Section 80C of the Income Tax Act allows for deductions up to Rs.1.5 lakh p.a. Under the section, individuals can invest in several savings schemes to claim deductions on their taxable income.
What is Section 80C?
Section 80C of the Income Tax Act came into effect on 1 April 2006. It basically allows certain expenditures and investments to be exempt from tax. If you plan your investments well and spread them intelligently across different investments such as PPF, NSC, etc., you can claim deductions up to Rs.1.5 lakh, thereby lowering your tax liability.
Deductions on Investments under Section 80C of the Income Tax Act
Here are the various investments you can make to save tax under Section 80C of the Income Tax Act:
|Investment options||Minimum lock-in period||Rate of interest||Risk factor||Returns|
|National Pension System||Till the individual reaches the age of 60 years||8% to 10%||High||No|
|Equity Linked Saving Scheme||3 years||Ranging between 12% and 15% depending on the fluctuations in the market||High||No|
|Public Provident Fund||15 years||7.9%||Low||Yes|
|Senior Citizen Savings Scheme||5 years||8.60%||Low||Yes|
|National Savings Certificate||5 years||7.9%||Low||Yes|
|Unit Linked Insurance Plan||5 years||Ranging between 8% and 10% depending on the fluctuations in the market||Moderate||No|
|Fixed Deposit||5 years||Up to 8.40%||Low||Yes|
|Sukanya Samriddhi Yojana||8 years||8.50%||Low||Yes|
- Provident Fund: Provident Fund is automatically subtracted from your monthly salary. An employee and his/her employer both contribute towards PF. While the contribution made by the employer is exempt from tax, the contribution made by the employee is eligible for deductions under Section 80C of the Income Tax Act. Employees are also allowed to make voluntary contributions towards the Provident Fund Account. Voluntary Provident Fund or VPF as it is called, is also eligible for tax deductions under Section 80C of the Income Tax Act.
- Public Provident Fund: Public Provident Fund is a popular investment instrument as it offers assured returns. Interest is compounded on an annual basis and the maturity period of the scheme is 15 years. The least that you can contribute towards PPF is Rs.500 and the maximum contribution allowed is Rs.1.5 lakh. The amount you contribute towards PPF is eligible for tax deductions under Section 80C of the Income Tax Act.
- Premium payments towards life insurance: If you have purchased a life insurance policy for yourself, your children or your spouse, the premiums you pay towards it are eligible for deductions under Section 80C of the Income Tax Act. In case you have multiple life insurance policies from different insurance providers, you can club all the premiums and claim deductions up to Rs.1.5 lakh p.a.
- Equity Linked Savings Scheme (ELSS): Certain mutual fund schemes have been designed especially for the purpose of tax savings. Equity Linked Savings Schemes, or ELSSs as they are generally called, allow investors to claim tax deductions to the extent of Rs.1.5 lakh under Section 80C of the Income Tax Act.
- National Savings Certificate: National Savings Certificate or NSC as it is known in its abbreviated form, is one of the most popular tax-saving instruments available to Indian citizens. The maturity period of the scheme is five years and 10 years. The interest in this scheme is compounded semi-annually. The minimum amount of money that you can invest in this certificate is Rs.100 and there is no maximum limit on the amount of investment you can make in NSC. The amount you invest in National Savings Certificate is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum of Rs.1.5 lakh per financial year.
- Sukanya Samriddhi Scheme: Individuals can open a Sukanya Samriddhi account for a girl child anytime from the date of her birth to the day she turns 10 years old. The minimum amount that you can invest in the Sukanya Samriddhi scheme is Rs.1,000 and the maximum is limited to Rs.1.5 lakh in a financial year. The interest in this account is calculated on an annual basis and compounded on an annual basis too. The interest you accrue through this scheme is eligible for tax deductions under Section 80C of the Income Tax Act.
- Unit Linked Insurance Plans (ULIPs): These insurance plans offer coverage to the policyholder and provide substantial returns in the long term. One of the main reasons why these plans have become so popular in recent times is the fact that they not only help in saving money, but also provide tax benefits under Section 80C of the Income Tax Act.
- Repayment of home loan principal amount: The EMI amount that goes towards the repayment of the principal amount on your home loan is also eligible for tax deductions under Section 80C of the Income Tax Act. The repayment of your home loan amount has two components, viz. the principal amount and the interest. While the interest part of the repayment cannot be claimed as deduction under Section 80C of the Income Tax Act, the repayment of the principal amount certainly is.
- Registration charges and stamp duty for a home/property: In case you purchase a home or a property and pay for stamp duty and registration, these amounts can be claimed as tax deductions under Section 80C of the Income Tax Act.
- Infrastructure bonds: Infra bonds as they are commonly called, Infrastructure bonds are issued not by the government but by infrastructure companies. In case you invest in these bonds, you can claim tax deductions up to Rs.1.5 lakh under Section 80C of the Income Tax Act.
- NABARD Rural Bonds: NABARD, or the National Bank for Agriculture and Rural Development, offers two kinds of bonds, viz. Bhavishya Nirman Bonds and NABARD Rural Bonds. However, only the latter qualifies for tax deductions under Section 80C of the Income Tax Act, and the maximum amount that you can claim as deductions is Rs.1.5 lakh.
- Senior Citizen Savings Scheme: The Senior Citizen Savings Scheme is the best possible investment scheme for senior citizens. The returns are relatively lucrative in comparison with other schemes, and the interest is paid on a quarterly basis. Individuals who are above 60 years of age can invest in this scheme and claim tax benefits up to Rs.1.5 lakh under Section 80C of the Income Tax Act.
- Five-year Post Office Time Deposit Scheme: Post office deposit schemes are a lot like fixed deposits offered by banks. The duration of these schemes could range from one year to five years, but only the interest earned on five-year post office time deposit schemes are eligible for tax deductions under Section 80C of the Income Tax Act.
When should I Invest to Claim Deductions under Section 80C of the Income Tax Act?
Most people tend to start making investments towards the end of a financial year just to claim tax deductions. Tax experts suggest that investments are best when made at the start of a financial year as doing so would not only mean that you are making informed decisions, but also ensuring that you earn the interest for the whole year from April to March.
Deductions on Investments under sub-sections of Section 80C
Since we have already covered the investments that are eligible for deductions under Section 80C of the Income Tax Act, let’s look at the various sub-sections and the investments that can be used for deductions:
|Section||Deduction on||Deductible Limit|
|Section||Deduction on||Deductible Limit|
|Section 80CCC||Amount deposited in LIC or other insurer’s annuity plan for a pension from a fund mentioned in Section 10 (23AAB)|
|Section 80CCD (1)||Employee’s contribution to National Pension Scheme account (up to Rs.1. lakh)|
|Section 80CCD (2)||Employer’s contribution to National Pension Scheme account||Up to 10% of the salary|
|Section 80CCD (1B)||Additional contribution to National Pension Scheme account||Rs.50,000|
|Section 80TTA (1)||Interest income from savings account||Up to Rs.10,000|
|Section 80TTB||Exemption of interest from post office, banks, etc. (only applicable to senior citizens)||Up to Rs.50,000|
|Section 80GG||Rent paid when House Rent Allowance has not been received from the employer||Least of either Rs.5,000 per month, rent paid less 10% of total income, or 25% of the total income|
|Section 80E||Interest on education loan||Interest paid for 8 years|
|Section 80EE||Interest on home loan (applicable to first-time homeowners)||Rs.50,000|
|Section 80CCG||Rajiv Gandhi Equity Scheme||Rs.25,000 or 50% of the amount invested in equity shares, whichever is less|
|Section 80D||Medical insurance||Rs.25,000 for self, children and spouse, and Rs.50,000 for parents above 60 years of age|
|Section 80DD||Medical treatment for handicapped dependents||Rs.75,000 in case the disability is more than 40% but less than 80%, and Rs.1.25 lakh in case the disability is more than 80%|
|Section 80DDB||Medical expenses||The costs actually incurred or Rs.40,000, whichever is less in case the individual or his/her relative is less than 60 years of age, and the costs actually incurred or Rs.1 lakh in case the person getting treated is over 60 years of age|
|Section 80U||Self-suffering from disability||Rs.75,000 in case of mental retardation or physical disability (including blindness), and Rs.1.25 lakh for individuals suffering from severe disabilities|
|Section 80GGB||Contribution to political parties by companies||The amount contributed|
|Section GGC||Contribution to political parties by individuals||The amount contributed|
|Section RRB||Deductions on income by way of royalty of a patent||The income received or Rs.3 lakh, whichever is less|
FAQ's On Section 80C
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.
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.
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.
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.
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.
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.
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.