Other Tax Deductions under Section 80C

The past few articles we have seen how we can invest your money and also save tax under 80C using ELSS Mutual Funds, PPF, EPF, NPS and also Life Insurance. But 80C isn’t limited to just those schemes.

There are a few investment options which also enjoy 80C deductions.

Investment in House

Lets say you buy a house and like most of us middle class people, you will take out a home loan to buy your house. There are two ways you can get benefits under 80C.

Stamp Duty paid for Registration:

Registering a house involves paying Stamp Duty to the government. The stamp duty you pay and the amount paid for the registration of the documents of your house can be claimed as a deduction under 80C on the financial year when you purchase the house.

Home Loan Principal repayment

Home Loan means paying EMIs. Every month you are paying a fixed amount of money which go into servicing your loan. Your monthly payment has both principal component and interest component. In a financial year, all the money you paid back as principal enjoys deduction under 80C.
Remember in the initial few years of the loan, the principal component will be a very small amount vs interest paid. But the interest component can also help to significantly save your taxes, but that is under Section 24.

National Savings Certificate

National Savings Certificates or popularly called NSC is a savings bond and is part of the postal savings system. Anyone can buy a NSC from a post office in their own name or in the name of a minor. They have a maturity of five or ten years. The interest earned is liable to tax (taxable under your tax slabs). But since the interest is also reinvested, that amount can also be eligible for tax deduction under 80C.

Infrastructure Bonds

These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. Since this investment is helpful to build and develop the infrastructure of the country, you can claim a tax deduction under 80C.

Sukanya Samriddi Account

This is a new savings account introduced by the government couple of years back. This is applicable specifically for parents of girl child. This account can be opened if you have a girl child from the day of birth of the child, till she attains the age of 10 years.

The minimum deposit is Rs.1000 and maximum of Rs.1.5 lakh can be deposited in one financial year. Interest earned is fully tax exempt. The account can be closed after the girl has completed 21 years of age. Normal Premature closure will be allowed after completion of 18 years provided that girl is married.

Tax Savings Fixed Deposits

Banks provide a special type of fixed deposit scheme which has a lock-in of 5 years. The money you invest is tax exempt, but the interest earned is taxable at your tax slabs.

Senior Citizen Savings Scheme

This is a special scheme for senior citizens and this is available for anyone who has completed 60 years of age. There are also other age criteria for people who have retired under Voluntary Retirement Scheme or Defense personal.

The maturity period is 5 years and any number of accounts can be opened. The important difference between this and tax savings FD is the interest earned is credited back into your savings account every quarter instead of reinvesting back.
After maturity, one can also extend it further by three years.

Children’s Education Expenses

If you have children, any money you spend on their education like school or college fees can be claimed for tax deduction under 80C.

These are all the different possible tax deductions under 80C. Next article is about how to save tax on Medical Insurances under section 80D.

Deductions under 80C: Life Insurance

The first article under the Income Tax series was about Income Tax Slabs. Do go read it if you have difficulty calculating your taxes and the different slabs.

There are various sections under which we can claim tax deductions. And each has it’s own limits and uses. 80C is the most popular section under which people claim tax deductions. Even though I have written in brief about this section, it was in 2013 and a lot of things have changed since then.

Under this section 80C, Rs.1.5 Lakhs can be claimed for tax deductions. Money invested under this section enjoy tax deductions. They also have a long lock-in period attached to it.

There are other types of expenses that can also be claimed under 80 C and in this article I will explain in depth about what I consider to be the most important one – Life Insurance.

Life Insurance Policies are a must if you have dependents – spouse, children,┬áparents, etc. It is double important if you have liabilities like home loan, car loan. The Insurance Policy makes sure that your dependents can maintain the same life style as they are currently enjoying even after your death.

There are lot of Insurance agents who sell policies without trying to mention the words “DEATH“. Death is the one certainty that can happen to anyone at any time. It is very important to not mince words and ensure that your dependents are well protected.

Life Insurance is needed for everyone who earns money in the family. Without their money, if you can’t lead the same lifestyle, then get that person insured.

  • If you are the primary bread winner, get insurance.
  • If your spouse also earns money, get insurance for him/her.
  • If your children are still in school or college – don’t get insurance for them.

There are many insurance providers who sell insurance policies in the name of Children Savings policy.
These are just emotional words to get your money.

When your child earns his own money, he can get himself insured. Till then, it is not needed.

The only difference is if you child earns the money in your family as an artiste and you are dependent on him/her, then you need to get them insured.

What Life Insurance Policy to buy?

Always buy a Term Insurance policy.
End of discussion.
Go on to the next section.

Ok. You are still here? Want to know why I said Term Insurance?

Lets see the dictionary definition of Insurance

Insurance
an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

See how the dictionary definition doesn’t have any word called investment or savings? Term insurance is the only true life insurance policy that strictly follows the dictionary definition.

You should never mix insurance and investment. Both are completely different and should remain separate. Since term insurance is just a pure insurance product, you get more value for your money.

How much Insurance do you need?

Generally speaking you should be insured for 10x to 12x your annual income + any liabilities (loans) you have.

So if your annual income is Rs.10 lakhs and you don’t have any home loan, get a term insurance for minimum 1 crore.

If you have a home loan of Rs.50 lakhs, up your term insurance to Rs.1.5 crores.

Which Term Insurance to choose?

There are many providers to choose from and it is easy to buy a term insurance online by spending less than 30 mins. All Insurance Providers are regulated by the IRDA, so you can choose any provider. So it makes sense to choose the provider who gives the lowest price and has the highest settlement ratio.

But you should make sure that you fill in your insurance form by yourself and fill it in truthfully. The premium you pay depends on your health conditions (smoker/diabetes/heart condition/etc). If you fill it in with wrong details, there will complications when the policy is claimed. And the only time the policy is going to get claimed is when you are not alive – leading to unnecessary complications for your near and dear.

So always fill in the form properly and get the mandatory medical test to avoid complications.

Now that you have covered your dependents for cases when you might not be alive and also gotten tax deductions for the premium paid, next is to invest the remaining money for your future and also get tax deductions for that.

The next article is about my most preferred tax efficient investing method – ELSS funds. Do give me your email address below and I will send it to you as soon as I publish.