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Section 80C of Income Tax Act- Tax saving income

Know your Income

 When we talk about salary, we get confused with salary, there’s lot more to income then just your pay cheque.

1)      Income from salary- Any income received from your employer is salary. Salary includes wedges, perquisites, pension, gratuity, bonus, commission, etc.

2)      Income from house property- It can be rental from your residential house or commercial property.

3)      Capital gains- Capital gain is a profit, which is earned out of the sale of any capital asset such as land, house, jewellery, car, shares/mutual fund.

4)      Income from business or profession- As the name suggests, this includes income from any business which you are doing or any profession .

5)      Income from other sources- Income from any other source, which are not included I the above four points is income from other sources such as gift, interest, dividends, winning from lottery etc.

Know the income, which are exempt from tax

• Income from agriculture activities

• Profit earned by way of sale of units of ULIP

• Dividend received from mutual funds

• Dividends received from companies

• Interest income earned on employees provident fund (EPF) and public provident fund (PPF).

• Income received as commuted amount of pension

• All capital gains generated by sale of shares after one year of purchase

Section 80C of Income Tax Act- Tax saving income- As per section 80C,you can get an exemption of up to Rs.1,00,000/- on the following investments. Its important for you to understand the following if you want to do tax planning and save tax.

• Home loan principle repayment- If you have taken home loan and have started the repayment of principal then you should not miss this opportunity to save tax but its important to get exception that the house for which you are claiming exemption is self occupied and you would not be able to claim HRA benefit along with this exemption. Only one of these two can be claimed.
• Five year bank fixed deposit and national Saving Certificates- Bad deposit and NSCs gives an assured return of 7-9% and it’s a safe investment. You would get tax exemption, but you should remember that your money is locked for 5 years and interest is fully taxable.
• Life Insurance Policies- Investment in life insurance policy is also exempt under section 80C. But I suggest take life insurance policy only if it is required and not only to save tax. As annualize return on life insurance policies is between 4-8%.
• Public Provident Fund- Investment in PPF is exempt and you get an assured return of 8%, but PPF money is blocked at least for 6 years.
• Pension Plan- Under section 80C, 33 % of corpus can be with drawn without tax at the time of maturity of plan.
• Child’s school fees- School fee and college fee of your children paid during the year is exempt under section 80C for tax deduction, but you should remember that, this exemption is allowed only for two children and play schools and unrecognized schools and colleges do not qualify under section 80C for this exemption.
• ULIPs - Under section 80C partial withdrawals are allowed after three years of investment and they are tax free.

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