2 80C Deduction: Tax Deduction Under Section 80C and Tax Planning | TaxGuru

Articles 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 deduction under 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 Maximum limit of deduction under section 80C 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.

Hand writing Tax Planning word with chalk

Most of the Income Tax payee tries 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.

Section 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.

A. Investments Qualifying for deduction under section 80C

i. 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). Interest is tax-free. Must Read-EPF Act 1952 vis-á-vis Income Tax Act – Tax Treatment of PF Dues 

ii. Public Provident Fund (PPF):

Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Interest is 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. Also the interest on Public Provident Fund (PPF) is exempt under Income Tax Act, 1961. Read more- Public Provident Fund Scheme, 2019- Detailed Analysis

iii. 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.

iv. 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) 

v. 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

vi. 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.

vii. 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 250. 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. 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 details of this scheme is as under:

  • Per girl child only single account is allowed. Parents can open this account for maximum two girl child. In case of twins this facility will be extended to third child
  • Minimum deposit amount for this account is ₹ 250/- and maximum is ₹ 1,50,000/- per year
  • Money to be deposited for 15 years in this account.
  • Interest  is calculated on yearly basis ,Yearly compounded.
  • Passbook facility is available with Sukanya Samriddhi account.

Read More- Sukanya Samriddhi Account Scheme, 2019- Detailed Analysis

viii. National Savings Certificate (NSC) (VIII Issue): 

NSC is a time-tested tax saving instrument with a maturity period of Five Years.  Interest is Compounded Yearly. While the minimum investment amount is Rs 1000, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder or on forfeiture by a pledgee or when ordered by a court. Investments in NSC are eligible for a deduction of upto Rs 1,50,000 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.

Read More- National Savings Certificates (VIII Issue) Scheme, 2019- detailed Analysis

ix. 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.

x. 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.

xi. 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.

xii. Senior Citizen Savings Scheme 2004 (SCSS):

Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Interest Senior Citizen Savings Scheme 2004 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 of fifty-five years or more but less than sixty years, and who has retired on superannuation on the date of opening of the account.

3. Retired personnel of Defence Services (excluding Civilian Defence employees) shall be eligible to open an account under this Scheme on attaining the age of fifty years subject to the fulfilment of other specified conditions

Read More- Senior Citizens’ Savings Scheme, 2019- Detailed Analysis

xiii. Amount Contributed (for a fixed period of not less than 3 years) by a Central Government employee to his NPS (Tier –II) account (Applicable from the Assessment Year 2020-21):

A recent addition to section 80C list, the contributions made to Tier-II NPS account will become eligible for deductions u/s 80C of the Income Tax Act provided that the amount deposited is not withdrawn before completion of three years from the date of deposit. Further, please note that for other NPS subscribers (other than Central Government employees), there will not be any 80C benefits on contribution made to Tier-II account.

xiv. 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) qualifies for tax saving under section 80C. Interest is compounded quarterly but paid annually. The Interest is entirely taxable.

xv. 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.

xvi. 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. All About Unit-linked insurance plan (ULIP)

xvii. 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.

B. So, where should you invest for Section 80C Deduction?

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?

C. When to Invest for Section 80C deduction?

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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Company: Taxguru Consultancy / Taxguru Edu
Location: Mumbai, Maharashtra, India
Member Since: 27 Feb 2017 | Total Posts: 1015
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838 Comments

  1. CA Shubham Parasar says:

    Eligible Premium under Sub-section (3) and (3A) of 80C of Income Tax Act,1961 For regular Life Insurance Policies is 10% of Capital Sum Assured so in you can claim deduction of 30 K only i.e. 10% of 300000.

  2. CA Shubham Parasar says:

    Eligible Premium under Sub-section (3) and (3A) of 80 C of Income Tax Act,1961 For regular Life Insurance Policies is restricted to 10% of capital sum assured. So you can claim 10% of 300000 i.e. 30000 only.

  3. chaitanya says:

    I took a life insurance this year and i am paying a premium of 80K anually and the sum assured is 300000. how much can i claim under 80C

  4. Amit says:

    You could invest additional of 50k under NPS (new pension scheme). This is eligible for deducution under 80 CCD (1B). also any medical insurance premium or health insurance premium can be claimed under 80D.

  5. Suresh says:

    Hi taxgurus,
    I need your help to file tax and reduce the amount that i pay to i.t
    Actually i am getting 1200000 rs total salary
    How i will reduce my tax where and how much i invest on tax saving schemes.please help me. I plan to buy some Agri land trough bank loan. Is it help me to reduce tax

  6. Dhiraj Wala says:

    I have purchased a house in Oct 2016 and have paid Rs. 145000 as Stamp Duty and Registration fee. Can the benefit of deduction for payment of Stamp Duty and Registration Fee paid for purchase of house be claimed Under Section 80C with overall limit of Rs. 150000?

  7. GANDHI MOHAN BHARATI says:

    Sorry. The author is out of date with interest rates on various schemes.
    Example – Senior Citizen Savings Scheme is 8.50% w.e.f 01 October, 2016

  8. Khatri Narinder says:

    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.

  9. chandan says:

    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) ?

  10. Aseem Juneja says:

    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

  11. ashok nagvenkar says:

    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 ?

  12. N Dheenadayalan says:

    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.

  13. sonu sagar says:

    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

  14. sonu sagar says:

    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)

  15. D.Ganguly says:

    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?

  16. Ghanshyam Sahoo says:

    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.

  17. GDM says:

    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

  18. moorthy BV says:

    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

  19. MANISH PANCHAL says:

    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

  20. jaswinder says:

    I have a question i have a daughter of 10 yrs and her grandmother is paying the premium in life insurance will she get the rebate for her granddaughter or grandson

  21. N Sinha says:

    Can a Long term Capital gain amount accruing by virtue of sale of property which was held by single person be invested in a joint property which he and his wife bought 6 months before making this Capital Gain?

  22. N Sinha says:

    I had a joint property along with my wife on which we made a Short term Capital Gain of Rs. 10 Lacs after selling it. How is the Capital gain to be distributed between both of us?

  23. N Sinha says:

    I bought a house for Rs. 20 Lacs and also paid lease rent of Rs. 50000 on the same. I spent 3 lacs on furnishing the house for which I do not have bills. I sold the house within 3 years of purchasing it at Rs. 30 Lacs. Now for calculating Capital Gain tax, Can I :-
    (i) Include lease rent paid in the cost price of the flat?
    (ii) Can I show Rs. 3 Lacs spent by me on furnishing the house for which I do not have bills now in the total purchase price?

  24. MANGAT RAM JOLLY says:

    I AM AN EX SERVICEMAN , TOOK VOL RETIREMENT IN 1983, AND DRAWING SERVICE PENSION AND ALSO A DISABILITY PENSION SINCE MY RETIREMENT, EVEN NOW I AM DRAWING BOTH THE SERVICE PENSION PLUS DISABILITY ELEMENT FOR THE INJURY SUSTAINED WHILE IN SERVICE, IS THE DISABILITY ELEMENT PORTION OF PENSION [ DISABILITY ELEMENT ] EXEMPT FROM INCOME TAX ?. PLEASE ADVISE . thanks

  25. SWAPNIL KORTIKAR says:

    I was claiming home loan principle amount under section 80C & interest under section 24 for own home but due to company transfer now I am living in rented home at another city. So can I claim rent amount under any section?

  26. R A SRINIVASU says:

    sir,please tell me about im a banking employee gross salary 23600 ,income tax deducting 1113 every month,some what increasing gross salary every month like 24000 to 25000,please tell how much premium i have to pay for new LIC COVERING 330000 PA NOW,WHEN IT WILL BE APPLIED,MY PHONE NUMBER 9573394942

  27. veeresh juluru says:

    Is 80C applicable on stamp duty and registration charges fo both self occupied and let out property?

    Uder 80C i didnot find any row with respect to stamp duty and registration charges. where to include this.

    Thanks,
    Veeresh

  28. vijay singh says:

    Hi Sir,

    Need your help urgently
    My employer has asked me to submit the LIC proofs for (2015 -16)
    I pay my LIC permium in 2 slots.
    1st in Sept – 50k.
    2nd in Jan Feb March – 50 K.
    Now I only have E Reciept of 1st Preimum.

    So, can I upload the receipt of only 1st premium mentioning 1lac and then claim the rest in Income tax file return.

    Please suggest me the right procedure.

    Regards,
    Vijay Singh

  29. Vikrant sharma says:

    I have 3 LIC policies having total premium 42170{17134+16153+8883} with sum assured 5lakh-5lakh-2lakh and policies are new bima gold, bima gold and Endowment assurance policy.
    I paid around 43 k premium{with late fee} in april month and will pay 2016 premium in feb 2016.
    So my quiry is whether i would get tax deduction for Rs.85000(for both installment) or only for Rs.42170 in financial year 2015-16.
    thanks

  30. P says:

    repayment of loan taken for repair of a residential flat owned by himself whether it is liable for deduction(both Interest as well as principal) if yes than under which section? & how much?

  31. Virendra singh says:

    My SCSS-2004 a/c matured after completion of its term(5 years)in August 2015 and as permissible in SBI Ihave renewed/extended for 3years,maximum permissible period pse reply whether this amount will be eligible for deduction under 80C of IT act in FY 2015-16

  32. MANINDRA SINGH says:

    I have two LIC policy.1. Jeevan Surahbi and 2.Endowment policy. I can’t understand how these effect tax savings ? Which policy includes which tax saving schemes (80C or 80CCC)?

  33. Name says:

    Sir, I have purchased open plot in the FY 2014-15 and started construction residential building on it during the same year. Can I claim deduction u/s 80C on the stamp duty spent on purchase of house site.

  34. Mohit says:

    hello sir
    i have an FD in PNB of 1,00,000/- for 8 years. on maturity value is 181203 @7.5%. Will bank deduct TDS for whole interest of 8 years or for each financial year? if yes then how can save tax. May this FD come in 80C category.

  35. C.D.Hingu says:

    when deduct my deduction amount from my salary account that time Medical reimbursement and HRA amount not deduct and also i am paying rent every month to home owner and medical bill pay to doctor, so i have a question Medical reimbursement and HRA not earn, so way it is deducted?
    regarding,The Medical reimbursement and HRA deducted amount or not?
    if no please give me reason,
    I am state government officer.

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