Section 80CCF of the Income Tax Act provides attractive tax benefits and deductions to investors in tax savings bonds and infrastructure, which is a win-win situation for both the government and the investors.
The growth of a country is closely linked to the infrastructure facilities it has, with a better infrastructure ultimately resulting in faster growth and economic progress. A majority of the funds for infrastructure development in the country come from taxpayers, with billions of dollars required to put the country on par with competition. While it is hard to raise such exorbitant amounts on its own, contribution from citizens of India could go a long way in meeting this financial requirement. The government, in a bid to attract more investors formulated a special provision in the Income Tax Act, adding Section 80CCF to provide incentives to investors.
Section 80CCF of the Income Tax Act is a special provision designed to offer tax benefits to investors in certain schemes. It was formulated in the budget of 2010 and came into force in 2011, under the Income Tax Act of 2011. This section provides certain incentives to investors in infrastructure and other bonds, offering tax deductions on investments made, thereby helping an investor save valuable money which might otherwise have been taxed.
This section is used to complement the tax benefits offered by Section 80C, and provides additional deductions over and above those listed under Section 80C. With infrastructure in the country growing at a fast pace, this is a win-win situation for all parties involved, helping the government, infrastructure companies and citizens prosper.
Deductions under Section 80CCF of Income Tax Act
Section 80CCF of the IT Act contains provisions for certain tax deductions, in a bid to attract investors and utilise funds efficiently. The current maximum deduction an individual is entitled to stands at Rs 20,000 per year, for investments in infrastructure and other tax saving bonds. This deduction can be added to the other deductions available, thereby lowering the overall tax liability of an investor. The deduction under Section 80CCF is over and above the deduction available under Section 80C, thereby helping a taxpayer save more by smartly using this component of the Income Tax Act.
Eligibility for Deductions under Section 80CCF
An investor should remember that there are certain basic criteria which should be met in order for him/her to truly benefit from the provisions of Section 80CCF. Listed below are some of the basic eligibility criteria for taxpayers.
- Indian resident – Only residents of the country can claim tax benefits under Section 80CCF. NRIs and foreigners are not eligible for deductions.
- Individuals - This provision is open to individuals only and not for companies, firms, organisations, associations, etc.
Hindu Undivided Family – Apart from individual taxpayers, only Hindu Undivided Families are eligible for deductions under Section 80CCF.
- Joint Investment – A joint investment can be made in the name of two or more people, but tax benefits can be availed by only one person, the primary stakeholder.
- Bond type – Tax benefits under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government.
- Maximum amount – The maximum deduction permitted under Section 80CCF is Rs 20,000 and investments over this amount are taxable.
- Minors – An investment cannot be made in the name of a minor, only adult taxpayers can claim deduction through investments.
Individuals who wish to claim the benefits under Section 80CCF need to furnish the following documents.
- Valid government approved ID proof
- PAN details
- Bank details (If required)
Applicability of Section 80CCF of the Income Tax Act
Investors can utilise Section 80CCF for their benefit by remembering that only certain investments are eligible for tax deductions. The example below highlights how Section 80CCF works.
Mr. Dinesh, aged 28 is a journalist, earning a salary of Rs 4.9 lakhs per year. As per the income tax slabs, he needs to pay tax on the amount exceeding Rs 2.5 lakh, i.e., his taxable income is Rs 2.4 lakhs. In order to reduce his tax burden, he invests in a number of schemes which provide deductions under Section 80C. He invests a total of Rs 1.5 lakh which is deducted under Section 80C, making his taxable income Rs 90,000 now (Rs 2.4 lakh – Rs 1.5 lakh). In order to save more tax, he invests in an infrastructure bond offered by a top bank, investing Rs 30,000 in the same.
Now, Rs 20,000 out of the Rs 30,000 invested can be deducted under Section 80CCF, thereby reducing his total taxable income to Rs 70,000 (Rs 90,000 – Rs 20,000), helping him save a considerable amount on overall tax.
Things to Remember
An investor should keep the following points in mind while investing in tax saving bonds.
- Interest – The interest earned on these bonds is taxable and an investor will have to pay tax on it.
- Term – Tax Saving Bonds are typically long term bonds, having tenures of more than 5 years, with a lock in period of 5 years in most cases. It is possible to sell them after the lock in period.
- Investment type – Investment can be made in a number of bonds, but the maximum deduction in a year is limited to Rs 20,000 only.
- Joint Investors – In the case of joint investors only the first applicant can claim tax deductions. In the case of Hindu Undivided Families, only one member of the family can claim deductions.