How to leverage 80C deductions for optimal benefits? – TechyComp

Azhar was fresh out of college and about to begin his work career. It was during one of his home visits that his dad, an experienced financial professional, decided to impart some essential financial wisdom. You know, Azhar, his father began, “knowing and making the most out of 80 C deductions can considerably impact your investments as well as savings.”

Azhar, intrigued but clueless, listened intently as his father explained. “80C deductions are a blessing for taxpayers. They lower your taxable income and thus the tax that you pay is based on your tax slab. It is a government-backed incentive to promote investments and savings among people.”

The financial instruments providing 80c benefits

⮚  Public provident fund (PPF)

⮚  EPF or employee provident fund

⮚  ELSS or equity-linked savings scheme

⮚  NSC or national savings scheme

⮚  Tax-saver fixed deposits

⮚  Senior citizens’ savings scheme

⮚  Sukanya samriddhi yojana

⮚  Life insurance premiums

⮚  ULIPs or unit-linked investment plans

⮚  Home loan principal repayment

⮚  Tuition fees for children

⮚  Pension funds (Section 80CCC)

⮚  Infrastructure bonds

⮚  Five-year post office time deposit

⮚  RGESS or Rajiv Gandhi Equity Savings scheme

Top ways to optimise advantages from 80C deductions

⮚  Diversify investments

∙   Concept

Diversification in investment is the same as not putting all your eggs in a single basket. It includes disseminating your investments throughout distinct financial products to balance return and risk. 

∙   Application

For investments as per Section 80 C deductions, you may consider a blend of an ELSS, PPF and insurance plan. While ELSS provides the potential to generate higher returns, it carries considerable risk. On the other hand, PPF provides stable, risk-free returns, as well as life insurance, and offers security to your dependents.

∙   Benefit

This mix allows you to balance the safety of PPF, the growth potential of ELSS, and the protection aspect of life insurance, thereby managing risk while optimising returns.

⮚  Lock-in periods

∙   Concept

Every 80 C option comes with a particular lock-in, during which you cannot consider fund withdrawal. 

∙   Application

For example, PPF come with a lock-in of fifteen years, ELSS has a three-year lock-in, and tax-saver FDs come with a lock-in of five years. Your decision must be based on when you may need fund access. 

∙   Benefit

Understanding lock-in periods helps in aligning your investment with your financial goals and liquidity needs.

⮚  Consider the returns

∙   Concept

Assessing the returns of the investment is essential but one must even be mindful about the associated risk as well as tax implications. 

∙    Application

ELSS funds, being market-linked, might offer higher returns but come with higher risk. Compare these against the more stable but lower returns of PPF or NSC.

∙   Benefit

By comparing, you can select an investment that lines up with your anticipated return rate and risk appetite level.

⮚  Assess risk appetite

∙   Concept

Your investment choice should reflect your risk tolerance.

∙   Application

In the case you prefer safety over high returns, then NSC or PPF are suitable choices owing to their low-risk and government-backed features. But if you are looking to take a higher degree of risk for higher return potential, consider opting for ULIPs or ELSS. 

∙  Benefit

Lining up investments with your risk tolerance level ensures that you are comfortable with the risk you are taking.

⮚  Plan early

∙   Concept

Strategic and early planning for saving your tax is essential to avoid rushed decisions by the end of the fiscal year.

∙   Application

Begin by assessing your tax-saving instrument at the start of the financial year. This permits you to make better decisions and disseminate your investments.  

∙    Benefit

Early planning prevents last-minute investments which might not be well-thought-out and could lead to inefficient choices.

⮚  Consider the life stage

∙       Concept

Your financial goals and responsibilities change with distinct life phases, which must be reflected in your investments.

∙       Application

In case you have a family, then availing of life insurance becomes vital for securing the future of your family members. Likewise, if you have kids, investing in specific instruments such as FD or ELSS for saving up for their higher education corpus becomes all the more necessary.  

∙       Benefit

Customising your investments as per your life phases ensures that financial planning is in line with your personal goals and needs. 

⮚  Home loan benefits

∙       Concept

The principal repayment constituent of a home loan qualifies for deduction as per Section 80 C.

∙       Application

In the case you have a home loan, then you can claim the principal constituent repaid in the year as a tax deduction.

∙       Benefit

This not only helps in reducing your taxable income but also assists in managing the large financial commitment of a home loan.

⮚  Stay updated

∙       Concept

Tax laws and financial instruments are subject to changes and updates.

∙       Application

Periodically remaining informed regarding the recent tax law changes and investment options can assist in making effective financial choices. 

∙       Benefit

Remaining updated helps you to take benefit of the most current and advantageous options available for tax saving. 

⮚  Avoid over-investing

∙       Concept

There is a cap on the deduction amount that can be claimed as per Section 80 C, which is Rs 1.50 lakh per annum.

∙       Application

Ensure that your total investment in 80C instruments does not exceed this limit, as any amount invested beyond this does not yield additional tax benefits.

∙       Benefit

This helps in the efficient allocation of resources, ensuring that you are not unnecessarily locking funds in tax-saving instruments.

⮚  Seek professional advice

∙       Concept

Financial planning can at times be complicated, particularly with a diverse investment portfolio. 

∙       Application

Getting in touch with a financial professional can endow customised advice depending on your goals, risk tolerance level and tax planning requirements. 

∙       Benefit

Expertise guidance assists in understanding complicated financial decisions, ensuring your investment strategy is both in line and tax efficient as per your objectives. 

As the conversation came to an end, Azhar felt confident and enlightened about the financial journey. His dad’s recommendation had opened his eyes to the significance of preparing proper tax planning. “Remember, son, “his dad said, “investing smartly in 80 C products not just lowers your tax stress but even secures your future financially.”

899 Comments

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