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Section 80C: Income Tax Deduction under Section 80C

Save Tax Now Section 80C: Income Tax Deduction under Section 80C

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 Section 80C is and go through various tax-savings investments that you should consider:

What is Section 80C?

Section 80C of Income Tax Act, 1961 allows individuals to claim tax deductions and reduce their amount of taxable income. It also enables individuals and Hindu Undivided Family (HUF) to claim INR 1,50,000 from their annual income as non-taxable income by making certain investments. Here is a list of investments eligible for deduction under Section 80C:

Eligible Deduction under Section 80C

1. Public Provident Fund (PPF)

You can invest in PPF which has a maximum investment limit of INR 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.

2. Life Insurance

You can claim premiums paid for life insurances for self, children or your spouse under Section 80C and enjoy tax benefits. You can also choose to invest in tax saving life insurance like ULIPs (Unit-Linked Insurance Plan) which has a lock-in period of 5 years.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. Sukanya Samriddhi Yojana

This is a savings scheme for a girl child which 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.

9. 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 private sectors to have savings for their retirement. This 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.

Payments Eligible for Deduction under Section 80C

1. Payments Towards Life Insurance:

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

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 INR 1,50,000 Life insurance plans for pension & annuity plans
Section 80CCD INR 1,50,000 Pension scheme of Central Government (HUFs are not eligible for this deduction)
Section 80CCF INR 20,000 Investing in long-term infrastructure bonds approved by the government
Section 80CCG INR 25,000 Investing in equity savings scheme approved by the government

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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 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 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 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 NSC – National Savings Certificate? Does this come under Section 80C?

NSCs are investments providing government-declared interest rates and feature five-year maturity periods. The capital and first four years interests that get reinvested in the plan are tax-deductible.

8. What is EPF? Does this come under Section 80C?

Employee’s Provident Fund (EPF) is a mandatory retirement plan for salaried employees. You and your employer both must contribute at least 12% of your basic pay towards your EPF. Your contribution earns a tax break under Section 80C.

9. What is NPS – National Pension System? Does this come under Section 80C?

NPS is the Central Government’s pension programme. Investments up to 10% of salary/ 20% of gross income (for the self-employed), or ₹1.5 lakhs are tax-deductible. Additional deductions up to ₹50,000 are available under Section 80CCD(1B).

10. Does investment in Sukanya Samriddhi Yojana come under Section 80C? When can I withdraw?

Parents or legal guardians of a girl child less than 10 years of age can invest in this savings scheme. It is included under Section 80C investments. The investment matures after 21 years. But partial withdrawals are allowed once the girl child turns 18 years old.

11. What is the Senior Citizens Savings Scheme (SCSS)? Does this come under Section 80C?,/p>

Senior citizens over 60 years of age or 55-years-old persons opting for voluntary retirement can participate in this defined-returns savings plan. It is eligible for Section 80C benefits.

12. How much tax can be saved under 80C?

Tax rate Tax saved by investing ₹1.5 lakhs in 80C instruments (including 4% Cess)
30% ₹46,800
20% ₹31,200
5% ₹7,800

13. What is Section 80C, 80CCC, 80CCD?

Eligible investments
Section 80C PPF, EPF, ELSS, NPS, NSC, SCSS, life insurance, home loan principal repayments amount, tuition fees, and many other financial instruments
Section 80CCC Pension funds and annuity schemes from life insurance companies, e.g. Kotak Premier Pension Plan
Section 80CCD Central government pension schemes, e.g. NPS and the Atal Pension Yojna

14. How to calculate deductions under Section 80C?

The total available deduction is the sum of all investments under:

  • Section 80C plus 80CCC – maximum amount eligible = ₹1.5 lakhs.
  • Section 80CCD (1) – 10% of salary with DA/ gross total income (for self-employed)/ ₹1,50,000 (whichever is less)
  • 80CCD (1b) – permissible deduction = ₹50,000 additional to the 80C limit
  • 80CCD (2) – 10% of salary for employer’s contribution to NPS

15. What is the difference between 80C and 80CCC?

  • 80C - an umbrella clause providing tax relief to individuals and HUFs through various tax-saving tools
  • 80CCC - available to individuals for building pension funds and buying life insurance annuity plans

16. Which insurance comes under 80C?

Life insurance premiums are included under Section 80C. Kotak Life offers a wide range of protection and savings oriented life insurance plans. You can select one as per your insurance and investment needs and reduce your payable tax.

17. What is a term deposit under Section 80C?

Fixed deposits with at least five-year tenures are eligible for tax deduction under Section 80C. Such term deposits are available from banks and the post-office.

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