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Section 80C Deductions as per Income Tax Act, 1961

Section 80C Deductions as per Income Tax  Act, 1961
  • 16th Feb 2018 |
  • 60,534

You must have heard about investing in certain financial instruments to reduce your taxable income. But are you aware of all of them? Not only are these instruments useful in claiming income tax deductions but they also help in creating wealth for the long term.

Let’s understand what is Section 80C, 80C deduction list, section 80C limit and go through various 80C investment list for tax savings that you should consider:

Difference between Section 80C, 80CCC, 80CCD and 80D deductions of the Income Tax Act

What is Section 80C of the Income Tax Act, 1961?

Section 80C of the Income Tax Act, 1961 allows individuals and Hindu Undivided Families (HUF) to reduce taxable income by making tax-saving investments and/or incurring expenses eligible for tax deductions.

A limit of ₹1,50,000 is applicable to total annual income. Individuals seeking deductions under this provision can also engage in various market schemes and claim deductions on the portions of their earnings taxed under the act.

The benefits under Section 80C pertain to the provisions for tax deductions on various payments. Eligible earners and taxpayers can claim up to ₹1.5 lakh in deductions each year, which is a mix of some of the deductions available under Sections 80C, 80CCC, and 80CCD.

Eligible deductions under Section 80C

Taxpayers spend a large amount of time and effort every fiscal year researching and finding strategies to invest in order to save money on taxes. Unfortunately, the procedure is fairly intimidating, from visiting banks or other financial institutions to contacting agents or becoming perplexed by the list of several tax-related products available online. Add in the fact that you struggle to understand and apply financial lingo because you come from a non-financial background. You must understand the finer points of tax planning in order to use and maximize your hard-earned money effectively. Income owners fall into different tax brackets based on their earnings. However, the government has provided provisions under Section 80C of the Income Tax Act that allow various deductions to assist them in saving money. Tax-saving schemes and initiatives that can provide individuals or HUFs with tax benefits are included in the Section 80C deduction list. Before delving into the 80C deduction list, it’s a good idea to familiarise yourself with the various tax deductions available. Section 80C deduction list can be classified into two categories:

  • An individual’s investment activities You put your money in a fund or scheme for some time, then get it back with additional interest and advantages.
  • Individual’s spending activities You put your money into the Section 80C investment list.

To avail yourself of the deductions under section 80C, there are numerous schemes you can opt for. The following are some insurance policies that can help save tax under section 80C:

1. Public Provident Fund (PPF)

Section 80C of the Income Tax Act of 1961 allows for tax deductions on PPF contributions made each year. For the same limit, anyone can claim the deductions. You can invest in PPF which has a maximum investment limit of ₹1,50,000 per year and a lock-in period of 15 years and claim it under Section 80C. Also, the returns after maturity are exempt from taxes giving you a dual advantage. Other tax advantages are available through PPF accounts. For example, PPF deposits yield tax-free interest, and PPF accounts and proceeds are not subject to wealth tax. As a result, PPF accounts provide you with three tax advantages: a deduction on deposits, tax-free returns, and no wealth tax. To claim PPF investments as deductions under Section 80C, you must submit the details of your PPF investments for the previous year in your income tax returns. There is a place for exemptions under 80C, where you can enter the amount you invested and any supporting papers to claim deductions.

2. Life Insurance Premiums

You can claim deduction under Section 80C LIC premium paid for life insurances for yourself, your children or your spouse and enjoy tax benefits. You can also choose to invest in life insurance deduction in income tax saving plans like term insurance that helps you protect your loved ones’ financial future. You will not be eligible for such a reward if you pay premiums for your parents or parents-in-law. However, if you have more than one policy, Section 80C of the Income Tax Act allows you to claim tax benefits on all of them up to a total of ₹1.5 lakh.
If you’re a HUF, you’ll be able to deduct the cost of the premium from your taxable income. In addition, purchasing life insurance can help you save money on your taxes under Section 80C, as it not only lowers your tax bill but also protects your loved ones financially from life’s unforeseen problems.

3. Unit-Linked Insurance Plans

Unit-linked insurance plans provide both life insurance and investment benefits. They also give an income tax advantage under Section 80C on the amount invested. Tax-deduction benefits are available up to 10% of the sum guaranteed or annual premiums, whichever is smaller. In addition, ULIPs give you the flexibility to maximize your investments by allowing you to choose from a number of market-linked fund options.
You can use a ULIP calculator to estimate how much insurance coverage will be enough for your loved ones and how much you will have to pay for it.

4. Equity-Linked Savings Scheme (ELSS)

ELSS or Equity-Linked Savings Scheme is a diversified equity mutual fund with a lock-in period of 3 years. It gives you tax-saving benefits with long-term returns. The lock-in period lessens the impact of lows of the stock market and compounds the money invested.

5. Employees’ Provident Fund (EPF)

EPF account is used to accumulate a part of your salary on a monthly basis which is exempted from tax. Interest earned on the corpus should be kept in check as interest above a certain limit is taxable.

6. Fixed Deposit

Fixed deposit in a bank is eligible for deduction under Section 80C but they come with a lock-in period of 5 years where premature withdrawal is not allowed. The interest earned in the five-year fixed deposit is taxable and isn’t eligible for tax-saving benefits.

7. Five-year Post Office Time Deposit Scheme

The period for this scheme is 1-5 years and by investing in such a scheme, you can avail tax deductions under Section 80C of the Income Tax Act.

8. National Savings Certificate (NSC)

NSC is a tax-saving scheme that can be claimed under the income tax Section 80C and has a lock-in period of five years. The interest earned is taxable but as the interest accumulates in the account, and is deemed as reinvested, it is eligible for a new claim under Section 80C.

9. Senior Citizens Savings Scheme (SCSS)

SCSS is suitable for senior citizens and qualifies for deduction under the income tax Section 80C with a tenure of five years. To invest in this scheme, you have to be at least 60 years of age. If you were to take voluntary retirement, then you can opt for it after the age of 55.

10. Sukanya Samriddhi Yojana

This is a savings scheme for a girl child who is eligible for tax benefits. The parent or legal guardian of the girl child can open an account under this scheme till the child reaches the age of 10. The scheme is available for two girl children and is extended to a third child in the case of twins. The amount has to be deposited for a total of 15 years which will mature after 21 years.
Know more about SSY: What is Sukanya Samriddhi Yojana?

11. National Pension Scheme (NPS)

National Pension Scheme is a pension program for employees that do not have a pension system created for retirement. This scheme was started by the Government of India as an opportunity for employees working in the private sector to have savings for their retirement. This is a good investment tool for working professionals which is open from the age group of 18 to 60. The investment remains in a lock-in till you reach the retirement age but can be partially withdrawn after completing 10 years in the scheme.

12. Home Loan Principal Repayment

If you have availed home loan from any bank or financial institution, you can avail of deduction under section 80C ₹1.5 lakh on the home loan principal repayment amount.

13. NABARD Rural Bonds

NABARD, or the National Bank for Agriculture and Rural Development, offers two sorts of bonds, viz. Bhavishya Nirman Bonds and NABARD Rural Bonds. Under Section 80C of the Income Tax Act, investing in these will make you eligible for deductions worth ₹1.5 lakh.

Sub-Section under Section 80C

Section 80C of the Income Tax Act contains a comprehensive list of deductions that an individual may be entitled to, which are divided into subsections that allow taxpayers to choose the best option and make sound financial decisions.

  • Section 80CC

This section is intended to encourage people to preserve their hard-earned money by providing a financial incentive to join government-approved pension plans. Both a person’s and their employer’s payments are tax-deductible, as long as the deduction does not exceed 10% of the person’s income. Individual taxpayers are the only ones who can take advantage of this deduction.

  • Section 80CCC

Tax deductions on pension fund investments are allowed under Section 80CCC. The clause applies to any company’s pension fund and provides a maximum deduction of ₹1.5 lakh. On the other hand, individual taxpayers are the only ones who can claim this deduction.

  • Section 80CCD

Individuals are encouraged to save by Section 80CCD of the Income Tax 80C, which provides an incentive for them to invest in pension programs that the Central Government is notifying. Only contributions made by a person and their employer less than 10% of the employee’s salary are eligible for a tax deduction. This option is only available to individual taxpayers.

  • Section 80CCF

Section 80CCF allows tax deductions and benefits under Section 80C on the subscription of long-term infrastructure bonds that the government has notified. It is open to both Hindu Undivided Families and individuals. A maximum deduction of ₹20,000 can be claimed.

  • Section 80CCG

Section 80CCG of the act allows for a maximum deduction of ₹25,000 per year, with certain individual residents being eligible. In addition, the government allows investments in equity savings programmes are allowed for deductions by the government; however, the ceiling is set at 50% of the amount deposited.

Payments Eligible for Deduction under Section 80C

1. Payments Towards Life Insurance

If you have bought term life insurance, then the payments made towards premiums can be claimed under Section 80C of the Income Tax Act, 1961. For this, the insurance can be in your name or your wife and child’s name. The maximum limit set for exemption for life insurance premium under Section 80C is ₹1.5 lakhs. Additionally, the total amount that can be claimed for exemption should be 10% of the sum assured.

For instance, you make an investment in life insurance during the financial year 2022-23 to avail of the advantage of deduction under section 80C and pay a premium of ₹8,400. The policy is taken with a sum assured of ₹25,000. Therefore, regarding the premium of ₹8,400 on the life insurance policy, the deduction will be restricted to 20% of the capital sum assured. Sum assured is ₹25,000, and 20% of the same will work out to be ₹5,000. Hence, out of ₹8,400, he will be eligible to claim a deduction of ₹5,000.

2. Repayment of House Loan

If you are repaying the principal component of a home loan, then that amount is eligible for deduction under Section 80C. This tax exemption also includes payments made towards stamp duty and registration.

3. Payments Towards Children’s Fees

You can claim fees paid for admission of your child in schools, colleges or universities in India for full-time courses only. The tax exemption under Section 80C can be claimed for up to two children for that particular financial year.

Tax Savings Section

Eligible Tax Deduction

Eligible Investments

Section 80CCC

₹ 1,50,000

Life insurance plans for pension & annuity plans

Section 80CCD

₹ 1,50,000

Pension scheme of Central Government (HUFs are not eligible for this deduction)

Section 80CCF

₹ 20,000

Investing in long-term infrastructure bonds approved by the government

Section 80CCG

₹ 25,000

Investing in equity savings scheme approved by the government

Difference between Section 80C & Section 80D

Point of Difference

Section 80C

Section 80D

Meaning

Allows tax deductions and exemptions for premiums paid for PPF, EPF, LIC premium, ELSS, ULIP, SSY, NPS, etc.

Allows tax deduction and exemptions for premiums paid for medical insurance for self, family, & parents and expenses incurred on preventive health check-ups.

Maximum Limit

Up to ₹1.5 lakhs

Up to ₹ 1 lakh

Scope of Tax Benefits

Permits higher tax benefits

Permits lower tax benefits

Sub-sections

Includes sub-sections like 80CC, 80CCG, 80CCG, 80CCC, 80CCD, etc.

Includes sub-sections like 80DD, 80DDB, etc

Exclusions

Exemptions are only applicable for individuals and HUFs, and not for companies

Premiums paid by the third party or through cash.

Know more about Section 80D: Section 80D of Income Tax Act, 1961

Section 80C - Frequently Asked Questions (FAQs)

1. Who can claim tax exemption under Section 80C of the Income Tax Act, 1961?

Any individual and the Hindu Undivided Family (HUF) can claim INR 1,50,000 from their annual income under Section 80C of Income Tax Act, 1961.

2. Can an individual invest in various financial instruments and claim deductions of up to INR 1,50,000 for each type of investment?

No, an individual can claim only INR 1,50,000 for that particular financial year even if they are investing in different financial instruments.

3. What are the tax benefits that can be claimed on life insurance?

You can claim the premiums paid towards securing life insurance under Section 80C of the Income Tax Act, 1961. You can also get tax exemption on the maturity benefit or the death benefit received by your family in the event of your death under Section 10(10D).

4. Who can claim tax exemption on a Senior Citizens Savings Scheme under Section 80C?

As the Senior Citizens Savings Scheme is meant for senior citizens, you will have to be of 60 years to invest in SCSS. But if you have taken voluntary retirement, then you can start investing after you turn 55 years of age.

5. What is Section 80C?

Section 80C under the Income Tax Act, 1961 lists the investments and expenditures providing tax savings. You can claim deductions up to ₹1.5 lakhs from your taxable income under this clause. This benefit applies to individual taxpayers and Hindu Undivided Families (HUFs) only.

6. Does investment in ULIP come under Section 80C? When can I withdraw?

Premiums paid for ULIPs are eligible for Section 80C deductions. After the five-year lock-in phase, you can redeem part of your accumulated funds for urgent financial needs. Several ULIPs are available from Kotak Life. You can select one matching your investment and tax-planning goals.

7. What is the minimum holding period in case of life insurance premium for deduction under section 80c for the assessment year?

In order to claim a deduction for life insurance premiums paid under section 80C, a minimum holding period of two years must be met. If a life insurance policy is terminated, sold, or otherwise transferred before the minimum holding period of two years, the deduction permitted in previous years will be considered income in the year the policy is terminated, sold, or otherwise transferred.

Kotak e-Term Plan

Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

T&C

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