Investment Options available under Section 80c of Income Tax Act


Every Indian with a taxable annual income beyond Rs 5 lakhs is legally obligated to pay taxes.

The government does allow certain deductions up to Rs 1.50 lakhs that can be claimed via investing under section 80c of the Income Tax act.

This deduction can be claimed either via one source of investment or several.

Every investment option has its own pros and cons as discussed below.


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Tax Saving/ELSS Mutual Funds

Tax saving/elss mutual funds allow you an exemption of up to 1,50,000 in your taxes under section 80c of the income tax act.

Tax saving funds have a lock in period of 3 years.

Elss funds need to invest a minimum of 80% of its overall portfolio into equities.

In case of sip plans, you have to keep in mind that each sip instalment completes 3 years in case you wish to redeem.


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Are elss mutual funds also taxed?

Yes, elss mutual funds better known as tax saving mutual funds are also taxed as any other equity mutual fund.

They can only be charged LTCG since they have a lock in period of 3 years so therefore by default the holding period is more than a year.

Elss mutual funds allow you tax exemptions but the gains on them is not tax free.



National Pension System (NPS)

Under section 80c of the Income Tax Act, deductions can be claimed up to Rs 1,50,000.

With NPS, an additional 50,000 can be claimed.

The primary of the NPS as the name suggests is to allow have a source of pension after retirement.

Anyone between the ages of 18-60 can open a NPS account.

Partial withdrawals are only permitted after 10 years and that too under special circumstances.

The highest exposure to equity is capped at 50% and gains after maturity are taxable.


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5 year Fixed Deposits

Tax saving fixed deposits are like your regular fixed deposits except for they come with a lock in period of 5 years and be claimed for tax deductions.

Regular tax saving fixed deposits cannot be claimed for tax deductions.

The interest rate will vary from bank to bank.

KYC is required if you open your FD with a new bank, not required if you open your FD with your current bank.

Unlike regular fixed deposits, you cannot withdraw before the expiry of the lock in period by paying a fine with a 5 year fixed deposit.


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Public Provident Fund

Public Provident Fund better known as PPF can be opened with either a post office or a bank.

It has a lock in period of 15 years.

Withdrawals up to a certain amount is permitted only after the completion of the 5th year.

Even non salaried people can open a PPF account.

The rate of interest keeps changing periodically and is decided by the government.


Sukanya Samriddhi Yojana

This is a government run scheme introduced for the betterment of the girl child.

Parents/Guardians can invest for their girl child who is below 10 years.

The interest rate is fixed by the government on a quarterly basis.

It can be opened with either a post office or a bank.

Interest in only paid up to the period of the scheme (21 years) and not beyond.

A partial withdrawal of up to 50% of the total amount as on the previous financial year is allowed after she turns 18.

Both withdrawals and gains are tax free.


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Ulip’s are a mix of insurance policy along with exposure to either debt or equity.

It provides the best of neither though.

They have high costs and low transparency as compared to other avenues of investment.

Ulip’s have a lock in period of 5 years.

As much as possible it is better to avoid ULIPs since it fails to provide value either with the insurance part or the investing part.

It is advisable to never mix investments with insurance, keep them separate.


National Savings Certificate

The National Savings Certificate is again a savings scheme backed by the government.

It can be opened with any post office.

It comes with a lock in period of 5 years.

There is no maximum limit even though you can claim deductions only up to 1,50,000.


Senior Citizens Savings Scheme

This again is backed by the government.

As the name itself mentions, this scheme is only available for senior citizens.

This can be considered by the most productive scheme for senior citizens considering the comparative schemes.

The interest is paid on a quarterly basis.


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Where should you invest?

If you are a senior citizen with a requirement for quarterly income then Senior Citizens Savings scheme is your best bet.

For everyone else, look no further beyond elss funds since it has the lowest lock in period along with potential for highest returns comparatively.

Modern investing is not about returns, it’s about inflation beating returns because if your investments are not beating inflation with a considerable margin then basically your capital is losing value overtime.


Elss funds are subject to market risks but the longer you stay invested, the less volatile your elss investments are likely to be.

With every scheme (besides elss funds) the lock in period is 5 years and more so you anyway have to wait for 5 years or more.

If you are salaried employee in a company that qualifies for EPF, you can add elss funds to it.

Same is the case for someone with a daughter that can avail of Sukanya Samruddhi Yojana, add elss funds to balance out debt and equity.

ULIP’s have a high transparency cost with no meaningful purpose and therefore should be avoided at all costs.

A 5 year tax saving fixed deposit can hardly beat inflation, cannot be withdrawn prematurely by paying a fine and has a very deterrent tax treatment since the interest gained is added to income and taxed according to the income slab of the individual which makes it the worse possible option for someone who falls under the highest tax bracket of 30%.

Therefore along with ULIP’s, it should be avoided at all costs.

Your most suitable option along with an elss fund are:

  1. Senior Citizens Scheme
  2. Sukanya Samruddhi Yojana &
  3. Employee Provident Fund

The above options are filtered keeping in mind inflation beating returns, purpose, lock- in period and their tax treatment.



Lock in period

Elss funds

3 years

Public Provident Fund

15 years

National Savings Certificate

6 years

Bank Fixed Deposits

5 years


Besides the investment options, there are various other non-investment sources via which too you can claim deductions such as:

  1. Premium paid towards various insurance schemes.
  2. Principal paid on home loan, stamp duty & registration fees.
  3. Tuition fee paid for up to two children for a full time course in any educational institute located in India.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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