (i.e., a part of Hindu Undivided Family), or an individual, then Section 80C is for you. In fact, you can also extend the benefits by acting upon the instruments provided by Sections 80CCD and 80CCC to further reduce a big chunk of your taxable income. This is the most important thing to understand about this tax benefit incentive which is part of the law.

So, who is Section 80C not eligible for? Well, that would include companies, corporates, and partnerships. 

Next up, some of the most common investment options under Section 80C are:

• Public Provident Fund (PPF): You must’ve heard of this savings scheme where you can invest up to Rs. 1.5 lakh per year for a duration of 15 years. Not only does it guarantee good returns but also offers tax interest!
• Equity Linked Savings Scheme (ELSS): Heard about mutual funds, right? Well, this is one commonly-opted for option which allows you to invest in the stock market and enjoy high returns and tax benefits. How much? Up to Rs. 1.5 lakh per year in ELSS with a lock in period of 3 years.
• National Savings Certificate (NSC): This government-backed savings scheme was introduced to improve the savings of the general public and help them build wealth that will come in handy later on in life. The NSC lets you invest up to Rs. 1.5 lakh per year with a maturity period of 5 years.
• Life Insurance Premium: Of course, most people already have life insurance and pay a premium for the cover. But did you know that this premium can be claimed as a deduction under Section 80C? Yes, it can be, up to a limit of Rs. 1.5 lakh per year! 
• Home Loan Principal Repayment: If you’re paying off a home loan currently, then you can claim tax deductions against it as per Section 80C. We’ll discuss this in more detail in the next section. 

These examples provide an overview of some investment options under Section 80C. There are other options available as well, such as the Sukanya Samriddhi Yojana, the Senior Citizens Savings Scheme and Five-Year Fixed Deposits, among others. 

Tax Relief for Home Loan Payers Under Section 80C

Home loan principal repayment represents the portion of your home loan EMI that goes towards reducing the amount of your loan. The good news for all home owners or home buyers who’ve got a home loan: you can claim deductions on home loan principal repayments up to Rs. 1.5 lakh per year under Section 80C. 

In fact, with Section 24(b), you can also claim tax exemption on the interest part of your home loan repayment – up to a max of Rs. 2 lakh per year! And for those who want to put their new home on rent, any interest they pay on the home loan is not included in annual income tax calculations! Section 80EEA allows you to claim an additional reduction in your annual tax liability if you are a first-time homeowner.

Section 80C: What’s Your Plan?

So, the fundamental question for beginner taxpayers is: ‘Alright, Section 80C sounds great! But how do I plan for it?’ 

Well, it isn’t as difficult as it sounds. Here’s a quick 3-step method:

1. Compute all your expenses incurred annually due to investments in any 80C Section instruments that you’ve already made, such as EPF, insurance premiums, home loan principal payment, etc.
2. If the total is more than Rs. 1.5 lakhs, then you don’t require further investments to claim Section 80C benefits. Else, subtract the total expense from Rs. 1.5 lakh – the remainder is what you can invest.
3. Lastly, choose the right investment option for you by considering your financial goals, risk appetite, liquidity needs, and tax bracket. You can also consult a financial advisor or use an online tax calculator to plan your investments.

Outlook

Saving up to Rs. 1.5 lakhs every fiscal year can be a massive deal for millions of people in India. It is the kind of financial boost that not only instils good financial habit and practices amongst the citizenry by also helps them eventually save and grow their wealth for bigger goals, such as owning a dream home. If you are unsure about how to proceed with Section 80C and how it can benefit you in the long run, then don’t hesitate to consult a tax-saving expert!