What are the Deductions Under Section 80C of the Income Tax Act

Section 80C of the Income Tax Act, 1961 enables individuals and Hindu Undivided Families (HUFs) to claim a deduction under Section 80C of up to ₹1.5 Lakhs each financial year. This powerful rebate under Section 80C covers a wide range of tax‑saving investments under Section 80C—life insurance premiums, PPF, ELSS, home‑loan principal repayment, and more. 

 

Offering both short‑term and long‑term avenues, this 80C exemption encourages disciplined savings and wealth creation. Remember that you have to be under the old tax regime to benefit from 80C exemptions. None of the 80C deductions are applicable in the new tax regime.

Section 80C of the Income Tax Act has been divided into subsections based on different deductions. Refer to the table below to understand eligible tax-saving investments under the subsections of Section 80C:

The following are some of the popular savings options that offer tax exemptions under Section 80C. Each instrument helps you save tax and grow your money over time. 

1. Employee Provident Fund (EPF)

EPF is a retirement savings fund where you and your employer both contribute monthly. Only your contribution (usually 12% of basic salary) is allowed as a deduction under Section 80C, up to ₹1.5 Lakhs annually. The interest earned is tax-free if the account remains active for at least five continuous years. 

2. Public Provident Fund (PPF)

PPF is a long-term, government-backed scheme with a 15-year lock-in. You may invest between ₹500 and ₹1.5 Lakhs per year, and the entire amount qualifies for tax deduction under Section 80C. It offers fixed, tax-free interest, and you get a triple exemption (EEE status) since the contribution, interest, and maturity amount are all tax-free. 

3. Equity Linked Savings Scheme (ELSS)

ELSS are tax-saving equity mutual funds with a mandatory 3-year lock-in—the shortest among Section 80C options. They invest at least 80% in stocks and offer a potential for higher, market-linked returns. You can claim contributions up to ₹1.5 Lakhs as a deduction under Section 80C. 

4. Tax-Saving Fixed Deposits

These are five-year bank or post-office Fixed Deposits with no early withdrawal. You can claim the deposit amount, up to ₹1.5 Lakhs, as a deduction under Section 80C. However, the interest you earn is taxable and subject to TDS, so the net returns depend on your tax bracket. 

5. Sukanya Samriddhi Yojana (SSY)

SSY is a savings scheme for a girl child (under age 10). You may invest ₹250 to ₹1.5 Lakhs per year, fully qualifying for a tax deduction under Section 80C. It offers attractive, tax-free interest (around 8.2% p.a.), and deposits and maturity are also exempt

6. Home Loan Principal Repayment

The principal component of your home loan EMI qualifies for a tax deduction under Section 80C, up to ₹1.5 Lakhs annually. The loan must be for purchase or construction, and completion must happen within five years to remain eligible. 

7. National Pension Scheme (NPS)

The National Pension Scheme is a retirement-focused plan that allows voluntary investments with market-linked returns. You can claim up to ₹1.5 Lakhs under Section 80CCD(1) (within the deduction limit under Section 80C) and an additional ₹50,000 under 80CCD(1B). 

8. National Savings Certificate (NSC)

NSC is a government-backed scheme with a five-year lock-in period. You earn fixed interest, which is taxable but compounded annually. Investments in NSC qualify for deduction under Section 80C up to ₹1.5 Lakhs per year, making it a low-risk, tax-saving option. 

9. Senior Citizen Savings Scheme (SCSS)

SCSS is designed for individuals aged 60 and above. It offers quarterly interest payments at rates set by the government (usually higher than bank FDs). The full investment amount qualifies for exemption under Section 80C, and the interest received is taxable. 

10. Unit Linked Insurance Plan (ULIP)

ULIPs combine investment and insurance under one plan. A part of your premium goes into life cover, the rest into market-linked funds. There is a 5‑year lock-in, and premiums up to ₹1.5 Lakhs are eligible for deduction under Section 80C. The maturity benefit can be tax-free if certain conditions are met.

11. Life Insurance Premiums

Premiums paid for life insurance policies covering yourself, spouse, or children are eligible for deduction under Section 80C, up to ₹1.5 Lakhs per year. It promotes financial protection while offering tax savings.

12. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is a pension scheme for senior citizens (60+). It offers a guaranteed pension for up to 10 years. Deposits qualify for deduction under Section 80C, but pension income is taxable. The scheme also allows loans against the investment and offers a surrender option after five years.

Below is a breakdown of popular schemes eligible for deduction under Section 80C, highlighting their returns, lock-in period, and risk profile. 

To claim tax exemption under Section 80C, you must meet scheme-specific criteria regarding residency, contribution limits, and account status. Below are detailed requirements for the first six popular instruments. 

1. Employee Provident Fund (EPF)

EPF is a mandatory retirement savings plan for salaried employees, where both you and your employer contribute monthly. Only your portion, usually 12% of basic pay, qualifies for deduction under Section 80C. Interest remains tax‑free upon withdrawal after five years of continuous employment. 

• Applicable only to salaried employees working in organisations with over 20 employees.

• Voluntary contributions (VPF) also qualify for deduction.

• Must contribute at least one instalment in the financial year.

• Full tax benefit is available up to ₹1.5 Lakhs annually.

• Interest and withdrawals are tax-free if withdrawn after five continuous years of service.

2. Public Provident Fund (PPF)

PPF is a long-term, government-backed savings plan that offers assured, tax-free interest with a 15‑year lock-in period. Contributions between ₹500 and ₹1.5 Lakhs annually are eligible for tax exemption under Section 80C, and the entire maturity amount is tax-free. 

• You are an Indian resident or a minor represented by a guardian.

• Minimum deposit of ₹500 and maximum ₹1.5 Lakhs per year.

• At least one contribution must be made in the year to keep the account active.

• Account must be active; penalty and revival apply if contributions are missed.

• NRIs cannot open new PPF accounts but can maintain existing ones. 

3. Equity Linked Savings Scheme (ELSS)

ELSS funds are equity-based mutual funds that offer high growth potential along with a 3‑year mandatory lock-in. You can claim investments up to ₹1.5 Lakhs as a deduction under Section 80C, and they must be held throughout the lock‑in period.  

• Funds are in equity-linked mutual funds with a 3-year statutory lock-in. 

• You subscribe via lump sum or systematic investment plan (SIP). 

• Minimum investment depends on the fund; no fixed upper or lower limit. 

• Must hold units until the 3-year period ends—early redemptions not allowed. 

• Returns and unit holdings must comply with mutual fund regulations. 

4. Tax-saving Fixed Deposits (FDs)

Tax-saving FDs are fixed deposits issued by banks and post offices with a strict 5‑year lock-in and no early withdrawal. They offer a deduction under Section 80C on the deposit amount, up to ₹1.5 Lakhs per year; however, interest earned is taxable.  

• Issued by scheduled banks or post offices with a mandatory 5-year lock-in.

• Deposits must be new; cumulative yearly investment cap of ₹1.5 Lakhs applies.

• Partial withdrawals or premature closure are not permitted.

• Interest earned is taxable and subject to TDS.

• Must hold until maturity to claim full benefit. 

5. Sukanya Samriddhi Yojana (SSY)

SSY is a targeted savings plan for girl children (below 10 years), enabling parents to invest ₹250–₹1.5 Lakhs annually. The deposits qualify for full 80C exemption, and the interest, as well as maturity proceeds, are totally tax-free. 

• Eligible for parents or guardians of a girl child under 10 years.

• Minimum deposit ₹250; maximum ₹1.5 Lakhs per year qualifies for deduction.

• Must deposit at least once every year until the child turns 21 or the account runs for 14 years.

• The account continues for 21 years from opening or until marriage after age 18.

• Premature withdrawal only for a girl's education or marriage after she turns 18.

6. Home Loan Principal Repayment

The principal component of your home loan EMI qualifies for tax exemption under Section 80C when the loan is used for purchase, construction, or renovation, and the property is completed within five years. Only the principal paid is eligible up to the Section 80C limit of ₹1.5 Lakhs. 

• Loan is for purchase, construction or improvement of a self-occupied or rented house.

• Construction or acquisition is completed within five years from the end of the financial year in which the loan was taken.

• Only the principal component of EMI qualifies—not interest under 80C.

• The ₹1.5 Lakhs cap under Section 80C applies to combined 80C claims.

• You must have possession and the property must be in your name. 

7. National Pension Scheme (NPS)

NPS helps you save for retirement while offering tax benefits. Under Section 80CCD(1), your contribution (up to ₹1.5 Lakhs combined with other 80C schemes) qualifies as a deduction. An extra ₹50,000 is allowed under 80CCD(1B), and employer's contribution up to 10–14% is eligible under 80CCD(2). 

• Open to Indian residents, NRIs and OCIs aged 18–70 years. 

• You must hold a Tier-I account with regular contributions.

• Contributions under ₹1.5 Lakhs qualify under Section 80CCD(1).

• An additional deduction of ₹50,000 is available under Section 80CCD(1B).

• Only 40% of the withdrawal corpus is taxable; the rest can be reinvested tax-free.

8. National Savings Certificate (NSC)

NSC is a 5-year government savings bond that offers fixed returns and is lock-in bound. You can claim your investment, including imputed interest reinvested in years 1–4, under deduction under Section 80C. 

• Can be purchased in your own name, minor’s name or jointly.

• Each financial year’s investment is deductible up to ₹1.5 Lakhs.

• Interest credited year-on-year is deemed reinvested and qualifies for deduction until the 4th year.

• Maturity interest in the 5th year is taxable.

• No limit on the number of certificates purchased.

9. Senior Citizen Savings Scheme (SCSS)

SCSS is a secure, post-office-backed deposit scheme for individuals aged 60+. Investments here qualify for 80C exemption and offer quarterly interest payouts.

• Open to residents aged 60 or above (retirees aged 55–60 also eligible).

• Minimum deposit of ₹1,000; maximum ₹30 Lakhs.

• Investment qualifies for deduction up to ₹1.5 Lakhs under Section 80C.

• Tenure is 5 years, extendable by 3 years.

• Interest received is taxable as per the investor’s tax slab.

10. Unit Linked Insurance Plan (ULIP)

ULIPs combine insurance and market-linked investment. Premiums up to ₹1.5 Lakhs qualify for deduction under Section 80C, provided they follow regulatory limits relative to sum insured.

• Premium should not exceed 10% of sum assured post-Apr 2012 (20% pre‑Apr 2012).

• The plans must be active; ULIPs have a mandatory lock-in of 5 years.

• Top-ups and premiums combined are eligible within the ₹1.5 Lakhs cap. 

• Maturity proceeds are often tax-exempt under Section 10(10D) subject to conditions.

• ULIP must comply with IRDAI regulations.

11. Life Insurance Premiums

Life insurance premiums provide both protection and tax benefits. These premiums, for policies on self, spouse or children, are eligible for deduction under Section 80C, subject to sum‑assured conditions and policy continuity.

• Policy must be active during the financial year. 

• Premiums must not exceed 10% of sum assured for policies bought post-Apr 2012; 20% for earlier ones. 

• Total deduction capped at ₹1.5 Lakhs across 80C investments.

• Surrendered policies before 2 years make prior deductions taxable. 

• Death or maturity benefits may also be tax-exempt under Section 10(10D).

12. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is a pension scheme for senior citizens aged 60 and above, offering fixed returns. However, it is not eligible for deduction under Section 80C, though pension payments are taxable. 

• Minimum age 60 years.

• Offered by LIC with a 10-year pension term.

• Monthly, quarterly, half-yearly or yearly pension options available.

• No tax deduction on investment under Section 80C.

• Pension receipts are taxable under “Income from Other Sources.”

Let’s take the example of Rohit, a 35-year-old software professional living in Pune. His annual gross salary is ₹10 Lakhs. He plans his finances carefully and makes tax-saving investments that qualify for deduction under Section 80C. 

Income Overview

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  Total investments/savings under Section 80C: ₹3,80,000

• Maximum deduction allowed under Section 80C: ₹1,50,000

• Additional deduction under 80CCD(1B) (for NPS): ₹50,000

So, Rohit’s total eligible deduction under Section 80C and its related subsections

= ₹1,50,000 (80C cap) + ₹50,000 (80CCD(1B)) = ₹2,00,000

Final Taxable Income Calculation

Understanding Section 80C of the Income Tax Act helps you reduce taxable income while achieving financial goals. By wisely allocating funds across options like PPF, ELSS, EPF, and home-loan repayments, you can claim deductions up to ₹1.5 Lakhs and further benefit from NPS’s additional ₹50,000. 

These instruments offer low to high risk choices, helping build wealth securely. Through routine investing and strategic planning, you maximise tax savings and prepare for future financial needs effectively.