Investing in mutual funds is a popular way to grow your wealth while also saving on taxes. Many mutual funds are eligible for tax deductions under Section 80C of the Income Tax Act. However, not all mutual funds qualify for this deduction. In this blog, we will list the mutual funds that are eligible for 80C deduction and answer some frequently asked questions about this topic.
List of Mutual Funds Eligible for 80C Deduction
Equity-Linked Savings Scheme (ELSS): ELSS funds are diversified equity mutual funds that invest primarily in the stock market. They come with a lock-in period of three years, and investors can claim tax deductions on investments up to Rs. 1.5 lakhs.
Tax-Saving Fixed Deposits: Fixed deposits with banks and post offices that have a lock-in period of five years also qualify for 80C deduction. The interest earned on these deposits is taxable.
National Savings Certificate (NSC): NSC is a government-backed savings instrument that comes with a lock-in period of five years. The interest earned on NSC is taxable, and investors can claim tax deductions on investments up to Rs. 1.5 lakhs.
Public Provident Fund (PPF): PPF is a government-backed savings instrument that comes with a lock-in period of 15 years. The interest earned on PPF is tax-free, and investors can claim tax deductions on investments up to Rs. 1.5 lakhs.
Unit-Linked Insurance Plan (ULIP): ULIP is a hybrid product that combines insurance and investment. Investors can claim tax deductions on premiums paid up to Rs. 1.5 lakhs.
Conclusion
mutual funds eligible for 80C deduction can provide investors with tax savings while also helping them achieve their long-term financial goals. It’s important to understand the risks associated with these investments and to choose instruments that align with your investment objectives and risk appetite. Consult with a financial advisor before making any investment decisions.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q.What is Section 80C of the Income Tax Act?
Section 80C of the Income Tax Act allows taxpayers to claim deductions on investments made in certain savings instruments. The maximum deduction allowed under this section is Rs. 1.5 lakhs.
Q.Can I claim tax deductions on investments in all mutual funds?
No, tax deductions under Section 80C are only available on investments in ELSS and ULIPs.
Q.How much tax can I save through investments in mutual funds eligible for 80C deduction?
The tax savings will depend on your tax slab and the amount of investment made. If you invest the maximum permissible amount of Rs. 1.5 lakhs, you can save up to Rs. 46,800 (assuming you are in the highest tax bracket of 31.2%).
Q.Is there a lock-in period for mutual funds eligible for 80C deduction?
Yes, ELSS funds come with a lock-in period of three years, while ULIPs come with a lock-in period of five years.
Q.Can I invest more than Rs. 1.5 lakhs in mutual funds eligible for 80C deduction?
Yes, you can invest more than Rs. 1.5 lakhs, but you will not be able to claim tax deductions on the additional investment.
Q.Are mutual funds eligible for 80C deduction safe investments?
ELSS funds and ULIPs are both equity-oriented investments and carry market risk. This means that their returns are subject to market fluctuations and can be volatile. However, investing in these instruments can also provide potentially higher returns than fixed income investments like PPF and NSC.
Q.How do ELSS funds compare to other mutual funds?
ELSS funds have a shorter lock-in period of three years compared to other equity mutual funds, which do not have any lock-in period. This makes them a popular choice for investors looking to save on taxes while also investing in the stock market.
Q.Can I invest in ELSS funds through a systematic investment plan (SIP)?
Yes, you can invest in ELSS funds through a SIP. This allows you to invest small amounts at regular intervals and benefit from rupee-cost averaging. However, it’s important to note that each SIP installment will have a lock-in period of three years from the date of investment.
Q.Can I claim tax deductions on investments in multiple instruments under Section 80C?
Yes, you can claim tax deductions on investments in multiple instruments that are eligible for 80C deduction, up to a maximum of Rs. 1.5 lakhs. For example, you can invest Rs. 50,000 in ELSS funds, Rs. 50,000 in PPF, and Rs. 50,000 in NSC to claim the maximum deduction.
Q.Is there a limit on the number of ULIPs I can invest in to claim tax deductions?
No, there is no limit on the number of ULIPs you can invest in to claim tax deductions, as long as the total premium paid does not exceed Rs. 1.5 lakhs.
