Section 80C deductions: Available even without any Investment !

As we all know, Section 80C of Income tax Act is one of the most used deductions. But the general perception is that to claim any deduction under this section, one needs to invest. But what if I tell you, you do not need any further investments? Yes, It is quite possible.

So, In this article we will discuss as to the manner in which you can claim deductions under section 80C of Income Tax Act 1961.

But first an assessee should keep in mind the following:

1. No deduction under section 80C, 80CCC, 80CCD(1)/(1B) can be claimed if assessee has opted for taxation under Section 115BAC (New Tax Regime)

2. Section 80 CCE : Aggregate amount of deduction under section 80C is always used in conjunction with two more sections i.e Section 80CCC and Section 80CCD(1).

Thus, aggregate deduction under section 80C + 80CCC + 80CCD(1) is restricted to ₹1,50,000.

Lets decide the investment in two categories

1. Modes of claiming deduction without any further investments

2. Modes of claiming deduction through investments

1.Modes of claiming deduction without any further investments

a) EPF ( Employee Provident Fund) Contribution by employee.

If you are salaried employee, check for the deductions being made by your employer from your salary in the name of your EPF contribution. You can take deduction of this contribution in EPF ( Statutory Provident Fund, Recognised Provident Fund, Approved Superannuation Fund)

b) Tuition fee :

You are parent. Your child can help save taxes now. Parent can take deductions of Tuition fee component of total fees paid for education of maximum 2 children in India.

Conditions :

– Such educational institute( Foreign or Indian) should be situated in India.

– Children include adopted child as well.

– Even if parents are divorced, they can claim deduction.

– If parents have 4 children, one can get deduction for 2 children, while another parent can get deduction for the other two children.

c) Life Insurance policy Premium

Every individual should have life insurance policy. If you do not have a life insurance policy, you should definitely need to think in this direction for the security and better future of you and your loved ones.

One can take deduction of premium paid on such life insurance policy in the relevant year.

Only condition being that such deduction of premium should not exceed:

1. 20% of policy value ( sum assured) if policy issued before 01/04/2012

2. 10% of policy value ( sum assured) if policy issued after 01/04/2012

3. Only for person with disability under section 80U or suffering from specified disease under section 80DDB, 15% of policy value (sum assured) if policy issued on or after 01/04/2013

Term insurance policy can be easily called one of the best choices to go with to provide secure life cover to our family.

Certain specific kinds of term insurance where policy holder choose health related riders like Hospital care rider etc. can also claim deduction under section 80D(Premium paid on health insurance of self and family) for an amount equal to ₹25000 ( Self ) or ₹50000 ( In case you are senior citizen) and additional ₹25000 or ₹50000 (Parents more than 60 years) if medical insurance is paid for Parents as well. This can be useful if you have exhausted your maximum deduction limit (₹150,000) under section 80C.

Contribution towards unit liked insurance plans and Endowment plans can also be claimed as deduction under section 80C

Points to remember

If an assessee,

Terminates life insurance policy or has not paid premium after 2 years

Terminates ULIP or has not paid premium for 5 years,

amount claimed as deduction earlier will become the income in the year of such violation.

d) Home loan :

Have taken home loan? Then each year you can claim deduction of repayment of principal portion of loan taken for purchase or construction of house.

For claiming deduction of interest portion of the loan one can take reference of section 24(b) and 80EE, 80EEA

Remember not to transfer such house property before 5 years from the end of financial year in which possession is obtained or else amount claimed as deduction earlier will become the income of the year in which such violation takes place

e) Stamp Duty and registration fee:

Buying house property? You can claim deduction on payment of Stamp duty and registration fee for aquisition of house property.

2. Modes of claiming deduction through investments

a) Public Provident Fund :

Deduction :

Amount deposited for Self, Spouse, Children or in case of HUF, any member of HUF.

Benefits:

Considered as one of the most secured investments being government-backed scheme and it can not be attached even in any court cases.

It has guaranteed return ( Around 7%-8%) and any interest on investment is exempt

15 years lock in period is applicable ( Can be extended in the block of 5 years unlimited number of time). Maturity amount will also be exempt from any taxability.

Who are eligible:

Indian Citizen are eligible.

NRIs and HUF are not eligible.

b) Sukanya Samriddhi Scheme Account :

Deduction:

Any deposit by any individual or legal guardian of Girl child in Sukanya Samriddhi Scheme Account can be claimed as deduction under section 80C.

Benefits:

Any interest ( Current rate 8% revised quarterly) thereon is exempt

The maturity amount received after 21 years or withdrawal amount at the time of marriage of girl is also exempt from taxation.

Who are eligible:

Any individual or legal guardian for Girl child

c) Fixed deposit in a scheduled bank or Post office for 5 years or more. Although the interest thereon will be taxable under income from other source.

5 year lock in period if violated will result in amount claimed as deduction earlier becoming the income of the year in which such violation takes place

d) Investment under National Saving Scheme (NSC) and any interest accrued thereon can be claimed as deduction under section 80C.
5 years lock in period is applicable after which if withdrawn, amount so withdrawn will be exempt.

Although such interest is taxable under Income from other source.

e) Senior Citizen Saving Scheme :

Deduction:

For senior citizen of the age 60 years or more, investment under SCSS can be claimed as deduction under section 80C.

Benefits:

Interest @ 7.4% is currently available on investment under this scheme. Interest thereon is taxable under Income from other source.

5 years lock in period is applicable after which if withdrawn, amount so withdrawn will be exempt.

If amount withdrawn before 5 years, amount claimed as deduction earlier will become the income of the year in which such violation takes place

Who are eligible:

Senior citizen 60 years or more

Retired Defence service personnel are eligible irrespective of their age subject to certain conditions.

Citizen of the age group between 55-60 years are also eligible, if retired on superannuation or have retired before the implementation of SCSS rules.

This scheme is Not available for HUF and Non Resident individuals.

f) Other investments

Any deposit in Notified bonds of NABARD

Any investment in Notified units of Mutual Fund or UTI

Any deposit in Notified pension scheme of Mutual fund or UTI

Lets look at what other deductions are available for an assessee as per other two sections ( Section 80CCC and Section 80CCD)

Section 80CCC :

Contribution by an individual to pension fund of LIC or other insurance company.

Section 80CCD: Atal Pension Yojana/ New Pension Scheme

80CCD(1) : Deduction of Contribution done by employee ( Salaried employee or Other individual under self employment )

Deduction is restricted to maximum ₹1,50,000 ( 80C+ 80CCC+ 80CCD(1) )

Deduction under section 80CCD(1) is further limited to contribution done by :

Salaried employee : Maximum 10% of salary

Other individual : Maximum 20% of GTI

80CCD(1B) : Additional deduction for contribution done by any individual.

Maximum Deduction under this section is ₹50,000. Such deduction is in addition to ₹1,50,000 claimed under section 80C, 80CCC, 80CCD(1).

Assessee can claim deduction under this section after exhausting the limit of ₹1,50,000. But can also decide to first claim deduction under section 80CCD(1B) as to maximise their own benefit.

80CCD(2) : Employer’s contribution to NPS

Any contribution made by employer to the NPS for the benefit of employee will first be taxed in the hands of Employee under the head salary and then can be claimed as deduction under section 80CCD(2).

Such deduction cannot be more than

CG employee : 14% of salary (Basic + DA (in terms) )

Other employee ( Including state govt. employee) : 10% of salary (Basic + DA (in terms) ).

Note: As per Budget 2022, retrospectively from AY 20-21 and onwards, State Government employee can also take deduction under section 80CCD(2) upto 14% of Salary (Basic + DA(in terms))

Points to remember for section 80CCD

a) Amount withdrawn at the time of closure of account : 60% Exempt and 40% Taxable ( Section 10(12A) ) Any withdrawal by Legal heirs in case if death if an assessee is fully exempt.

b) Partial withdrawal by assessee ( Section 10(12B) )

Salaried Employee : Exempt upto 25% of contribution made by him.

Other self employed assessee : Fully taxable.

c) 80CCD(2) Contribution by employer to NPS, can be claimed both under New and Old Tax Regime

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Disclaimer : This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.