Salaried? Want to save income tax? Claiming deduction under section 80c? Must avoid these mistakes
Are you a salaried class looking at the available avenues for tax saving? Know how you can claim deduction under section 80c by making the use of best tax saving instruments which not only save tax but provide good returns.
Almost every investor has one question hovering in their minds – how do they save tax on their salary? If you must know, there are several valid ways of deduction under Income Tax Act, 1961 that can help you save tax on your investments, and eventually bring down your taxable income. Tax deduction under Section 80C is one of the most sought-after ways of reducing tax under the Income Tax Act. In this article, we will focus on how you can save tax through Section 80C and the mistakes that you must avoid while claiming these deductions under tax-saving investments belonging to Section 80C.
Section 80C of the IT Act, 1961 permits certain investments and expenses to be tax-free, i.e. exempt from tax. Almost everyone is aware of the tax deduction of up to Rs 1.5 lac per annum u/s Section 80C and all its connected sections such as Section 80CCC and Section 80CCD. As a result, an investor can save up to Rs 46,800 by investing in tax-saving investments that belong to these Sections such as Public Provident Fund (PPF), ELSS (Equity-Linked Savings Scheme), home loan repayment, NSC (National Savings Certificate), etc. provided that the investor belongs to the highest income tax slab. However, there are 2 important points that you must be aware of before claiming this tax deduction.
Firstly, the benefits of this tax deduction can only be availed by HUFs (Hindu Undivided Family) and individuals, and not LLPs (limited liability partnership), companies, and partnership firms. Secondly, according to Section 115 BAC of the recent Finance Act, 2020, taxpayers cannot claim for this deduction of up to Rs 1.5 lacs. Basically, if a taxpayer opts for the Section 115 BAC under the new income tax scheme, they cannot claim any tax deductions u/s 80C. However, if a taxpayer continues with the old income tax scheme for any particular year, they can still avail of the tax deduction u/s 80C. Common mistakes to avoid while opting for deduction u/s 80C
Here are a few common mistakes that you must try to avoid:
A good rule for claiming tax deductions u/s 80C is not investing in haste as one tends to make wrong investment decisions during the last-minute filing of taxes. Also, you must never invest in tax-saving investments with the sole purpose of saving tax. Happy investing!
Certain tax-saving investments u/s 80C are subject to mandatory lock-in periods. ELSS tax saver mutual funds, bank fixed deposits (FD), Unit-Linked Insurance Plan (ULIP), PPF have a lock-in period of three years, five years, five years, and fifteen years respectively. Failure to comply with these restrictions of the lock-in period might result, the income of that particular financial year would not be eligible for any tax deduction and might be eligible for tax.
several taxpayers misunderstand the tax deduction of home loan repayments and try to claim a tax deduction on any type of home loan. However, one must understand that Section 80C does not cover the principal constituent of private loans (i.e. loans taken from relatives and friends). Hence, a taxpayer looking to avail for a tax deduction on the principal amount of their home loans must ensure that the loan is borrowed from specified persons or entities under Section 80C(2)(xviii)C of the IT Act, 1961. 