Tax Planning
How to Save Tax Under Section 80C with Mutual Funds
By Vikas GuptaPublished Updated
Quick answer
Under the old tax regime, you can deduct up to ₹1.5 lakh a year for eligible investments such as ELSS, EPF, PPF and life insurance premiums. Among mutual funds, only ELSS qualifies. The default new regime offers no such deduction.
Section 80C has been the best-known tax deduction in India for years. Its limit has been ₹1.5 lakh since FY 2014-15. The Income-tax Act, 2025 replaced the 1961 Act from April 2026 and renumbered many sections, but people still commonly use the “80C” name.
What qualifies for the deduction?
| Option | Lock-in | Return |
|---|---|---|
| ELSS mutual funds | 3 years | Market-linked |
| Tax-saver FD | 5 years | Fixed, taxable |
| PPF | 15 years | Set by government, tax-free |
| EPF | Until retirement, with some exceptions | Set annually |
| Life insurance premium | Varies | Depends on the policy |
Home loan principal and children’s tuition fees can also count.
How much room do I actually have?
Many salaried people have already used much of the limit. If your EPF contribution is ₹8,000 a month, that is ₹96,000 a year, which leaves ₹54,000. There is no benefit in investing more than the remaining room purely for tax.
Should I choose the old or new regime?
Compare them each year using the official income tax calculator. The new regime has lower rates and, as of FY 2026-27, no tax on income up to ₹12 lakh (₹12.75 lakh for salaried people). The old regime tends to work for people with large deductions, such as a home loan and full use of the ₹1.5 lakh limit.
How should I decide what to use?
- Count your EPF, insurance and home loan principal first.
- For the remainder, consider your risk comfort. ELSS suits long-term equity investors, and PPF suits those wanting certainty.
- Spread any investment across the year using a SIP. See our ELSS guide.
Tax should support your plan rather than drive it. Tax rules change, so please confirm your position with a tax professional.
Frequently asked questions
Do all mutual funds qualify for the tax deduction?
No. Only ELSS funds qualify, and only if you file under the old tax regime. Other mutual funds offer no deduction when you invest.
Is PPF or ELSS better for saving tax?
PPF offers certainty and tax-free interest with a 15-year lock-in. ELSS has a 3-year lock-in and higher growth potential, but no guarantee. Many investors use both, according to their comfort with risk.
Keep reading
Mutual fund investments are subject to market risks, read all scheme related documents carefully. Mutual fund distribution by Korlipara Vikas Gupta, AMFI-registered Mutual Fund Distributor, ARN-178652. Distributors earn commission from fund houses on regular plans. Content and calculators on this site are for education, not personalised investment advice. Illustrations use assumed returns, which are not guaranteed.