As a tax-paying individual, it is a must for you to know about tax relief you can claim ( Upto ₹ 150,000) under Section 80, 80 CCC, 80 CCD, and 80D.
These deductions are categorized into different buckets based on the type of investment made and fall under Chapter VI A of the Income Tax Act, 1956.
Knowing how to claim these deductions and lowering your tax liability can go a long way in helping you plan your taxes and finances better and hence, I have covered everything about the deductions under these sections to help you out. Let us begin.
Section 80 C
By investing in certain avenues under Section 80 C you (if you are an “Eligible Assessee”) can claim relief in your total tax liability by ₹ 150,000. Let us understand this with an example, suppose your taxable income is ₹1,500,000. Now, you make an investment of ₹ 200,000 in any of the schemes under Section 80 C. Your total tax will be now be calculated as:
1,500,000 – 150,000 = ₹ 1,350,000 (as the maximum deduction allowed is limited to ₹ 150,000). So your tax liability now becomes ₹ 1,350,000 and you would have to pay lesser tax.
Please note that the maximum deduction you are allowed is restricted to ₹ 150,000; however, there is no minimum limit. Now let’s see who is an eligible assessee and which investments qualify as eligible investments.
- Who Is An Eligible Assessee
The benefit of deduction under section 80C is available only to an individual or HUF. This means that Companies or Limited Liability Partnerships or any Association of Persons/ Body of Individuals cannot claim deduction under this section.
- Which investments qualify as eligible investments?
These are the investments which are eligible for deduction under section 80 C-
|Investment||Risk Profile||Interest||Guaranteed Returns||Lock-in Period|
|Equity Linked Savings Scheme(ELSS)||Equity-related risk||12-15% expected||No||3 years|
|Public Provident Fund ( PPF)||Risk-free||7.6%||Yes||15 years|
|National Pension Scheme (NPS)||Equity-related||8-10% expected||No||Till retirement|
|National Savings Certificate (NSC)||Risk-free||8.1%||Yes||5 years|
|Fixed Deposits (FD)||Risk-free||7-9% expected||Yes||5 years|
|Unit Linked Insurance Plan (ULIP)||Equity-related risk||8-10% expected||No||5 years|
|Sukanya Samriddhi Yojana (SSY)||Risk-free||8.6%||Yes||21 years|
|Senior Citizen Savings Scheme (SCSS)||Risk-free||8.3%||Yes||5 years|
Let me explain a few of these investment options to you in detail one by one:-
Fixed deposits come with a 5-year lock-in period, and are eligible for tax deduction under section 80 C. The interest on such fixed deposits is, however, not eligible for this deduction.
2.Life Insurance Premium
Life insurance premium, being one of the basic necessities today, is one of the most popular options for availing deductions under section 80 C.
A life insurance premium is a regular payment against an insurance policy. This policy provides acts as a financial safety net by providing the policy amount to the family of the policyholder in the event of death/ maturity, as per the policy.
It is important to know that only life insurance for the assessee or his/ her family members is eligible for 80 C deduction.
The deduction available is, lesser of the following-
- 10% of the total amount insured, or
- Amount of premium paid
3.ELSS Mutual Funds
Investment in Equity Linked Savings Scheme mutual funds is also eligible for deductions under section 80 C.
ELSS is a dedicated mutual fund scheme that allows investors to save tax on the investment made, along with the capital appreciation advantage.
The peculiar feature of an ELSS mutual fund is that it has a fix lock-in period of 3 years from the date of the investment.
Investments in ELSS, up to a maximum amount of ₹ 150,000 per annum are eligible for deduction under section 80 C.
An important point that must be noted in regard to any investment made in ELSS is that, even though the lock-in period is 3 years, the deduction benefit is available only in the year in which the investment is made.
To better understand this point, let us take the help of an example. Suppose you invest ₹ 1.5 lakh in an ELSS mutual fund this financial year 2019-2020. The lock-in period for this fund shall be until FY 2022-23. However, the benefit of deduction under section 80 C will only be available in the year of investment i.e. FY 2019-20.
4.Public Provident Fund (PPF)
Public Provident Fund is a long-term investment scheme guaranteed by the Central Government. The basic premise behind this idea is to instill the culture of savings amongst the citizens of the country.
PPF invests primarily in fixed income securities. These securities generate a fixed rate of return and ensure income stability for its investors.
Return on PPF is approximately 8% p.a., which might seem to be on the lower end, but then there is no risk of capital loss in this investment.
The minimum period of investment in a PPF is 15 years. Investors must consider this while deciding whether to invest in this instrument for availing the deduction under Section 80 C.
5.Employees Provident Fund (EPF)
For all salaried individuals, the Employees’ contribution to the EPF account, up to a maximum of ₹ 150,000 is eligible for deduction under Section 80C.
It must be noted that the Employer’s contribution is not eligible for deduction under Section 80C.
6.Senior Citizen Savings Scheme
This investment is a good opportunity for senior citizens above 60 years to earn interest on their corpus. This long-term tax saving option offers needed security according to the age of the investor.
The maximum amount of investment in an SCSS account can be ₹ 15 lakhs, either individually or jointly.
Senior citizens who invest in this scheme are eligible for a tax deduction of up to ₹ 1.5 lakh under Section 80C of the Indian Tax Act, 1961.
7.Sukanya Samriddhi Yojana
This savings scheme is aimed towards the benefit of the girl child. As the name suggests, this scheme can only be opened by parents of a girl child who is below the age of 10.
The returns from this scheme hover around 8-8.5% and the investment is eligible for deduction under section 80 C.
8.Unit Linked Insurance Plans (ULIP)
ULIP, like LIC plans, is a combination of insurance and investment. A part of the money invested in this scheme goes towards insurance while the remaining amount is invested just like mutual funds.
The investors can invest over a term of 5-10-15 years to accumulate the requisite units. The investment can be in equity or in debt and depends on the nature of the investor to choose where to put money.
9. Other Eligible Investments/Expenses Under 80 C
- Tuition fees for any approved school, college or university for up to two children.
- The principal amount for a home loan repayment
- Stamp duty/fee for the transfer of house property
Also, watch this video to learn more about Section 80C investments.
Section 80 CCC
This section provides a deduction up to ₹ 150,000 to an individual for the amount paid towards an annuity plan of LIC or any other insurer.
However, it is important to know that the amount received upon the surrender of the annuity, including interest accrued on the annuity, is taxable in the year of receipt.
Section 80 CCD
1.National Pension Scheme (NPS)
NPS is a voluntary pension scheme set up by the government. It helps an investor to save for his retirement pension along with creating a corpus for old age.
It acts as a saving-investment tool by encouraging continual savings during work years to create a sizeable corpus post-retirement.
Any Indian citizen between 18 and 65 years can join NPS. The only condition is that the person must comply with know your customer (KYC) norms.
Tax benefits on NPS can be availed through 3 sections being – 80CCD(1), 80CCD(2) and 80CCD(1B).
- Section 80CCD (1)
Employee’s contribution up to 10% of basic salary and dearness allowance (DA) up to ₹1.5 lakh is eligible for tax deduction.
- Section 80CCD (2)
Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section. However, the employer’s contribution is an additional deduction as it is not part of ₹1.5 lakh allowed under Section 80C.
- Section 80CCD (1B)
This is the only section wherein an additional exemption up to ₹ 50,000 in NPS is eligible for an income tax deduction.
Please note that the additional tax benefit of ₹ 50,000 is over and above the benefit of ₹1.5 Lakhs claimed under all other investments.
To sum it up, the total tax benefits under Section 80CCD (1) + Section 80CCD (1B) can be as high as up to ₹ 2 Lakhs for the relevant financial year.
Note – The overall limit of Section 80 C + Section 80 CCC + Section 80 CCD is restricted to ₹ 150,000 in aggregate.
For example, suppose an assessee invests ₹150,000 under Section 80 C and also invests ₹ 150,000 under Section 80 CCD. In this case, the overall deduction available to the assessee shall be restricted to ₹ 150,000 in aggregate.
Section 80 D
1. Deduction For The Premium Paid For Medical Insurance
The assessee is eligible to claim a deduction of ₹ 25,000 under section 80D on insurance for self, spouse and dependent children.
If the assessee is aged above 60 years, then this deduction is available up to a maximum of ₹ 50,000.
Over and above the above-mentioned claim, the assessee is also eligible for an additional deduction for insurance of parents up to ₹ 25,000.
Moreover, if the parents are aged above 60, the deduction available is ₹ 50,000.
All in all, if both assessee and his parent(s) are aged 60 years or above, then the maximum deduction that can be availed under this section is ₹ 100,000.
Proper knowledge can help you as an investor, save a lot on your tax outgo. By availing the above-mentioned deductions, an assessee can save as much as ₹ 50,000 – ₹65,000 in tax expenses.
Based on the tax bracket of the individual/ HUF, a reduction of ₹ 150,000 from the total taxable income result in substantial tax savings. So use these investment opportunities wisely to earn returns as well as save tax.
Disclaimer: The views expressed here are of the author and do not reflect those of Groww.