Section 80C
Individual or HUF us allowed to get a tax deduction up to Rs 1.5 Lakh during the financial year under Section 80C of Income Tax Act and its allied sections such as 80CCCC and 80CCD. This deduction does not apply to Corporate bodies, companies or partnerships. You must claim this deduction in your Income Tax Return before 31st July each year.
Multiple
80C instruments allow cumulative tax savings u/s 80CCD can be availed by those
investing in the National Pension saving system.
Section 80 C instruments which help in reducing tax burden are as follows:
| Instrument | Taxation Rules |
Employee Provident Fund/ Voluntarily Provident Fund
| Completely Exempt unless withdrawn before completion of 5 years of service.
|
Public Provident Fund
| Completely Exempt
|
Equity-linked saving scheme
| The Principal invested is tax-deductible. Returns are taxable if the annual capital gains exceed Rs 1 Lakh.
|
Life Insurance Premium Payment
| Amount paid annually as premium is tax deductible
|
National Pension Scheme
| The amount deposited annually as premium is tax-deductible. Pension payout is taxable as per the slab rate.
|
Senior Citizen saving scheme
| Investments are tax-deductible/returns are taxed as per the slab rate.
|
Sukanya Samridhi Yojana
| Investments are tax deductible
|
Tax saver Fixed Deposits
| Investments are tax-deductible and interest earned is taxable at payout.
|
National Saving certificate
| Principal invested and reinvested interest is tax-deductible and final year interest is tax- deductible.
|
Unit Linked Insurance plan
| Investments are tax-deductible and Returns are taxable if the maturity value exceeds 10 times of annual premium.
|
The claim
you make on the amount under this section automatically reduces from the gross
total income for computation of Income Tax.
Deduction under Section 80C, 80CCC and 80CCD
The deductions made according to this category is available under sections 80C, 80CCC and 80CCD. Instruments such as mutual funder, tax saver FDS, insurance premium, PPF and several other schemes mentioned above are part of Section80C.
80CCC contributed to policies that pay a pension or annuity. 80CCD covers contributions to India’s National Pension System (NPS).
80C Limits
The maximum limit for tax saving under Section 80C is Rs 1.5 lakh. There is no minimum limit.
80C Schemes
- Investment Schemes: ELSS Mutual Funds, Unit Linked Insurance Policies (ULIPs)
- Insurance Schemes: Term Insurance, Endowment Insurance
- Retirement Savings Schemes: Public Provident Fund, (PPF), Employees Provident Fund, National Pension System (NPS)
- Fixed Income Schemes: National Savings Certificate (NSC), Senior Citizens Saving Scheme (SCSS), Sukanya Samriddhi Yojana
- Miscellaneous: Home loan repayment, tuition fee payment
What is the eligibility of instruments used in Section 80C?
An individual or HUF can claim a deduction under this section. Companies, Limited Liability Partnerships and other bodies cannot claim this deduction.
The following deductions are available under this section:
Life Insurance Premium either for family members or for yourself
It cannot be terminated either for yourself or family members in case it is a single premium policy. If it is a multiple premium policy, one must pay a premium minimum of 2 years.
Failure to do so will lead to a reversal of deduction under this Section. Unit Linked Life Insurance Policies (ULIPs) are also eligible for deduction under Section 80C.
Tax applies to Returns: The returns on Life Insurance policies, where the insurance cover is at least 10 times the annual premium gets a tax exemption according to Section 10(10)(D) of the Income Tax Act.
Investment in ELSS Mutual funds: ELSS mutual funds have a lock-in of 3 years and made an invested in 80% of their corpus in equities (stocks).
Tax on Returns: ELSS returns above Rs 1 lakh are subject to long term capital gains tax at a rate of 10%.
Public Provident Fund (PPF):
It is a government saving scheme having a government-administered rate of interest. You can invest in this through post offices or most banks. The tenure of this saving is 15 years.
Tax on Returns: PPF returns are exempt from tax. However, you must declare PPF returns at the time of filing an income tax return each year.
Employees’ Provident Fund (EPF):
Employees’ contribution to the EPF account is eligible for deduction under Section 80C. Employer’s contribution is also tax-free, but it is not eligible for deduction under Section 80C.
Tax on Returns:
EPF interest rate is tax-free. However, it becomes taxable when you leave service at an EPF registered company. The interest also becomes taxable if EPF is withdrawn before completion of 5 years of service with an EPF registered company.
Tax Saving Fixed Deposit:
It is a 5-year tax saver fixed deposits at banks and Post offices are eligible for a tax deduction.
Tax on Returns: The interest on such fixed deposits is fully taxable.
National Pension System (NPS):
The NPS deduction is granted by Section 80CCD (1) and (2). Employees' and employer’s contributions to the NPS are both tax-deductible according to Section 80C. It is a must to understand that you cannot make an employer’s contribution more than 10% of your basic salary including dearness allowance to get the benefit of this section.
A self-employed person can also make a claim of this benefit for contribution up to 20% of the gross income. Apart from this, voluntary contributions made to NPS up to Rs 50,000 are also exempted over and above Rs 1.5 Lakh according to Section 80C. These voluntary contributions are covered under Section 80CCD (1B).
Tax on Returns: NPS returns are tax-exempt until maturity. At maturity, 40% of the accumulated corpus is tax-free.
National Savings Certificate: National Savings Certificates are a government-backed savings instrument with a 5-year tenure. The interest on these certificates is also eligible for tax deduction under Section 80C.
Tax on Returns: Returns on NSCs are also eligible for tax deduction under Section 80C.
Senior Citizens’ Savings Scheme (SCSS): This is a government-guaranteed savings instrument with a tenure of 5 years which can be extended for an additional 3 years.
Tax on Returns: SCSS returns are fully taxable at your slab rate.
Sukanya Samriddhi Yojana:
This is a government-supported savings scheme for the girl child. It can be opened by the parents of a girl child who is below the age of 10. The scheme has a tenure of 21 years or until the girl child gets married after the age of 18.
Tax on Returns: Returns on the Sukanya Samriddhi Scheme are tax-free.
Home loan repayment
Tuition fees for any school, college or university for up to two children.
Stamp duty/fee for the transfer of house property to yourself.
Investment in a tax-saver 5-year fixed deposit.
| S.no | Interest | Lock in period | Guaranteed Returns | Risk Profile |
| ELSS | 12-15% estimated
| 3 Years | No | High |
| PPF | 7-9%
| 15 years | Yes | low |
| NSC | 8-10% estimated | Till retirement | No | high |
| NPS | 7.9%
| 5 years | Yes | low |
| FD | 7.8% | 5 years | yes | low |
| ULIP | 8-10% estimated | 5 years | no | moderate |
| Sukanya Samridhi | 8.40% | 21 years | yes | low |
| SCSS | 8.60% | 5 years | yes | low |
