The Income Tax Act, 1961 offers tax-saving benefits on investment instruments such as savings plans, life insurance premiums, PPF, and much more under Section 80C and its sub-sections.
With a view to inculcate the habit of savings and investments among the taxpayers, Income Tax Department provides several deductions from taxable income under Chapter VI A deductions. The Income Tax Act,1961 offers tax savings on various investment instruments such as life insurance, superannuation funds, PPF, and the like under Section 80C and its subsections.
What is Section 80C Deduction?
Section 80C under Income Tax Act,1961 allows taxpayers to reduce taxable income by making tax-saving investments or incurring expenses eligible under this section. The benefit of this section can only be availed by individuals and HUF (Hindu Undivided Family), whereas companies, partnership firms, and LLPs are not eligible to avail deduction under this section. Section 80C includes two subsections which are, 80CCC and 80CCD.
The maximum deduction along with section 80CCC and 80CCD or independently under section 80C is restricted to Rs. 1,50,000.
As mentioned earlier deductions under section 80C apply to both individuals and HUF. In addition, this section covers both Indian residents and NRIs. The deductions are not applicable to companies, partnership firms, and other corporate bodies.
Furthermore, to avail deduction under this section, individuals must file Income Tax Return (ITR) by 31st July each year i.e., ITR needs to be filed on time to reap the benefit under section 80C.
Investment eligible for deduction under section 80C
- Life Insurance Premium: This deduction is available against policies held by self, spouse, children, or any member of HUF. The premium exceeding 10% of the sum assured is not eligible for deduction.
- Public Provident Fund (PPF): Any contribution to PPF is eligible for deduction under this section subject to the limits mentioned above. Any voluntary contribution by the employee towards the provident fund is also eligible.
- National Saving Certificate (NSC): This type of investment is for risk-averse individuals as risk on NSC is negligible. Interest in NSC is semi-annually compounded and the maturity period ranges between 5-10 years.
- Unit Linked Insurance Plans (ULIPs): ULIPs returns are moderately high as compared to other traditional insurance policies.
- NABARD Rural Bonds: Rural bonds that NABARD offers are eligible for deduction under section 80C.
- Employee Provident Fund (EPF): Returns including interest earned from EPF is eligible for the deduction, but it is only eligible for employees in service for more than 5 years. Voluntary contributions towards EPF are also eligible for deduction under section 80C.
- Term Deposit: Term deposit is eligible for deduction if it is for a fixed period of not less than 5 years with a scheduled bank and it is in accordance with a scheme framed & notified by the Central Government.
- Infrastructure Bonds: Deductions under section 80C is allowed for investment in infrastructure bond given investment amount is equal to or greater than Rs. 20,000.
- Senior Citizen Saving Scheme (SCSS): Taxpayers above the age of 60 years are eligible to get benefit from investment in SCSS, which has a minimum lock-in period of 5 years.
- Equity-Linked Saving Scheme (ELSS): This investment comes with compulsory 3 years lock-in period and is eligible for deduction.
- Repayment of Housing Loans: Repayment of Housing Loan except for interest on borrowed capital is eligible for deduction provided house is taken for residential purpose and the taxpayer should not transfer the house property for 5 years. The deduction can only be claimed if the construction of the property is completed.
- Stamp Duty and Registration Fees: Deduction is allowed on payment of stamp duty and registration fees towards procurement of house. It can only be claimed in the year it is actually paid.
- Sukanya Samriddhi Yojana: It is a scheme designed to meet the financial needs of a girl’s education and marriage. The interest earned from this investment is eligible for deduction under section 80C.
- Other Investments: There are multiple types of other investments which is eligible for deduction under section 80C including but not limited to the subscription to notified deposit scheme, subscription to any units of mutual funds as per the notified plan, national pension funds, and other notified investments.
Subsections of Section 80C
Section 80CCC: Contribution to certain funds
This subsection is applicable to individuals irrespective of his/her residential status. If a taxpayer has paid or deposited any amount for any annuity plan of LIC (or any other insurer) for receiving a pension from a fund, such amount shall be eligible for deduction under this subsection. The limit for such deduction remains the same as mentioned above.
Section 80CCD: Contribution to pension scheme of Central Government or other employers
The taxpayer eligible for this subsection is an individual, who is employed by the central government or any other employer or is a self-employed person. Payment made towards certain government-backed schemes such as National Pension System, Atal Pension Yojana, etc. Under section 80CCD(1), 10% of salary (basic and dearness allowance, if any) or 10% of gross income (self-employed) can be claimed as maximum deduction subject to an upper ceiling of Rs.1.5 lakhs. According to Section 80CCD(1B), an additional deduction of up to Rs. 50,000 shall be allowed other than covered under section 80CCD(1). Under section 80CCD(2), the Employer’s contribution towards National Pension Scheme (NPS) (up to 10%, comprising basic salary and dearness allowance, if any) is exempted under this category.