If you are an investor, chances are you well aware of the tax deductions under Section 80C of Rs 1.5 lac per annum. Though almost every investor is well aware about this tax deduction u/s 80C, not everyone is aware of the strings attached with these tax deductions. In this article, we will understand these terms and conditions before investing in tax-saving investments to strengthen our tax planning.

ELSS contributions

ELSS tax saver mutual funds are a type of equity funds that are mandated by the SEBI (Securities and Exchange Board of India) to invest at least 80% of their assets in equity securities. ELSS mutual funds have a compulsory lock-in duration of three years, which also happens to be the lowest lock-in tenure as compared to other Section 80C investments. Just like any other type of mutual funds, you can invest in ELSS funds either through a disciplined and regular approach of investing through SIP (Systematic Investment Plan) or through a one-time investment associated with lumpsum investment. However, you must be careful that if you go forward with SIP investment, your each SIP installment would need to complete the duration of three years. In short, each SIP installment is treated as a new ELSS investment.

Home loan repayment

Section 80C of the IT Act, 1961 offers investors with tax benefits on the principal amount repaid against home loans. Though it must be noted that this tax deduction is only offered against properties used for housing purposes. What’s more, one must take this loan only from special entities such as banks and/or housing finance companies.

Life insurance premium
You must be aware of the tax deduction offered against life insurance policies for yourself, your spouse, or your children. You can use this tax deduction to your benefit as there is no extra condition on the financial dependency of the children. So, a retired individual can exploit this to their benefit by optimizing their children’s tax outgo by paying for their child’s life policy premium. This will significantly help the child who is probably earning has already exhausted his Rs 1.5 lac limit.

Educational costs
All Indian taxpayers have the opportunity to claim tax deduction against tuition fees paid for their child’s educational expenses. However, you must note that this tax deduction has an underlying condition – you can avail it for a maximum of up to 2 children. However, there’s one loophole. If you have more than two children and you wish to claim their educational expense as well, then your spouse can claim this tax deduction, provided that the partner has a taxable income.

Senior Citizens’ Savings Scheme (SCSS)
As SCSS form a part of the Section 80C investments, these tax-saving investments provide investors with a tax deduction of up to Rs. 1.5 lac per annum. However, there is a piece of information that several investors just simply skip. If you withdraw your SCSS investments before the completion of the lock0in duration of 5 years, there is no such tax deduction available in this scenario. In short, the investments become taxable.

Hopefully, these terms and conditions and loopholes help you make an informed and researched decision about your tax-saving investments and improve your tax planning. Happy investing!

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