Why exhausting Rs 1,50,000 under Section 80C makes for a good idea

How much income taxes you pay to the government depends on the income you have earned throughout the year. Your income is not only limited to your salary, but could also earn from several other sources, like say — a house property, profit or loss from selling stocks or from interest on a savings account or on fixed deposits.

Investments and expenses made under Section 80C can bring down your gross income by Rs 1,50,000. This, in turn, can lower your taxes considerably — so much that it could move you down one income tax slab.  This means that you may have to pay only 10% tax instead of 20%.

Here’s an example:  Radha makes about Rs 5,50,000 per annum and has invested Rs 20,000 in ELSS and Rs 36,000 in PPF.  She also contributes to the provident fund.

Let’s calculate her taxes without taking Section 80C deductions into consideration. Her taxable income is Rs 5,50,000. Her gross tax comes up to Rs 36,050.

Now, let’s take her Section 80C investments into consideration – Rs 36,000 in PF and PPF and Rs  20,000 in ELSS. A total of Rs 92,000 has to be deducted from Radha’s gross income under section 80C. Her taxable income now is Rs 4,58,000 and gross tax is little under Rs  20,000.

Radha has almost halved her taxes with investments under Section 80C. Find out how the Section 80C deductions can change your income taxes with our income tax calculator.

Thinking of ways to exhaust the Rs 1,50,000 under Section 80C? Start with the expenses that can be claimed as a deduction. Section 80C not only encourages investments in savings schemes but also offers tax relief on some of your expenses.

1. Check your PF balance. Your provident fund contribution accumulated over the years itself might add up to a sizeable amount. This is covered under the Rs 1,50,000 limit.
2. Are you paying off home loan? Your principal repayment for this year can be claimed as a deduction.
3. Do you have children who go to school or college? Get their fee receipts and add it. (This also includes play school, preschool)
4. Are you planning to buy a house this year? Expenses related to stamp duty and registration charges can be deducted under Section 80C.
5. Are you making life insurance premium payments? Claim the premium payments too. The only condition is the premium must be less than 10% of the sum assured.

Add them up. Rs 1,50,000 – (1+2+3+4+5) = Amount left for investments under Section 80C.

Now you may begin thinking about tax-saving investments with what’s left of the remaining amount.