Every salaried investor has certain questions pertaining to their mutual fund investments. How much tax would I have to pay on my investments? How can I save tax on my investments? They are often on the lookout of the right tax saving investments that can help them save tax and reduce their tax outgo. One of the best ways to save tax is by investing in Section 80C investments that allows investors to save tax of up to Rs 1.5 lac per annum u/s 80C of the Income Tax Act, 1961. This allows investors to save tax up to Rs 46,800 every year by investing in tax-saving investments if they fall under the highest income tax slab brackets. The tax deduction of up to Rs 1.5 lac is eligible for Section 80C and all its sub sections – 80CCD (1b), 80CCD (1), 80CCC, 80CCD (2). But before you claim deduction under Section 80C, you must understand that only individuals and HUFs (Hindu Undivided Family) can avail this tax deduction of up to Rs 1.5 lac p.a. – partnership firms, LLPs (limited liability partnership), and companies cannot avail the same. What’s more, as per the Section 115 BAC of the current finance act, 2020, taxpayers are not eligible for any tax deduction under Section 80C. However, if an investor opts for the old income tax scheme in any year, they are still eligible to avail the tax deduction.
Mistakes to avoid while claiming for tax deductions under Section 80C
Following are a few common investment mistakes that a taxpayer must try to avoid while investing in tax-saving investments:
- Neglecting lock-in duration
One of the biggest investment mistakes taxpayers make is not paying heed to the lock-in duration of the tax-saving investments they choose to invest in. Section 80C investments are subject to compulsory lock-in tenure that an investor has to adhere to. Bank fixed deposits (FD), ELSS tax saver mutual funds, Public Provident Fund (PPF), Unit-Linked Insurance Plan (ULIP), etc. have a lock-in tenure of five years, three years, fifteen, and five years respectively. If one fails to comply to these mandatory restrictions of lock-in tenure, then the income for that particular financial year will be liable to tax.
- Tax deduction on stamp duty and registration
Certain overheads such as enrollment fee or registration fee, stamp duty, etc. are directly related to allocation of residential house property. However, for commercial properties, an investor cannot claim these tax deductions under Section 80C of the Income Tax Act, 1961. Hence, it’s important that a taxpayer wisely chooses the type of property to claim this tax deduction.
- Claiming tax deduction for tuition fee
If a taxpayer wishes to claim tax deduction for tuition fee or school fee, they must look at certain requirements before opting for any claims. One must understand that an individual can opt for this tax deduction for full-time education in India for an extreme of up to just two children.