Most of us think about investment and tax planning only when an employer sends out a mail suggesting to submit proof of investments. This usually happens around this time of the year so that the tax can be spread equally over the remaining three months of the financial year. If you just woke up about tax planning at this moment, it is a big mistake! If you start now, the chances are more that you will end up investing money into some products which might not be good for your financial needs. 
Ideally tax planning should start from the beginning of the financial year so that you don’t feel the pain of investment proof submissions, plus enough time in hand to analyze and understand the products that will fetch better results.
Let me mention about the various avenues under section 80C to make the most of your tax planning. Of course there are other sections too, but this is the most important section as it provides an opportunity to avail tax benefit on a sum up to INR 1,00,000/-. Collectively through the following options under 80C, you can save 1 Lakh from the taxable basket.
Provident Fund (PF):
The contributions that you make towards your PF from salary is the first thing that goes in 80C. For salaried class people, this amount is deducted from salary every month by the employer. This amount is matched with employers contribution too and put into your PF account maintained by either govt or a private trust. Take a look at your payslip to know the exact amount, which would be 12% of basic salary from employee contribution.
Voluntary Provident Fund (VPF):
If you like to increase PF contribution above the 12% standard limit, then it is termed as VPF. This amount also qualifies for deduction under section 80C.
Public Provident Fund (PPF):
The Public Provident Fund has been set up by the central government. You can voluntarily decide to open one if you plan to invest through this, interest paid would be around 8%, which will be revised by govt year on year. You need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis to contribute towards PPF. You can also open this account if you are not earning. The minimum and maximum allowed investments in PPF are Rs. 500 and Rs. 70,000 per year respectively, this can included in Sec 80C deduction.
Life Insurance Premiums:
Any amount that you pay towards life insurance (either private or LIC) premium for self, spouse and children can be included in Section 80C deduction. Insurance premium paid for parents or in-laws is not considered for deduction under section 80C. Oh yeah.. Unit Linked Insurance Plans (ULIPs) are also included here 🙂
Equity Linked Savings Scheme (ELSS):
There are some mutual fund schemes specially created for offering tax savings called Equity Linked Savings Scheme – ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.
Home Loan Principal Repayment:
For a given financial year, the amount that you pay towards EMI will be having 2 componenets – Interest and the Principal. Once you get a break up of these components, you can claim only the ‘Principal Repayment’ amount under section 80C.
Apart from these, there are few more options like National Savings Certificate(NSC), Post office Deposits, Fixed Deposits(FD), Senior Citizen Savings Scheme (SCSS), Infrastructure bonds and Stamp Duty towards registration charges. One thing you should keep in mind while tax planning is to ensure that you don’t exceed the amount through these channels beyond 1 lakh (which is a hard limit as of now). There is nothing wrong if you invest more, but there wont be any benefit in tax for putting your money in excess unless the returns are high.
Just to demo, let me take an example here: A person contributes to PF an amount of 25,000, Insurance premiums for another 25,000, House loan principal repayment of about Rs 40,000. Now the total amount deductible under section 80C is 90,000. So this person can plan to save another 10,000 from the tax basket by choosing among any of the options mentioned above. ELSS is the best option since it is known for higher returns. Don’t simply buy insurance policies, consider how much cover is required and plan for term insurance to get higher cover for low premiums. Invest the rest in other modes which are known to generate higher profits. Don’t ever invest just for the sake of tax savings!! If you do so, the chances are more that you will be losing more money than the tax itself on that amount!
I will cover other tax saving instruments apart from section 80C in next post.
samy jain says
sir can you please tell me whether money deposited in Post Office saving scheme is taxable or not???
Anand Jyoti says
You have not mentioned about NPS (New Pension Scheme) and its advantages and Tax benefits.
I liked your blog on Tax planning. Appreciate your efforts.
Mohan says
Anand, there is a separate article altogether on NPS on my blog. Please read through the finance section.
Nardy says
Your blog keeps getting better and better! Your older articles are not as good as newer ones you have a lot more creativity and originality now. Keep it up!
And according to this article, I tottaly agree with your opinion, but only this time! 🙂
Mohan says
Thanks Nardy!
anil k says
dear Mohan
i’m 42, looking for tax saving portfolio?
i mean in order to save tax max. i can save Rs. 1 lakh,
where shud i invest this 1 lakh, like how much in ELSS, ULIP, PPF, NSC n term insurence?
what is an ideal ratio?
guide me if u can.
regards.
Mohan says
Anil, diversified portfolio is always a better option for investments. since you are asking for tax saving, i suggest you consider your long term and short term financial goals and accordingly invest in the instruments. It is always better to seek the advise from finance planning experts.
sumitesh says
Hi, Mohan,
Thanks for sharing all the info, i would like to know that Stamp duty paid for buying agriculture land also get exemption or not
Thanks
Sumitesh
Mohan says
I think stamp duty is not differentiated wrt agricultural land or other. I am not really sure about it, better consult with any charted accountant to get the accurate info.
sai says
How to calculate how much is exempted when individual paying rent ?
Mohan says
HRA Exemption is provisioned under section 10 (13A), hence it doesn’t hurt your 80C exemption limit of 1 lac. And HRA is calculated as below:
Minimum of
* 40% of Basic (50% for metros) + Dearness Allowance OR
* HRA as in your appointment letter OR
* Actual Rent paid – (10% of Basic+DA)
V.B.Bhosale says
thanks Mohan… i also confirmed with my CA friend. It is a really good information. Thanks for sharing.
Rohini says
Thats nice! I am glad this article was of some help to you all. I am book marking it for better planning of my finance going forward 🙂
Mohan says
That should have been my dialog!!! Enjoy maadi 🙂
Mohan says
Cool.. my pleasure!
uts says
Awesome timing,
I just started working this Nov. Assuming ill be earning about 1.25L this financial year will there be a tax deduction? My accountant has asked me about my investment plans and i said ill invest about 60k but that was for the whole year not the 5 months. However i have invested about 20k in Equity linked savings and Insurance schemes but im paying half yearly so 10k this Fin year.
But i dont have more money to invest before each salary arrives 🙁 so how to go about tax saving? Or should i look at next fin year?
Mohan says
Uts, the basic exemption itself would be 1.5 lacs! So, you need not worry about tax this year. But never delay on investments. Always plan on how much you want for your expenditure on a monthly basis against how much you can save per month for investment. While planning always keep your short term and long term goals, read through some of the articles on this blog for planning your investment better!
V.B.Bhosale says
You have maintained here that “Stamp Duty towards registration charges” is one of the option under 80 C for tax benefit. I was not aware of this. This year i have purchased new house and paid STAMP DUTY AND REGISTRATION CHARGES of Rs 65000, so shall I get tax benefit on this whole amount. please clarify.
Mohan says
Yes! The amount you pay towards stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the “same year of purchase” of the house.
Mohan says
One more thing… the cap under section 80c is a max of 1,00,000/- So, you can claim an exemption for another 35,000/- through various other options since 65,000/- will be covered through the stamp duty.
Kevin Rodrigues says
It is good to see a list of what all is included in 80C. Investing for tax savings is always an after thought for most working people and we lose some money on that.
Another way to actually make better use of your money would be to donate it to some charity and get tax benefits on that. At least you have the satisfaction that it is being used for a good cause which you can monitor.
Mohan says
Very well said Kevin. Yes, that is true and I intend to cover a number of good donations that can help both the nation as well as the tax payer in the form of tax relief. I will plan a separate post on that. Thanks for bringing that point, please read my next in this series where I have mentioned about Donations as well.
Roshmi Sinha says
Informative post… to say the least 🙂
Mohan says
Thanks! 🙂
jyoti says
thks for sharing ths article,it is very helpful for tax payers .
Mohan says
Hi Jyoti, thanks for dropping by. Glad you liked it 🙂
Subu says
A simple and easy to understand post on tax savings.
Mohan says
Thanks for visiting my blog subu. Welcome 🙂
vineeta says
What a perfect timing!! Though you wrote that tax planning shud start at the beginning of the year, you smwhere deep down knew that ppl only do it at the last minute and this article therefore is required now 😛
Btw.. I m gonna use this post for my tax planning too 🙂
Mohan says
Never late to start planning now… we still have 3 months to go 🙂 That is why i said ‘ideally’ start from the beginning of the financial year!
Glad this post was helpful. I will cover other options too soon beyond this section 80C.
lostworld says
The first sentence caught my attention as I fall into that category that frets and fumes once I get a mail to submit my Inv. proofs 😉
I slowly and lazily gather my documents and submit praying that IT Dept. doesn’t loot me! Have never invested in ELSS.. pls throw some more info on that if possible .. thank U as always.. great post.
Mohan says
Heheheee.. you are not alone. Majority of the people are like you 😉 Atleast feel good that you had your investments in place already to get the documents. Many start investing now!
Sure, will plan a separate post on ELSS. Stay tuned 🙂
Kishore says
Nice summation Mohan. I didn’t know that I could claim exemption on my kid’s insurance premium! Thanks for sharing.
Mohan says
Glad that was helpful to you.
Parimala Shankaraiah says
You seem to have missed the Recurring Deposits given from Banks. RDs in banks are locked for a period of 15 years which attracts compound interest similar to PPF. The interest rate is revised each year and usually lower, but its TAX FREE at the time of Withdrawal.
Regards,
Parimala Shankaraiah
Mohan says
Yes, you are right. I didn’t talk about RD because that option simply locks up your money for so many years with not so good returns. Thanks for the inputs 🙂