Section 80c - Deductions under Section 80c

Section 80c under the Income Tax Act is probably one of the best known sections for the layperson. There are many eligible deductions and tax exemptions under Section 80c from home loan payments to fixed deposits and mutual fund investments.

Overview of Deduction under Section 80c:

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In Union Budget 2018, there has been no changes made in Section 80C.

When it comes to income taxes, most people start sweating and running around looking for ways in which they can save on it. One of the most commonly known sections of the Income Tax act is section 80C. If the name sounds familiar then its probably because you declare things like premiums for life and health insurance, investments in mutual funds, investments in pension schemes and fixed deposits under this section. In fact, for the average Joe who does not have a very complicated income setup, 80C is one of the most important sections.

Tax Exemption under 80c for FY 2015-16:

As opposed to the deductions for the financial year 2013-14, the limit for maximum deduction under section 80c for 2014-15 and 2015-16 have been changed to Rs. 1.5 lakhs. This means that investments made under 80C up to Rs. 1.5 lakhs will be eligible for tax exemptions. These exemptions are not just limited to investments but also include payments that may be made towards expenses like education fee and home loans.

Eligible Deductions under Section 80c:

So what are the deductions that are eligible for exemption under section 80C? The following is a list of dedications that are included under section 80C.

  • Home Loan Payments:

    When you pay a home loan EMI, there are two major components to it; the principal and the interest. Under section 80C you can claim tax benefits on the principal paid. You can also claim benefits under section 24.

  • Stamp Duty and Registration Charges for House:

    When you buy a house, one of the expenses you incur will be payments for the stamp duty and the registration of the property. Whatever is spent on these expenses is eligible for benefits under section 80C

  • Life Insurance:

    All life insurance premium payments, include those paid for unit linked insurance plans, are also eligible for tax benefits under section 80C. Even if your policy covers other family members, you can claim the tax benefits for the premiums paid. The limit for claiming these benefits is Rs. 1.5 lakhs. This means that if you make no other investments but pay Rs. 2 lakh towards a life insurance policy then Rs. 1.5 lakh out of it will be eligible for tax benefits. This benefit will also only apply if the premium is paid by you, not if your wife or husband or parents pay the premium.

  • Health Insurance:

    When you take a health insurance policy, be it an individual or a family floater policy, the annual premium you pay for the policy is eligible for tax benefits under this section.

  • Fixed Deposits:

    Most banks offer tax saving fixed deposits that provide tax benefits on the amount deposited in them. These deposits come with a mandatory lock in period of 5 years and can have a maturity period ranging from 5 years to 10 years. The limit of investment in these deposits is determined by the bank and can range from Rs. 1 lakh to Rs. 1.5 lakhs in a year. It needs to be noted that not all FD investments are eligible. Only the ones made in tax saving FDs are.

  • Mutual Fund Investments (ELSS):

    When you invest in a mutual fund, particularly an equity linked savings scheme or a tax saving mutual fund, the amount invested is eligible for tax exemption under this section. These mutual funds come with a lock in period of 3 years.

  • Provident Funds:

    There are different provident funds that you can invest in. One is the PPF (Public Provident Fund) with an annual investment limit of Rs. 1.5 lakhs and a maturity period of 15 years. The others are EPF and VPF; EPF are Employee Provident Funds where the employer and the employee contributes towards the PF and VPFs are Voluntary provident funds where the employee can choose to contribute more than the employer towards the PF. Regardless of the type of fund, all contributions made are eligible for tax benefits.

  • National Savings Certificates:

    National savings certificates are an investment that come with maturity period of 5 and 10 years. Investments made in these certificates is also eligible for tax benefits up to Rs. 1.5 lakhs.

  • Sukanya Samriddhi Account:

    This is a special account that was announced by the government in early 2015. It allows parents to open an account for a girl child and deposit money in it, up to Rs. 1.5 lakhs per annum, and earn an interest of 9.1% per annum on it. This account can be opened for two children and can be extended to a third in case there are twins involved.

  • Infrastructure Bonds:

    These are bonds that are issued by infrastructure companies like Infrastructure Development Finance Company and India Infrastructure Finance Company. They offer an interest on the money invested with them and the investments made in the tax saving infrastructure bonds are eligible for tax benefits.

  • Post Office Time Deposit:

    Just like fixed deposits, time deposits held at post office also are eligible for tax benefits under this section. These deposits come with an option of a 5 year time deposit where investments become eligible for benefits. These deposits also offer attractive interest rates in excess of 8% per annum however it can change at any time.

  • Education Expenses:

    School fee is not cheap these days and for that reason, when you do pay it you can claim tax benefits on the amount that you have paid. The conditions that apply in this investment are that it is available only for two children, the school cannot be outside India and the tuition fee is the only payment that is eligible.

  • Pension Funds:

    Almost everyone has some sort of a plan in place for the day they retire. If your plan includes investments in a pension fund then the investments made are eligible for deductions under section 80C.

  • Senior Citizen Saving Scheme:

    This is a scheme that can only be invested in by senior citizens and provides quarterly interest payments instead of compounded interest. Under this scheme when an investment is made into the scheme, it becomes eligible for tax benefits under this section.

NRI claim under Section 80C:

In India, the basis of the income sources of a person determines the date of filing IT returns for him/her. The due date for filing income tax stays the same irrespective of an individual's residential address. The personal income tax must be filed on or before September 30 of a year. For example, for filing income tax returns for FY 2014 – 2015, which starts from April 1, 2014 and ends on March 31, 2015, the last date is September 30, 2015.

Income tax must be filed for the following income sources:

  • Income from profession or business where the a/c of these professions and businesses must be audited in India.
  • If the tax filer is a working partner in a particular partnership firm where the account must be audited in India.

All NRIs can avail equal tax deductions as the Indian residents under this section. For example, NRIs can claim deductions on life insurance premiums, pension schemes, etc.

Frequently Asked Questions:

  1. Does the limit of Rs. 1.5 lakhs mean that I can invest Rs. 1.5 lakhs in more than one instrument and claim benefits?

    No. The limit of Rs. 1.5 lakh means that after taking into account all the investments you have made under 80C, the maximum benefit of Rs. 1.5 lakhs can be claimed.

  2. What is the definition of a senior citizen for the senior citizen savings scheme?

    A senior citizen under this scheme is either someone who is more than 60 years of age or someone who is more than 55 years or age but less than 60 years but has taken voluntary retirement under a specific retirement scheme.

  3. When it comes to provident funds, will investments in EPF and PPF be eligible if investments are made in both?

    If you are contributing towards an EPF and are investing in a PPF at the same time, you can claim both investments under 80C.

  4. Under EPF schemes is the entire contribution eligible for deduction under 80C?

    No. In EPF only the half paid by the employee is eligible for benefits.

  5. If I want to get into tax savings, which options should I go in for?

    The options would be dictated by a multitude of factors like your age, risk appetite and the amount that you wish to invest but some basic ones that you should consider investing in are life and health insurance policies, mutual funds, fixed deposits and provident funds.

  6. Is the interest earned through these instruments also eligible for tax deductions under 80C?

    No. The interest earned in most cases is liable for tax under other sections except in the case of NSCs where if the interest is reinvested, it becomes eligible for deduction under 80c for the year that it is reinvested in.

  7. If I take a loan for repair/renovation of a house, can I claim deductions under 80C?

    A regular home loan is eligible under 80C but one take from repairs and renovation is not.

News About Deductions under Section 80c

  • EPF Interest Rate hiked to 8.8%

    The interest rate on Employee Provident Fund (EPF) has been increased by 50 bps to 8.8 percent for the fiscal year 2015-16, following pressure from employee unions. Rates on many small savings schemes were reduced by 50 to 100 basis points recently.

    According to experts, EPF is likely to remain relatively safe and not subject to drastic rate reductions. This makes EPF the best investment option under Section 80C of the Income Tax Act. Section 80C offers deductions of up to Rs. 1.5 lakh on investments made in small savings instruments.

    Salaried persons can choose to increase their voluntary provident fund (VPF) contribution for better returns. However, VPF/EPF is locked in until retirement and hence should be invested in with discretion.

    6 May 2016

  • Small Savings Schemes Taxation and Section 80C

    Following the failure at taxing EPF withdrawals, the government has now targeted small savings schemes under its taxation fire. But even though the interest rates have been brought down, some of the schemes still offer a great way to be exempt from tax.

    Sukanya Samriddhi Yojana and PPF are still in the EEE category, basically meaning that the investments, interest earned and withdrawals made are all free of tax. Both of these can have a tax exemption of INR 1.5 lakh under Section 80C. National Savings Certificates have interest that is taxable but since it is reinvested, it can be claimed as exemption under Section 80C. Only in the last year when the NSC matures, one is liable to pay tax on the interest earned in the last year.

    7 April 2016

  • First-Time Home Buyers to enjoy Additional Tax Deductions

    First-time home buyers now have a reason to cheer. An additional deduction of Rs 50,000 on interest for home loans has been introduced in Budget 2016. This additional deduction has been given on interest for loan amounting to up to Rs. 35 lakh, where the house value is below Rs. 50 lakh.

    Taxpayers and industry experts are hoping that the Government increases the limit of tax deduction for housing loans, especially in metropolitan cities, by about Rs. 1 lakh to Rs. 3 lakh. The current limit is Rs 2 lakh. Apart from the interest, a portion of the EMI, that goes towards principal re-payment can now be claimed under Section 80C of the Income Tax Act. An amount of Rs 1,50,000 that is within the overall limit will be non taxable.

    10 March 2016

  • New Budget Does Not Offer Any Relief For Section 80C under the Income Tax Act 1961

    The popular Section 80C for tax savings under the Income Tax Act 1961, gains its reputation for people who invest their money in financial saving schemes such as FDs and PPFs and other popular instruments to be able to save tax. Due to the running Government’s intentions of enhancing their image with taxpayers, people as well as analysts were expecting a better relief through this section, but were highly disappointed with not very much done to amend some relief to this section.

    2 March 2016

  • Budget 2016 might have Long Terms Savings under a different Section 80C of the IT Act

    As per the MD and CEO of PNB MetLife Insurance Company, Tarun Chugh, he is hoping that this year’s Budget by the Finance Minister Arun Jaitley provides a different limit under the section 80C of the Income Tax Act of 1961. The limit should be separated for long term savings and pensions. Like the government provided a deduction of Rs 50,000 for the contributions made towards the National Pension Scheme in 2015-16, they should make a provision for this as well, he said. He also mentioned that there should be a fix to the premium that can be eligible for tax deduction by the government. The sum assured to 5 times of the 1st year premium should be eligible. The current benefit is available for a life insurance policy under 10(10D), but the life cover needs to be 10 times of the 1st year’s premium.

    25 February 2016

  • Government Urged to Offer more Incentives on Savings

    The Reserve Bank of India (RBI) and other financial sector experts have urged the government to include more incentives and tax benefits on small savings.

    In the pre-budget consultation with Finance Minister Arun Jaitley, RBI deputy governor Urjit Patel is reported to have recommended moves to increase the total national savings. The key suggestion is to raise the ceiling on tax benefit on small savings from the current Rs. 1.5 lakh to Rs. 2.5 lakh under 80C of the Income Tax Act.

    If the suggestion is implemented in the Union Budget, schemes such as Fixed Deposits, Public Provident Funds and life insurance policies will be benefited.

    5 February 2016

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