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Unit Linked Insurance Plan (ULIP) :
Under Section 80C, ULIP (Unit Linked Insurance Plans) offers an opportunity to invest in various market-related securities such as equity, debt, and balanced funds, aiming to yield long-term investment returns. Investments in ULIPs are subject to market fluctuations, as the funds are linked to the market.
There are two tax benefits associated with ULIPs. Firstly, under Section 80C, the premium paid towards the investment can be tax-exempted for up to Rs 1.5 lakhs. Secondly, the amount received after maturity is tax-free, subject to certain conditions.
Benefits of investing in ULIPs include the flexibility to withdraw a part of your money whenever needed and the ability to choose where to invest based on your risk appetite.
Health Insurance Plans
Under Section 80D, individuals can avail themselves of a deduction of up to Rs 25,000 on the premium paid for health insurance. However, for individuals aged 60 or above, the deduction limit is Rs 50,000.
The deduction limit of Rs 25,000 covers premiums paid for self, spouse, and children.
Additionally, expenses incurred for preventive health check-ups qualify for a tax deduction of Rs 5,000 under Section 80D.
Housing Loan
Taking a loan incurs costs, but government schemes like the Pradhan Awas Mantri Yojana and the Delhi Development Authority Housing Scheme offer loans at lower interest rates, making them more affordable.
Additionally, you can benefit from tax deductions under Sections 80C and 24(b) when taking a home loan. Under Section 80C, you can save tax on the principal amount paid, up to Rs. 1.5 lakh, with the condition that the property cannot be sold within 5 years of ownership.
Under Section 24(b), you can save up to Rs. 2 lakhs with tax deductions on the interest amount paid for your home loan. However, this deduction applies only if the loan is used for constructing or purchasing a house, with the added requirement that construction must be completed within 5 years from the year the loan was taken.
Education Loan
If you’ve been paying for your child’s higher education loan or have taken an education loan yourself, you can save on that investment. This applies specifically to higher education, which includes full-time courses undertaken after completing higher secondary education, both in India and abroad.
For up to 8 years from the day you take the loan, you can opt for tax-free interest. Afterward, you can avail of tax deductions under Section 80E. Additionally, you can claim a tax deduction of up to Rs 1.5 lakhs under Section 80C, without any restrictions on the principal amount paid towards the loan.
National Pension Scheme
It’s popular among office-goers to consider retirement planning early, not just after turning 30. The National Pension System (NPS) offers tier 1 and tier 2 accounts, gaining popularity due to its exempt-exempt-exempt scheme, which brings significant benefits.
Under NPS, both partial and on-maturity withdrawals, along with the 40% corpus annuity amount, are tax-exempt. Employees investing in NPS under Section 80C can claim a tax deduction of up to Rs 1.5 lakhs, with an additional benefit of Rs 50,000 under Section 80CCD(1B). Moreover, employer contributions to NPS attract deductions under Section 80CCD(2), equivalent to 10% of the combined basic and dearness allowances, in addition to the previously mentioned deductions.
However, the interest from the annuity pension is taxable based on your tax slab, serving as the scheme’s only disadvantage.
Senior Citizen Saving Scheme
It’s similar to an FD, offering a fixed interest rate of 8.2%, guaranteed by the government, with a minimum investment of Rs 1,000 and a maximum of Rs 30 lakhs. The tenure is 5 years, allowing premature withdrawals with a charge of 1.5% or 1% depending on the time of withdrawal after opening the account. Returns are received quarterly, and there’s a tax benefit with a deduction of up to Rs 1.5 lakh under Section 80C. Tax will be deducted at source if the interest received exceeds Rs 50,000 per annum.
Sukanya Samriddhi Yojana
This investment is designed for the girl child in the household, allowing parents or guardians to contribute until 15 years after opening the account. Even if contributions cease after 15 years, the account continues to earn interest until 21 years. Any excess amount invested beyond Rs 1.5 lakhs per year will not earn interest and can be withdrawn anytime. After 18 years, 50% of the amount is withdrawable for education or marriage expenses. Premature closure is allowed for valid reasons accepted under the scheme.
The scheme offers a guaranteed interest rate of 8.2% compounded annually. Tax benefits include a deduction of Rs 1.5 lakh under Section 80C, and the interest earned is tax-free, as is the amount withdrawn after maturity. The EEE status (exempt exempt exempt) applies, but only if the child is an Indian resident.
Tax Free Bonds
Unlike equities, where both returns and capital are at high risk, tax-free bonds offer both principal and interest, providing a sense of security. These bonds offer fixed interest rates ranging from 5.5% to 7.5%, and the interest received is tax-free under Section 10 of the Income Tax Act. Investors can allocate up to Rs 5 lakhs per year, with a lock-in period of 10 to 20 years, determined by the issuer. Examples of such tax-free bonds include those offered by NHAI and IRFC, which are backed by the government.
Tax Saving Fixed Deposit
The tax-saving deposit operates similarly to a standard fixed deposit, offering interest rates ranging from 5.50% to 7.75%. The minimum investment varies by bank, while there’s typically no maximum investment cap.The key tax benefit lies in Section 80C, where investors can claim a deduction of up to Rs 1.5 lakhs. However, the interest income is taxable according to the individual’s income tax slab. TDS will be deducted if the interest received exceeds Rs 10,000 in a year. Senior citizens are eligible for an additional deduction of Rs. 50,000 under Section 80TTB.
