Tax planning with Section 80C

What is Section 80C? How do you best use the Rs 1 lakh exemption limit under Section 80C? What are the instruments you can invest in to take maximum advantage of Section 80C?

In a chat with Get Ahead readers on June 9, financial planning expert Anil Rego answered these and several other queries related to tax planning and investments.

For those of you who missed the chat, here is the unedited transcript.

 AAA asked, WAT IS 80 C

Anil Rego answers,  at 2009-06-09 15:35:53Section 80C is the deduction section predominantly for tax saving investments. It includes investment in PPF, PF/VPF, ELSS, NSC, Pension Plan, Repayment of Principal on Home Loan, Life Insurance, tuition fee, Infrastructure bonds.

Employee asked, Dear Sir, Kindly guide me the best instruments for 80 C investments with maximum returns

Anil Rego answers, You can choose from low risk avenues like NSC, PPF, Insurance, etc and high risk return avenues like Equity Linked Savings Scheme (ELSS) mutual fund or even Unit Linked Insurance plans. It is always suggested to use a combination of lower and higher risk avenues. While investing into the ELSS mutual fund that should give you the best return in the long term, you can invest through monthly investments (systematic investments).

red asked, sir i have invested Rs 10,000 in ppf, Rs 30,000 in Life Insurance, Rs 10000 in NSC , Rs 10,000 in ELSS, last financial year. How much tax rebate shall i get??

Anil Rego answers, You have invested 60,000 into avenues under Section 80c. The amount you have invested would get reduced from your taxable income. The amount of tax that you would save would depend on the tax bracket you are in. If you are in the 30%, bracket you will save 30% of 60,000. ie 18,000 in tax. Similarly you can calculate depending on the tax bracket you are in.

Aquil asked, Can u tell me how can in claim Tax benefit under donation and how much

Anil Rego answers, I am assuming that you are talking about a donation to a charitable organization. There are two slabs of deduction that are available - 50% or 100% deduction. Your taxable income would get correspondingly reduced. You will need to check up with the organization when you are doing charity as to which slab they would fall under. You would need to provide the receipt provided by the charitable organization for claiming the deduction. Pls note that your deduction is limited to 10% of your taxable income.

skd asked, Hey Anil, can we park FDs in 80C and is the limit expected to be increased !

Anil Rego answers, Looks like I missed the bank FD in the list of avenues under section 80C! Yes, you can claim benefit for a fixed deposit in a bank for a tenure of 5 years or more. Not sure I want to speculate on what are the changes in the budget!! Let us hope for the best.

Deena_Jagasia asked, Can you tell me what is the limit on investments under 80C

Anil Rego answers, The limit under Section 80C is Rs 1 lakh.

keyur asked, i m young mgr looking to invest in 80C instruments for longer horizons...pls. help me out...

Anil Rego answers, You can look at breaking up your investments between the ELSS mutual fund(maybe 60%) and balance into debt options like Bank FDs, PPF, NSC. The ELSS fund can be invested through a systematic investment plan on a monthly basis.

mapor asked, Hi Mr. Anil, I am 29 and earning 30k pm. My Employer does not provide PF benefits. According to you, What will be the best investment pattern for me?

Anil Rego answers, As mentioned in an earlier reply, for your age, you can invest about 60% of your investment into the ELSS fund and balance into conservative avenues. You can also use insurance to the extent that you need the same.

freepints asked, if i open a FD or recurring FD for my son will the intrest earned will be taxable considering my tax slab? if my wife open a FD or or recurring FD for my son will the intrest earned will be taxable considering my tax slab?

Anil Rego answers, Yes. Any interest earned either from an FD or RD is taxable and will get added to your income and you would need to pay tax on the same. If your wife is not working then her income is subject to clubbing with you. If she is working and in the lower tax bracket then you can have investments in her name. Your childs income is subject to clubbing with yours, so that will not help either.

skd asked, I CHANGED COMPANIES, JOINED NEW COMPANY IN MAY 2009. FOR APRIL 2009, WILL I HAVE TO TAKE DEDUCTION ON HRA FROM OLD OR NEW COMPANY AND HOW WILL IT BE CALCULATED. ALSO WHAT ABOUT THE INVESTMENTS, I WILL HAVE TO INVEST ENTIRE 1 LAC AMOUNT FROM MAY TO YEAR END OR

Anil Rego answers, You can give proof of rent paid to earlier company so that they incorporate the same in their form 16. You will need to do a computation by adding both incomes, exemptions and deductions. You are likely to have to pay some additional tax since you may not have crossed the taxable limit or maybe in a lower slab. You can pay this as advance tax so that you do not have to pay interest on the same later. All limits are for the full year and across both companies. Hence you limit of Rs 1 lakh will include tax saving investments made in April.

c asked, Hi Anil, please tell me that which is the better option....to invest in PPF or to invest in ELSS scheme ?

Anil Rego answers, These are two extremes to choose from. The ppf is a safe instrument from the govt. It would give you a tax free return of 8%. The ELSS is market linked and is tax free (more than 1 year is tax free as an equity MF). A person who would like higher risk higher return can go for an ELSS fund. It may be a good idea to go in for a combination.

Gnsh asked, What is short-terma and long-term investments in equities ? How are they treated for tax purpose ?

Anil Rego answers, Equities work best when you invest for the long term. The only equity linked investments that you can use that also provide tax savings is the ELSS fund or the Unit Linked Insurance Plan. Both of these have returns that are tax free.

freepints asked, sir, will the interest earned from NSC bought will attract Tax even though i do not fall in first slab of IT. Please, reply

Anil Rego answers, The interest on NSC will be added back to your income and if then your income is below the taxable limit then you need not have to pay any tax on the same.

allwyn asked, Hi Anil,please tell me if donations made to NGOS comes under section 80C , is there any tax benifit for such donations.

Anil Rego answers, The donation is covered under section 80G only if the NGO approved by the government as a charitable organization. Pls note that Section 80G is different from section 80C. I have given further details on the deduction in an earlier response.

gsmallesh asked, Sir,can i get tax benifit on PPF even if i allredy completely usedup one lakh fully in 80c in other ways.in 80c,which retirement plans are tax exemted at the exit.

Anil Rego answers, Your tax benefit is restricted to Rs 1 lakh under section 80C. Retirement plans are taxable when you get the pension. There are other plans that give you monthly money after your retirement(and are not classified as pension plans). You can use them or you can even use a Unit Linked Insurance Plans; especially the whole of life plans for pension planning with tax free return avenues.

sanjay asked, Hi, contribution made under 80G comes under 80C 1L cap or we can claim the 80G contribution fully?

Anil Rego answers, 80G is a separate section and you can claim a deduction under this section in addition to section 80c.

dfasd asked, Is mutual fund inevstment considered in 80C?

Anil Rego answers, Only the tax saving mutual fund called the Equity Linked Savings Scheme (ELSS fund) can be used for availing a deduction under section 80c.

rajeshgoswami.2009 asked, Dear Mr. Anil, My time horizon and amount are fixed. time 15 years and Rs. 70000, so which investment option will give me high return my risk appetite is high upto 10 yrs

Anil Rego answers, The most preferred avenue is the ELSS mutual fund that you can enter into through a systematic investment plan. You can also consider a Unit Linked Insurance Plan (ULIP) that has a low Fund Management Charge (FMC).

yes asked, can i invest in gold traded fund.how safe it is and how profitable is it in long term.

Anil Rego answers, The returns would depend on the prices of gold globally. Gold traded funds can do well in the long term. They do not provide any tax benefit.

ash asked, What id the basic difference between elss and ulip. which is more aggressive investment instrument?

Anil Rego answers, The ELSS fund is a 3 year scheme. Most funds are open ended and you can stay invested after 3 years. Each investment into the elss fund needs to be kept for 3 years. A ULIP has a cumulative lock in of 3 years. (all 3 year premiums can be withdrawn once the lock in expires. Both provide tax free returns. The ELSS fund is completely invested in equities, in the case of the ULIP Switches can be made between funds. Intra fund switches are not taxable in the case of the ULIPs. The ULIPs provide you with life cover while the MF does not. ULIPs are higher cost in the short term (less than 6 years); in the long term, some ULIPs can be cheaper than MFs due to the lower fund management charges. A ULIP should only be considered if the investment horizon is greater than 6 years. Weigh the pros and cons before investing.

ravi asked, for those who joined government organisations on or after 1st Jan 2004 will be covered by New Pension Scheme. But the amount deducted under this scheme is falling under 80C. with this, there is no other option to go for other savings. how to overcome this.?

Anil Rego answers, It is unlikely that your pension investment crosses Rs 1,00,000 only because of this. If your section 80C limit is exhausted, you will need to invest only from a return perspective and not for a tax saving perspective.

Jolly asked, Hello Sir, I am working as a full time "Retainer" on annual contract basis. How can i get maximum benefit from section 80 C ????

Anil Rego answers, You can claim deduction under section 80C even if you are a retainer. I would always suggest a combination of investment of low and high risk-return.

Anil Rego says, Dear All - I thank you for the overwhelming response. I have tried to answer as many questions as possible in different areas. I do suggest one takes advantage of tax savings to the maximum as this really helps enhance your wealth creation and also increase your take home. Plan the same from the beginning of the year so that you dont miss out on being able to invest the whole amount that is required to take maximum benefit.