Jan 01, 1970 3 min read

5 Things to Know Before Making Section 80C Investments

By reading this blog, you will come to know how you can make the best tax-saving plan at the last minute before March.
These days you might be scurrying around various alphanumeric terminologies like Section 80C or 80DD. The financial year is ending soon and the time has come when you have to showcase your total income and pay taxes on the values coming in the tax bracket. You must be looking for making an investment under section 80C to save on your taxes. But you should remember that if your tax-saving efforts are made at the last minute, then there are chances that you park your money in some unsuitable investment avenue.

Tax saving must not be done on an ad-hoc basis or for an ill-conceived goal. But when the accounting department of your organisation starts knocking your door asking for proofs of actual investments, you simply opt for any of the alternatives of investment to save tax at that time. Here, we have provided you with the parameters with which you can plan your last minute investment that will provide you with not only tax savings, but you can save towards achieving your financial goals.

  1. Know the Total Deduction You Can Avail:- As per the provisions of Section 80C of Income Tax Act, 1961, an individual can avail exemption up to Rs.1.5 Lakh on the gross total income by making an investment of such amount in any of the instruments that include PPF, ELSS, LIC, etc. Accordingly, this section helps in reducing the net taxable income of the individual which further leads to reducing the net tax liability. Moreover, if you have crossed your total limit of Rs.1.5 Lakh, you can further invest in National Pension Scheme(NPS) which can help you in reducing your tax liability.
  2. Compute the Amount of Fresh Investment You Need to Make:- After knowing the amount of deduction that you can avail, you need to know how much investments have you already made to avail such exemption. Then, you must evaluate how much fresh investment you must make further to gain the maximum deduction under the provisions of the Income Tax Act. This computed amount will be the one that needs to be managed now for planning further tax-savings.
  3. Find the Tax-Saving Instruments Available:- Once you know the amount you need to invest further for availing maximum deduction, you must analyse various investment alternatives available. There are instruments like PPF(Public Provident Fund), NSC(National Saving Scheme), LIC(Life Insurance Policy), and ELSS mutual funds ( Equity-Linked Saving Scheme) which are majorly considered for making better investments. You must evaluate the features, nature and benefits of all these options, compare them accordingly and then make the final selection.
  4. Tenure of Investment:- The instruments as mentioned above vary between medium- to long-term period. The lock-in period ranges between three to fifteen years on the basis of the characteristics of the investment avenues. You need to make the selection by considering the tenures of these instruments and your preferable horizon of investment.
  5. Taxability of Income on Investments:- Another important criterion while selecting Section 80C investments is analysing the taxability of the income on investments made for availing exemption. The returns earned are generally taxable in the hands of the receiver, and one must make sure that it is not the case in making investments in these instruments. Income Tax Act provides the EEE(Exempt-Exempt-Exempt Model on certain avenues which involve PPF, EPF and ELSS. You can opt for any one of them to ensure that your investment income will not be taxable.
  6. Making the Right Choice:- As per the points mentioned above, the ELSS Mutual Funds is the apt choice to make. An investment in this fund now will provide you exemption under section 80C. The lock-in period under this plan is three years only, which is the least as compared to the other investment avenues. Moreover, it falls under the EEE model and thus the income and capital gain on this investment is exempt. Being an equity investment, it offers the benefit of capital growth as well. Thus, ELSS Funds is the right choice to make for availing maximum benefits under section 80C of Income Tax Act.

So if you find this blog helpful and you want to plan your taxes in the last minute, then avail our online investing services to make a worthwhile investment in Mutual Funds. MySIPonline is designed to simplify your investments in a better way. You must get associated with us now!

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