Section 80C of Income Tax Act

Introduction

Section 80C of the Income Tax Act, 1961 is a clause under which various expenditures and investments are exempted from income tax. There are several investments for which one can avail tax benefits under Section 80C. The maximum income tax deduction allowed under this section is ₹1.5 Lakh in a year from the total taxable income of an investor.

This section is only applicable to individual taxpayers and Hindu Undivided Families (HUF). Other entities like corporate bodies, partnership firms, and other businesses are not eligible to avail the Section 80C deduction. Section 80C is further classified into different subsections, namely 80CCC, 80CCD (1), 80CCD (1b) and 80CCD (2). You can claim a Section 80C deduction in a year while filing your income tax returns. Here's a look at the details about Section 80C of the Income Tax Act of India.

Deductions Under Different Subsections of Section 80C

Section 80C of the Income Tax Act, 1961 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:

Deductions Applicable Under Section 80C

As mentioned above, various investment plans are eligible for a Section 80C deduction. If you have deposited your capital in one of the following investments, you can claim the deductions and exemptions available under Section 80C of the Income Tax Act. Here is a look at the investment options and the terms and conditions applicable for them to become eligible for deduction.  

When should I Invest to Claim Deductions Under Section 80C of the Income Tax Act?

Taxpayers generally start making investments towards the end of the financial year simply to claim tax deductions. However, tax experts recommend that investments are supposed to be well planned and strategised. Hence, assessees must ensure they make investments that help them earn interest from April to March.

Eligibility for Claiming Deductions Under Section 80C

There is also a set of eligibility criteria for claiming deductions under Section 80C. Here’s a look at them and other details.

Life Insurance Premiums

If you pay premiums of a life insurance policy, you are eligible for the deductions under Section 80C of the Income Tax Act. These deductions are applicable against policies held by self, spouse, dependent children, etc. Members of the Hindu Undivided Family are also eligible for the same.

Public Provident Fund (PPF)

A contribution made towards the Public Provident Fund (PPF) is eligible for tax deduction under Section 80C. The PPF has a maximum deposit limit of ₹1,50,000. Therefore, the investor can claim the entire deposited amount as a Section 80C deduction. Voluntary contributions made by an employee towards the provided fund also come under Section 80C deduction.

Infrastructure Bonds

A tax exemption on infrastructure bonds is available under Section 80C, provided the investment is equal to or more than ₹20,000. The upper limit of ₹1.5 Lakh is also applicable for such long-term bonds.

Equity Linked Saving Scheme (ELSS)

In this investment scheme, the amount is locked in for 3 years. ELSS comes under the exemption category of Section 80C, and a maximum of ₹1.5 Lakh deduction is allowed.

Senior Citizens Savings Scheme

An investment made towards the Senior Citizens Savings Scheme is eligible for tax exemption up to a maximum limit of ₹1.5 Lakh. Individuals over 60 years of age can avail this tax benefit by investing in SCSS, where the amount is locked in for 5 years.

NABARD Rural bonds

Rural bonds offered by National Bank for Agriculture and Rural Development (NABARD) are also under the tax deductions offered by Section 80C. The maximum deduction amount is ₹1.5 Lakh.

Unit Linked Insurance Plans (ULIPs)

Compared to conventional insurance policies, Unit Linked Insurance Plans have more to offer in the long term. Thanks to the Section 80C deductions, investors can avail a tax benefit of up to ₹1.5 Lakh on the invested amount.

National Savings Certificate

National Savings Certificate or NSC also comes under Section 80C deductions. Interest earned on NSC is compounded semiannually, and its maximum maturity period ranges from 5-10 years. You don't have to adhere to any limitation on your total sum invested towards NSC. However, like other investments, a deduction of up to ₹1.5 lakh is allowed under Section 80C.

Tax-Saving FD

Both banks and post offices offer tax Saving FDs. Here, the amount is locked in for 5 years. The maximum tax deduction allowed under Section 80C for a tax-saving FD is ₹1.5 Lakh on the principal amount. The returns of such investments are liable for tax.

Employee Provident Fund (EPF)

The returns earned from an EPF, including the interest, are eligible for Section 80C deductions. However, it is only applicable to those employees who have continued their service for at least 5 years. Voluntary contributions made towards an EPF account are also eligible for tax exemption under Section 80C.

Principal Repayment Towards Home Loan

The repayment amount paid towards the principal component of a home loan comes under the Section 80C deductions. Certain clauses must be fulfilled to claim these deductions. They are as follows:

• The tax exemption can only be claimed if the construction of the said property is completed

• Transfer of ownership within 5 years of possession will avoid tax exemption under Section 80C.

• If the transfer is made 5 years after the property ownership, any amount claimed as a tax deduction must be taxed in the year of the transfer. Failing to do this will also exclude you from the Section 80C deduction.

Stamp Duty and Registration Charges

While owning a property, stamp duty and registration charges are considered two of the most significant expenses. The government of India gives a tax deduction up to the limit as per Section 80C on the stamp duty and registration charges paid towards house procurement. This deduction can only be claimed in the year when these duties are paid.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a savings scheme specifically designed to meet the financial needs of girls' education and marriage. The parent/legal guardian of a girl child can open this account provided the girl is not more than 10 years of age. The parents of 2 or more girls (only twins) can also invest in this plan. According to Section 80C, the interest earned by this investment plan is eligible for tax exemption.

To Conclude

Section 80C offers tax benefits on a range of financial instruments that must be a part of every investor’s arsenal. Now that you know how this section can help you reduce your tax burden, you are in a better place to make smart investment decisions. At Finserv MARKETS, a range of investment options are available, which are recognised under Section 80C like tax-saving FD, ELSS, ULIPs, and more. You can also check out our ‘Income Tax’ page to educate yourself and learn more about income tax.