If you are a salaried person having TDS deducted, Congratulations!………you are among the 3% of the Indians who pay income tax.
Add to this, the level of awareness among the average salaried group on tax planning is also limited.
This double whammy makes the class of salaried employees the biggest victims of tax burden.
When we talk about tax savings, Section 80C of Income tax act is the most popular and also one of the least understood sections.
It’s also one of the most misused sections used by a lot of companies to sell you junk products riding on the benefit of tax savings.
So let’s start by busting some myths on 80C:
Myth 1: Investment in 80C products is just for tax saving
This is probably the biggest misconception of most people.
Depending on the income, consider the amount that will go in 80C bucket:
|Gross income p.a
|% investment in 80C*
*Assuming entire limit of INR 1.5 Lakh is utilized.
Considering on average, close to 10 to 15 % of your entire salary goes into 80C, you need to treat as an investment opportunity to earn returns or meet your financial needs, not just a tax saving avenue.
Myth 2: Investments in 80C are few and offer more or less similar benefits
There are a ton of investment options available under 80C.
These options vary largely on range of factors- returns, liquidity, taxability of the returns.
Don’t treat all 80C options on equal footing.
Here, knowing what to avoid is often more important than knowing what to buy.
Also, consider that it’s not just the “what” but also “how much” money you allocate that is important.
Want to know the entire option list with all the comparison done. Check here-
Myth 3: I can copy what my friend or relative is doing
Any investment needs to be customised to your needs.
All tax payers don’t put their money in the same 80C bucket.
80C portfolio of all tax payers needs to be customised based on their age, income and family profile.
You can ‘t compare investment portfolio of single 25 year old adult to 30 year married adult to a senior citizen.
If you are married with children and have a home loan, chances are that you may not even have to put a single rupee into 80C investments. Reason – Your EPF, child tution fees (yes it is eligible for 80 C) and home loan principal repayment may more than suffice to take care of the INR 1.5 lakh limit.
The point that needs attention here is your choice of 80C investment will vary based on your age and other factors. It’s not a one size fits all for all the tax payers.
It also means that you need to change your 80C choices based on your age and circumstances.
Myth 4: Investing in 80C doesn’t need much research or time
Think about how much time you spend researching before buying a mobile or laptop.
Selecting the right investment in 80C merits some research and time to make the right choice.
It may not be as interesting exercise. But it’s worth it.
Aping your colleague or friends portfolio or leaving it to the last minute is generally going to be costly.
Check out here to get an easy walkthrough of the approach
Myth 5: Saving tax is the GOAL
Your goal in selecting among investments eligible for 80C is to maximise returns and address your financial needs.
All the investments will give you more or less same tax benefit. Infact, the amount of tax saving depends more upon your income level, than anything else.
Saving tax is just one of the results which makes the investment more attractive.
While it’s pretty much the same point as Myth 1, its important enough to reiterate it.
Hi, I am CA with a passion for personal finance and investing. I use this blog to share helpful money gyan that I have learned the hard way.