CA Sandeep Kanoi

CA Sandeep KanoiArticles deals with deduction under Section 80C of the Income Tax Act and explains who is eligible for deduction, Eligible Investments, Limit for deduction, who can invest for whom and time period for investment. 

Background for Section 80C of the Income Tax Act (India) / What are eligible investments for Section 80C:

Section 80C replaces the Section 88 with more or less same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above Section 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The total limit under this section is Rs 1.50 lakh from Financial year 2014-15 / Assessment Year 2015-16. Before FY 2014-15 the limit was Rs. 1 Lakh. Under this heading many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C

Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act.  However, it is important to know the Section in toto so that one can make best use of the options available for exemption under income tax Act.   One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions.

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction. Education expense of children is increasing by the day. Under this section, there is provision that makes payments towards the education fees for children eligible for an income deduction

Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1.50 Lakh , are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1.50 Lakh), and you end up paying no tax on it at all!

This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1.50 Lakh, you save tax of Rs. 45,000. Isn’t this great? So, let’s understand the qualifying investments first.

Qualifying Investments

Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free. Must Read-EPF Act 1952 vis-á-vis Income Tax Act – Tax Treatment of PF Dues 

Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed. Read more- All about PPF and Income tax benefit

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.  Read More-Life Insurance Premium- Tax benefit on Payment and Maturity 

Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. Read More-Section 80C – Investment in Equity Linked Savings Scheme (ELSS) 

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.-Income Tax Benefits from House Property and Loan

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

Sukanya Samriddhi Account : Sukanya Samriddhi Account meaning Girl Child Prosperity Scheme is a special deposit scheme launched by Prime Minister Narendra Modi on 22 January 2015 for girl child. The scheme of Sukanya Samriddhi Account came into effect via notification of Ministry of Finance. The notification details are Notification No. G.S.R.863(E) Dated 02.12.2014. Scheme will be governed by ‘Sukanya Samriddhi Account Rules, 2014’.

Read More- Sukanya Samriddhi Account- Tax & Other benefits

National Savings Certificate (NSC) (VIII Issue): 

NSC is a time-tested tax saving instrument with a maturity period of  Five and Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80 % Per Annum on 10 year NSC.  Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of upto Rs 150,000 p.a. under Section 80C. Furthermore, the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh.This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh.

5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9.20% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax. The account may be opened by an individual,

  1. Who has attained age of 60 years or above on the date of opening of the account.
  2. Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement.
  3. No age limit for the retired personnel of Defence services provided they fulfill other specified conditions.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) – which currently offers 8.50 per cent rate of interest –qualifies for tax saving under section 80C. Interest is compounded quarterly but paid annually. The Interest is entirely taxable.

NABARD rural bonds: There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Unit linked Insurance Plan : ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term.

Sukanya Samriddhi Account :–  ‘Sukanya Samridhi Account’ can be opened at any time from the birth of a girl child till she attains the age of 10 years, with a minimum deposit of Rs 1000. A maximum of Rs 1.5 lakh can be deposited during the financial year. Interest on this account is fully exempt from tax  in the year of accrual as well as in the year of receipt.

Others: Apart form the major avenues listed above, there are some other things, like children’s education expense (for which you need receipts), that can be claimed as deductions under Section 80C.

So, where should you invest?

Like most other things in personal finance, the answer varies from person to person. But the following can be the broad principles:

Provident Fund: This is deducted compulsorily, and there is no running away from it! So, this has to be the first. Also, apart from saving tax now, it builds a long term, tax-free retirement corpus for you.

Home Loan Principal: If you are paying the EMI for a home loan, this one is automatic too! So, it comes as a close second.

Life Insurance Premiums: Every earning person having dependents should have adequate life insurance coverage. (For more on this, please read “Life after life – Why you should buy Life Insurance”) Therefore, life insurance premium payments are the next.

Voluntary Provident Fund (VPF) / Public Provident Fund (PPF): If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF.

Equity Linked Savings Scheme (ELSS): After the above, if you have not reached the limit of Rs. 1,50,000, then you should invest the remaining amount in Equity Linked Savings Scheme (ELSS).

Equities provide the best, inflation-beating return in the long term, and should be a part of everyone’s portfolio. After all, what can be better than something that gives great return and helps save tax at the same time?

When to Invest?

Many of us start looking for investment avenues only in February or March, just before the Financial Year is getting over. This is a big mistake! One, you would end up investing your money without putting proper thought to it. And secondly, you would end up losing the interest / appreciation for the whole year. Instead, decide where you want to make the investments, and start investing right from the beginning of the financial year – from April. This way, you would not only make informed decisions, but would also earn the interest for the full year from April to March.

(Republished with amendments)

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Category : Income Tax (20858)
Type : Articles (10773) Featured (3626)
  • Eshwar 0512

    how to get these updates to my mobile

  • Rejifeba

    the write up is good for general knowledge but not for calculation purpose. what are the limits applicable for each type of investments?

  • MANISH PANCHAL

    Can anyone guide me where I have to invest money so I can get good regular income after my retirement. My age is 45 years and my salary is 95000 per month.
    yearly I deposit Rs.50000 in PPF, Rs.60000 in PF, Rs. 100000 in LIC and I purchase 20 gram gold every here But I dont have any idea where I have to invest money so I can enjoy my life after retirement. After all above investment I can invest more Rs.10000 per month.

    Please guide me,
    Manish

    • GANGADHAR Gore

      Pls sir u may refer mutual fund schemes….or invest in share market through expert advice for more detail watch CNBC awwaaz and zee businesses channel
      U must see pehla kadam programme on every Sunday and Saturday 12:00 morning

    • Harish Guleria

      SIP in Mutual funds are the best tool for good returns in long-term. You can call me at 9816600901 for details

    • sonu sagar

      mr manish you will take the shri ram ulip plan in that you pay 100000 lakh per annum for 10 year after 10 year you will get monthy fix income 14800 guranted which written on bond paper
      means for 1lakh you will get 1.8lakh approx after 10 year
      for further clerification call me- 9711251211(sonu sagar)

  • MANISH PANCHAL

    yes

  • rajat agarwal

    is there any deduction on post office RD in wife’s name

    • sonu

      yes

  • prasanth k

    i have a home loan i claimed tax deduction u/s 24(B)loan intererest
    Am i eligible for HRA exemption as per U/s 10(13-A)? any one ans me

  • moorthy BV

    we are dealing compressors. some of our clients are not paying VAT on the freight paid by us while despatching their orders. They claim that the VAT is payable only on the price of goods sold. Whether their claim is correct
    Our billing is cost of product+ freight+ VAT at 14.5% on the total of cost and freight. Please clarify

    • manish

      vat is charged only on products sold within state, it is not on freight.

  • GDM

    Home loan principle repayment also qualifies for tax rebate u/s 80C but is it restricted exclusively to the principle portion of EMIs paid during the FY or even lumpsum repayment of say 25K /50K during the year will also qualify under limit of 1.50 lacs u/s 80C

    • CA Bhargav Bhatt

      Word is “principal”. So both are covered

  • Ghanshyam Sahoo

    No, Deduction u/s 80C related to life insurance premium is restricted to own children only. she will not get the deduction for grand daughter.

  • D.Ganguly

    I need to invest 30000 more this year to complete deduction of Rs.150000 under 80c. My wife is a housewife without any taxable income. Is it possible for me to get the tax benefits, if I invest that 30000 on her name?

    • sonu sagar

      yes u can save the tex
      by taking medical insurence which give you tex benifit upto 25000
      for further more clerification call me on-9711251211(sonu sagar
      )

  • sonu sagar

    dear vijay singh you can claim all your amount which recipts is made under financial year 15-16 are eligible for claim. if your employer asked for recipt of lic payment you just given the declaration

    for further clerification call-9711251211 (sonu sagar)

  • sonu sagar

    Dear All,

    For all your queries related to Tax , Savings or Investments, I request you to please call or mail on the below mentioned contact details.

    we will be happy to help you and hope we will be able to solve your queries.

    Regards,

    sonu sagar

    Financial Consultant

    vfn group

    Tel : 9711251211

    email :sonu.sagar@vfn.in

  • Santosh Sharma

    thanks a lot for sharing such a useful info.

  • N Dheenadayalan

    Need clarification wheather HL principal deduction u/s80C is admissible if the loan is for second home? We have taken the second loan for a new home after retirement.

    • Vijay Sachar

      No

  • ashok nagvenkar

    OK TELL ME ONE THING.IF I AM GETTING RS 800/- AS TRANSPORT ALLOWANCE i.e. RS 9600/-.CAN I SHOW 19200/- DEDUCTION PER YEAR INCLUDING DA ?

    • SONU SAGAR

      no sir you can only claim what you actually recived the amount
      for more clerification mail us on
      mail-sonu.sagar@vfn.in
      thanks/regard
      sonu sagar

  • Aseem Juneja

    Dear All,

    For all your queries related to Savings or Investments, I request you to please call or mail on the below mentioned contact details.

    I will be happy to help you and hope will be able to solve your queries in order to start your monthly savings & investments.

    Regards,
    Aseem juneja
    Financial Advisor
    Tel : 8860007079
    email : aseem_juneja@yahoo.com , aseem@chaturinvestment.com
    Location: New Delhi

  • chandan

    I
    would like to know below that how much is the cap that can be saved
    annually max under 80c tax by elss and for that how much needs to be
    invested annually

    * i fall over 30% tax bracket

    I
    see that for AY 2015-16 the tax calculator shows ELSS tax saving amount
    (80c) is showing a cap of 25000/- max(50% of annual elss investment
    amount 50,000/-)

    is
    this true for current financial year(2015-16) , i.e AY 2016-17 as well
    which means i ( being in 30% bracket) can save by ELSS max upto 25,000
    only with required investment 50,000/- annual(elss) ?

    • Varma alluri

      Under section 80C you will be eligible for deductions of up to RS:1,50,000.
      In case you need help reach out to us dsssvtax@gmail.com and our experts will assist you.You can also call /whatsapp us : 9052535440.

  • Khatri Narinder

    I need clarification u/s 80C(3) & also I want to know what will be my payable tax, if my income is 500000 & i have done investment in life insurance policy – premium of Rs.50000/-p.a in hdfc life insurance – regular pay.

  • Amit Sharma

    Hi Need expert opinion: If we buy NSC jointly in 2 names whether we are eligible for 80C or not

  • anil agarwal

    can i claim tax rebate on stamp duty paid for grant of probate and if so under which scetion

  • SUDHAKAR

    Can i claim tuition fee paid for nephew for full time study in private school?