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Life insurance serves a dual purpose—it provides financial safety to your family in case of your death while offering significant benefits. Most Tax laws applicable to life insurance are laid down by the Income Tax Act 1961. It is important to know these to take advantage of tax-saving opportunities. In this article, we learn about section 80 C.
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Section 80C of the Income Tax Act 1961 allows an individual tax exemption. The sections allow you to benefit from your financial growth and lower your tax liability. By diversifying your investments in investment options like the Life Insurance Plan, Public Provident Fund (PPF), and others, you can claim a deduction amount under this section up to Rs. 1.5 Lakhs per financial year.
Furthermore, self-employed individuals can take advantage of a higher deduction limit of 20% of their gross total income, subject to the ₹ 1.5 lakh limit of Section 80C.
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Individuals: Individuals,both residents and non-residents of India (NRI), are allowed to claim benefits from section 80C of the Income Tax Act,1961. This category includes salaried and self-employed individuals.
Hindu Undivided Families: Hindu Undivided Families, also called (HUFs) are regarded as separate entities under the eye of the Income Tax Act 1961. They can claim benefits up to Rs. 1.5 Lakhs per financial year by investing in instruments such as Life insurance, Fixed deposits, Equity Linked Saving Schemes, etc.
Senior Citizens: Senior citizens aged 60 and above can claim benefits up to Rs. 1.5 Lakhs per financial year through all investment options mentioned under the scheme and specified investments like the Senior Citizens Savings Scheme.
Equity Linked Savings Scheme: Equity Linked Savings Scheme is a type of mutual fund that invests in equity and equity-related instruments. These funds usually have a lock-in period of three years.
National Pension Scheme: The National Pension Scheme is a government-backed savings scheme for employees of sectors (Public, Private, Unorganised). It cannot be used for investment by the armed forces. The NPS has a lock-in period for employees up to the age of 60.
Unit Linked Insurance Plan: A unit-linked insurance plan ( ULIP) is a type of life insurance policy that offers investment opportunities alongside life cover. It allows you to invest in equity, debt, and hybrid funds to fulfill your financial goals. The lock period is 5 years.
Tax Savings Fixed Deposits: The fixed deposits offer fixed returns and are subject to benefits of deduction under the conditions of section 80C.
Public Provident Fund: PPF is a government scheme that can be used for long-term financial goals. It matures 15 years after the date of opening; however, money can be withdrawn even after the seventh financial year.
Senior Citizens Saving Scheme: This scheme is meant for those over 60; however, it can be applied to those over 50 under special circumstances. The scheme has a lock-in period of 5 years, after which it can be extended for another 3 years.
Sukanya Samriddhi Yojana: This is a government-backed scheme for those parents who have a girl child. This plan matures when the girl child reaches 21 years of age.
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In conclusion, Section 80C of the Income Tax Act 1961 offers individuals significant tax-saving opportunities by allowing deductions of up to ₹ 1.5 lakhs per financial year. Eligible investments include a variety of financial instruments such as life insurance plans, Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), and more. It is important to be aware of these to utilize the tax-saving opportunities.
Note: You should also check the term life insurance benefits if you are planning to purchase the term insurance plan.
Note: You may also like to read about term insurance.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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