Almost everyone is aware of benefits under Section 80C. This part of the Income Tax Act provides one of the most beneficial tax deductions available under the old tax regime. 

Section 80C offers deductions on various instruments such as PPF, EPF, NPS, ELSS, etc. It also allows a maximum of Rs 1.5 lakh as a deduction from your gross income. Let me elaborate with an example: 

Let’s say you invested Rs 1 Lakh in ELSS and Rs 1 Lakh in EPF, you’ll only get up to Rs 1.5 lakh as a deduction under Section 80C. And yes, you can invest in multiple instruments to exhaust this limit, or do it with just one eligible instrument itself.

Should you even utilize Section 80C?

Do you really need to invest in all of these instruments or even need to invest at all? Let’s look at this from different perspectives: 

Firstly, almost all salaried employees have EPF deducted monthly, Your contribution towards EPF can be claimed as a deduction. Depending on your income slab rate, this can take up a good margin, especially if you are contributing more.

Secondly, life insurance premiums. If you’re paying life insurance premiums, this will also get a deduction under section 80C.  Apart from this, I feel one’s age and stage of life have a lot to do with how you can better optimize tax savings via Section 80C.

If you’re in your mid thirties, you mostly may have liabilities such as a home loan and have kids as well. The principal amount from home loans and tuition fees paid for up to 2 kids are eligible for deduction. 

Finally, once you have accounted for these deductions based on your expenses, you can plan and optimise for the unclaimed portion of 80C. 

Note: At this point, see if you have any tax liability in the first place. If existing deductions bring down your taxable income below Rs 5 lakh then you don’t even need to make any additional investments. 

Also Read : What makes ELSS Funds the top bet among Section 80C investment options?

How to invest the unutilized portion

So, now you still have a tax liability and want to utilize section 80C fully. In this case, which instrument you choose to invest in will depend on your financial goals and risk tolerance. 

Ideally, if you’re someone with high risk tolerance and don’t need money for another three years, ELSS is your best choice. But, in case you want low risk, you can choose from options like PPF or Tax Saving Fixed Deposits but do note they have longer lock-in periods.  

Therefore, you don’t necessarily need to make full investments worth Rs 1.5 lakh. Rather, optimise based on the deductions available on your expenses first and later decide if any further investment is required.