Income Tax deductions under 80C

investment

The Income Tax Act has provided certain means through which a taxpayer can ensure that he or she reduces the amount of personal tax he or she pays to the government. 

For instance, investments or expenditures made by the taxpayer, which qualifies under Section 80C of the Income Tax Act, will result in significant savings for the taxpayer. 

Sound tax saving plans help individuals to make investment for the future and also to save on income tax you pay. It is time to learn more about it! 

What does Section 80C state?

  • Under Section 80C of the Income Tax Act 1961, taxpayers can claim deduction benefit on payments, contributions, or investments specified in the Act. In a financial year the maximum limit of the deduction that can be claimed is up to INR 1,50,000.
  • One of the most popular provisions under Section 80C of the Act for tax saving, the taxpayer can avail the benefits provided under this at the investment stage in most cases and not at the maturity stage.
  • Corporate bodies, partnership firms, and other businesses are not qualified to avail tax exemptions under this section, but individuals and Hindu Undivided Families (HUFs) can.
  • Investments in Provident Funds (PF), payments made towards term insurance premiums, premium paid towards life insurance plans, Equity Linked Saving Schemes, payment made towards the principal of a home loan, SSY, NSC, SCSS, etc. is covered as a deduction under Section 80C of the Act.
  • Additionally, the subsections of Section 80C provide certain specific deductions – 
  • Section 80CCC – provides deduction for payments made toward pension plans or annuity plans of insurance companies up to a maximum limit of INR 1,50,000.
  • Section 80CCD – provides deduction for contributions made to the Pension Scheme of the Central Government. (This deduction is available only to individuals and not HUFs) up to a maximum limit of INR 1,50,000.
  • Section 80CCF – provides for deductions for investments made toward long-term government-approved infrastructure bonds up to a maximum limit of INR 20,000.
  • Section 80CCG – provides for deductions for investments made under a government-approved equity savings scheme up to a maximum limit of INR 20,000.

What are the best investment options under Section 80C? 

Investment option

Description 

Eligibility

Liquidity

Rate of interest

Investment limit

Tax treatment

Tax saving fixed deposits


 

These are similar to regular fixed deposits but have a predetermined lock in a period of five years.

Resident Indians 

Lock in period of 5 years.

Interest rates differ from one bank to another.

Minimum limit is INR 1,000.

The interest earned is taxable.

PPF – Public Provident Fund


 

These are long term investments that are backed by the central government.

Resident Indians, salaried and non-salaried individuals 

Lock-in period of 15 years and can be extended to 20 years. Partial withdrawals are permitted after 7 years.

Current interest rate is 7.10% per annum.

Minimum limit is INR 500.

Maximum limit is INR 1,50,000.

The interest earned is tax free.

EPF – Employee Provident Fund


 

This is a retirement benefit scheme that is available to salaried persons.

Employee with basic salary greater than INR 15,000/month

The amount can be withdrawn after 2 months of leaving the job and the individual must not take up any other job in that time period.

Interest rate on the EPF is 8.55% per annum.

The employee and employer is to contribute a minimum of 12% of Basic Pay plus dearness allowance.

The PF balance and the interest is tax free if withdrawn after 5 years of continuous service.

NPS - National Pension Scheme


 

This is a pension scheme started by the central government to give the unorganised sector and working professionals a chance to get pension after employment.

Indian citizens between the age of 18-60 years.

Partial withdrawals, under special conditions, are allowed after 15 years.

The rate of return is between 12-14% per annum.

No limit on minimum or maximum amount.

The employer’s contribution is tax free.

NSC – National Savings Certificate


 

This is a fixed income investment scheme that can be opened at any post office.

Resident Citizens can invest. HUFs, NRIs and Trusts cannot invest into this scheme.

Lock in period of 5 years.

The interest rate is 6.8% per annum currently.

Maximum limit is INR 1,50,000.

The interest is taxable.

Insurance - term, ULIP, Life Insurance


 

These are arrangements entered into to protect the insured individual from some risk. 

The insurance can be purchased for self, spouse, or children.

The interest rates differ for other life insurance  plans for different insurers.

The rate of return is between 12-14% per annum.

No limit on minimum or maximum amount. The limit for insurance plans might be determined by the insurance company.

Investment, withdrawals and maturity amount are tax free.

Payments eligible for tax deductions under Section 80C

Payments in Life Insurance Policies 

The annual premium amounts that an individual pays for a life insurance policy for oneself or his or her spouse or children is eligible for deduction under Section 80C. The said deduction can be made only if the premium is less than 10% of the sum assured.

  • Payments in children’s tuition fees

Tuition fees paid for one’s child’s education is eligible for deduction under Section 80C with an upper limit for the claim placed at INR 1,50,000 per annum. This can be availed for the education of up to two children who are enrolled in a full-time course in an institute in India.

  • Repayment of home loan

The repayment of a home loan taken to construct one’s house is eligible for deduction under Section 80C. The amount of deduction will include stamp duty, transfer expenses, and registration fees.

Conclusion 

If the question - ‘how do I save on my income tax deducted from my salary’ has been plaguing you for some time then resort to utilising the deductions that are provided for under Section 80C of the Income Tax Act. To make the most of this provision, limit the total contributions to the specified products eligible under Section 80C.

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