For those who have opted for old tax regime you have to make certain payments in order to claim tax benefits under Section 80 C upto Rs. 1.50 lakh. Some of the payments are in the nature of pure expenses like premium payments for tem life insurance or tuition fee for your children. While there are certain payments which are in the nature of investments and you get back the money with accretion on it after the lock in period is over. In this article I shall discuss whether, when and to what extent you can use the payments in the nature of investments made in the past for tiding over your temporary credit crunch.
Public Provident Fund Account
Under the provisions of Section 80 C you can deposit an amount upto Rs. 1.50 lac in your own account or account of spouse or child and claim the benefits. PPF account has tenure of fifteen years and you get the maturity proceeds only on or after 1st April falling after the account has completed full 15 years. Before completion of the tenure the scheme of PPF allows you to take a loan from this account initially after completion of one year from end of the year in which the account was opened but before completion of five years. The loan amount which one can take loan is restricted to 25% of the balance of the account two years back in the year in which loan is applied for. So in the third year you can get a loan of 25% of the balance standing to your credit at the end of the third year. After completion of five financial years of your first contribution you are allowed to partly withdraw certain part of balance from the PPF account without having to repay. The amount which you can withdraw is restricted to 50% of the lower of the balances in the account at the end of the fourth year preceding or balance at the end of the preceding year of the year of withdrawal.
National Saving Certificates
The next avenue of investment under Section 80 C is NSC where you can use the existing investment before its maturity. The NSC have tenure of five years. In normal circumstances you are not allowed to withdraw from the NSC. However, you can still use this investment to tide over your temporary liquidity crunch. You can take a loan against NSC from any bank or NBFC. Banks normally give you anything between 70% to 80% of the face value of the NSC as loan. The rate of interest depends on interest rate cycle and bank. SBI presently offer loan against NSC at 11.20%. This way you can use your existing NSC for overcoming your credit crunch for availing tax benefit,
Equity Linked Saving Scheme
Investments in equity linked saving schemes Popularly known as ELSS scheme are locked for three years. You can redeem your investment in ELSS anytime after the mandatory period of three years is over. However, the time of your redemption certainly would depend on the market conditions. In case you are not able to get good returns on your ELSS investments after completion of three years, you can still use the same investment for claiming deduction under Section 80 C just by recycling the same i.e. by redeeming the existing investments and again buying the same on the same day so as to be eligible for tax benefits without having to make any further investments. You can also get loan from banks against security of these investments on the basis of their NAV.
Insurance Polices
You can take loan against your existing life insurance policies once they have acquired some paid up value. The loan against your insurance policies is generally available after five years have elapsed in case of regular premium paying terms. Please note no loan is available against your term plan life insurance policies as these are pure insurance products and do not have any component of saving in it.
The author, Balwant Jain, is an experienced tax expert. Views expressed are personal.
