Section 80c - Deductions under Section 80c

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 a number of savings schemes to claim deductions on their taxable income.
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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: 

  • 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 are allowed to 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 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 home owners)  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 

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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