There is a frequent query on everyone’s thoughts: How can I save tax on salary? And if you want an answer to the query, then there are a lot of reputable techniques to save tax beneath the Income Tax Act, 1961. Section 80C belongs to the very same. It is in all probability the most well known and preferred section amongst taxpayers, as it makes it possible for to minimize taxable earnings by generating tax-saving investments or eligible expenditures. Section 80C also has sub-sections – 80CCC, 80CCD (1) , 80CCD (1b) and 80CCD (2).
Section 80C of the Income Tax Act came into force on April 1, 2006. It fundamentally makes it possible for particular expenditures and investments to be exempt from tax. If you strategy your investments nicely and spread them wisely across different investments like Public Provident Fund (PPF), National Pension System (NPS), National Saving Certificate (NSC), Home Loan Repayment and so forth, you can claim a deduction of up to Rs 1.5 lakh each year, which will minimize your tax liability.
However, there are two vital points you have to have to know about. The initial one is that only men and women and HUFs can avail the advantages of this deduction, and providers, partnership firms, and LLPs cannot.
And the second one is that taxpayers are not permitted deduction as per Section 115BAC of the current Finance Act 2020. We observed that if the taxpayer opts for 115BAC beneath the new tax scheme, he will not be eligible for any claim beneath section 80C, but if the taxpayer opts for the old tax scheme for any monetary year, he can nevertheless avail deductions beneath Section 80C.
If you are not into taxation then it will be a bit complicated to comprehend each element of it and maximize savings. But nevertheless, we can make you more conscious of the dangers and errors that taxpayers generally make since of their poor organizing, so that you can make the most of it.
1. Not paying consideration to lock-in period
Certain deductions beneath Section 80C are topic to a lock-in period. For instance, fixed deposits have a lock-in period of 5 years. Similarly, Equity Linked Savings Schemes (ELSS) have a lock-in period of 3 years. If the taxpayer violates the restrictions of the lock-in period, the earnings will be treated as earnings of the taxpayer for that monetary year and will be liable to tax.
Now, taxpayers will have a equivalent predicament with lengthy-term investments like PPF, which has a lock-in period of 15 years to qualify beneath Section 80C. Thus, it is advised that taxpayers will have to pick out investments that aid them to obtain their monetary objectives. Additionally, taxability of returns on investments and taxability of the sum received on maturity are the two elements that each taxpayer demands to verify prior to selecting an investment scheme.
2. Claiming deduction for private loan repayment
It has been observed that taxpayers attempt to claim deduction on repayment of any variety of home loan beneath Section 80C, but it demands to be understood that the principal element of private loans (loans taken from mates and relatives) are not covered beneath Section 80C.
If a taxpayer desires to claim deduction for the principal element of the home loan, he/she demands to make sure that the loan need to be supplied by the specified entities/ persons u/s 80C(2)(xviii)(c). Loans supplied by a bank, co-operative bank, National Housing Bank, Life Insurance Corporation, and so forth. come beneath it.
3. Deduction on registration and stamp duty
Expenses like stamp duty, enrollment charge and some other expenditures which are straight connected to transfer of residential home house (only) are permitted beneath section 80C. For industrial properties these expenditures cannot be claimed for deduction beneath Section 80C. So, taxpayers really should wisely pick out the house variety for claiming deduction beneath Section 80C.
4. Mistake whilst claiming Deduction for tuition charge
If a taxpayer is attempting to claim a deduction for college or tuition charge, the taxpayer has to look at particular provisions prior to generating any claim. The deduction will be offered for costs paid for complete-time education in India for a maximum of two children, and only the tuition charge portion of the comprehensive charge will be eligible for the deduction. So, prior to offering any information, make sure to do some calculation.
5. Too considerably investment in endowment insurance coverage plans
Endowment insurance coverage plans are life insurance coverage plans that are fantastic for tax-saving and critical investments. However, investing a substantial element of your challenging-earned funds in this will not give you fantastic returns. So, if you want to save more, invest in a term strategy, which is also eligible for tax deduction beneath Section 80C.
In conclusion, I would like to advise all taxpayers to neither invest in haste nor wait for last-minute filing. This is since the probabilities of generating a incorrect investment selection are higher if you are in a hurry to save tax. Treat these tax advantages as a fringe advantage and by no means invest just to save tax.
(By Amit Gupta, Co-Founder and MD, SAG Infotech)