Limitations of having too many options

The cap of ₹1.5 lakh leaves too little to choose from Section 80C

- Shipra Sharma and Narayan Krishnamurthy

The maximum tax savings of up to ₹46,350 under Section 80C basket easily catches everyone’s eye. It is a different thing that this sum is for those at the highest tax bracket and not for those in the lower tax brackets. For taxpayers to optimise their tax liabilities there are several windows to save, invest and spend money and claim the tax rebate. The most popular is the Section 80C limit of ₹1.5 lakh which offers plenty of choices to claim tax rebate. For scores of taxpayers, the choice of instruments available under this section becomes the only savings and investment avenue.

There are at least 14 instruments through which you can claim tax deductions under Section 80C. Some of the instruments that offer this benefit include the EPF, PPF, NSC, payment towards children’s tuition fees, ELSS, NPS, life insurance policy premiums, deposit in the Sukanya Samriddhi Yojana, and many others. That these can be categorised as savings, spending and investing alternatives can help taxpayers proportion their contributions accordingly to maximise their tax gains.

Confusing

It’s a case of problem of plenty when it comes to Section 80C. Not only is there a lot to choose from, the end result of each of the instrument varies with varying lock-in of monies. The shortest lock-in of three years is with the ELSS investments, whereas the longest is the NPS contribution, which can puzzle the smartest minds. It is common for many taxpayers to make the wrong choice of instruments to claim tax benefits under this section, resulting in difficulties with liquidity as well as a meaningful usage of the available tax benefits to their advantage in achieving financial goals.