How taxpayers can maximise their savings under Sec 80C

Suyash works in a private company. He has just moved into an apartment worth Rs 75 lakh, for which he took a Rs 50 lakh home loan. His dependents include his home-maker wife and school-going children. Suyash’s investment advisers have told him about the increased limit for deduction under Section 80C and that he should invest soon. Suyash does not have enough liquidity to take the full Rs 1.5 lakh deduction. Will he miss the tax benefits available to him?

While planning for our tax deductions, we forget that Section 80C not only encourages investments in savings schemes but also offers tax relief on some of our expenses. It is important that we take informed decisions and refrain from blind last-minute allocations.

Many investors rush to claim tax benefits and in the process get stuck with investments that have a long lockin periods, or restrictions on withdrawal, or compulsion to keep contributing every year. The number of investors who have failed to keep paying insurance premia that was committed in a hurry is high. Suyash should not rush to make an investment and scramble for funds, but take stock of other activities that may enable him to claim the tax deduction under Section 80C.

To begin with, Suyash must check how much he contributed to the Provident Fund during the year. His PF contribution is eligible for deduction under Section 80C. His home loan will also get him a big deduction.

The principal portion of the EMI for the home loan is eligible for deduction under Section 80C. If he bought the house in the current financial year, the expenses related to stamp duty and registration charges of the house can also be claimed as a deduction. What’s more, the tuition fee for his children’s education also comes under the Section 80C umbrella. Suyash must also not forget to claim the premium payments he has made towards his life insurance policy, as long as the premium amount is less than 10% of the sum assured.

When he adds them all up, Suyash might find that he has utilised a large part of the overall Rs 1.5 lakh investment limit. The unutilised portion may be invested according to his risk preference.

(Courtesy Centre for Investment Education and Learning (CIEL).)