Thursday, July 17, 2008

Demystifying Section 80C – An Introduction

To the uninitiated, Section 80C is that provision in the Indian Income Tax laws that allows you to make specific investments and exempts that amount from being included in your total taxable income.

Didn't get that?

'Save a part of your income and the taxman won't tax that money.'

'What do you mean he won't tax?'

'I mean he won't tax.'

'Oh, another scam!! My mom already warned me.'

'No it's not another scam! It's there in the Indian Tax Laws! It's that piece of paper/ email your payroll/ HR department sends you at the beginning of every financial year!'

'What mail? The one that asks if I have insurance, mutual funds, deposits, etc… Oh, I was wondering why they want my personal investment details.'

Still in the process of figuring out Section 80C? Welcome to the 'Demystifying Section 80C' series and let's do it together.

Introduction of Section 80C

Indian Tax laws have always provided simple tax saving investment options. But it would be limited to specific amounts in certain instruments. With the introduction of Section 80C, the Indian tax payer now has the freedom to choose the instruments and the proportions.

Section 80C Limits

Yes, of course there's a limit. The government needs to run the country, remember! The individual tax payer can now invest rupees one lakh in the instruments specified in Section 80C in any proportion that he wishes.

Would you like to see how much difference rupees one lakh could make to your taxable income and eventually your tax?

With appropriate investments made as specified in Section 80C.

  • If you are a male tax payer earning up to Rs. 250,000 you do not have to pay any taxes
  • If you are a female tax payer earning up to Rs. 285,000 you do not have to pay any taxes

Even if you are above those limits, the savings from utilizing the provisions of Section 80C should not escape you. Section C provides one of those exceptional opportunities to have your cake and eat it too!! You get to save for the future and you get to save income tax!!

In part two of this series, we will discuss the versatility of Section 80C and the variable investment options available.

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