Section 80C of the Income Tax Act of India is a clause that points to various expenditures and investments that are exempted from Income Tax. It allows for a maximum deduction of up to Rs.1.5 lakh every year from an investor’s total taxable income.
Section 80C is applicable only for individual taxpayers and Hindu Undivided Families. Corporate bodies, partnership firms, and other businesses are not qualified to avail tax exemptions under Section 80C.
Subsections of Section 80C
Under the Income Tax Act of India, deductions under Section 80Care divided
into certain sub-sections. These are –
|Tax saving sections||Eligible investments for tax exemptions|
|Section 80C||Investments in Provident Funds such as EPF, PPF, etc., payment made towards life insurance premiums, Equity Linked Saving Schemes, payment made towards the principal sum of a home loan, SSY, NSC, SCSS, etc.|
|Section 80CCC||Payment made towards pension plans, as well as mutual funds.|
|Section 80CCD(1)||Payment made towards certain Government-backed schemes such as National Pension System, Atal Pension Yojana, etc.|
|Section 80CCD(1B)||Investments of up to Rs.50,000 in NPS is considered for exemption under this section.|
|Section 80CCD(2)||Employer’s contribution towards NPS (up to 10%, comprising basic salary and dearness allowance, if any) is exempted under this category.|
Investments eligible for deduction under Section 80C of The Income Tax Act
|Investment options||Interest||Minimum lock-in period||Assured return||Associated risk|
|ELSS||12% to 15% (depending on market fluctuation)||3 years||No||High|
|NPS||8% to 10%||Till the investor reaches 60 years of age (retirement)||No||High|
|ULIP||8% to 10% (depending on market fluctuation)||5 years||No||Moderate|
|Fixed deposit||Up to 8.40%||5 years||Yes||Low|
|Sukanya Samriddhi Yojana||8.50%||8 years||Yes||Low|
- Life insurance premiums –
Premiums paid towards life insurance policies are eligible to receive tax benefits as per 80C limit. These exemptions are available against policies held by self, spouse, dependent children, etc. Hindu Undivided Family members can also benefit from the same exemptions.
Currently, an annual premium of up to 10% (of the insurance policy’s total sum assured) is tax exempted under this scheme. This clause has been revised on 1st April 2012, prior to which premiums of up to 20% (of the sum assured) was liable for tax exemption under Section 80C deduction.
- Public Provident Fund –
Any contribution towards Public Provident Fund (PPF) can be filed for tax deduction under Section 80C. Public Provident Funds come with a maximum deposit limit of Rs.1,50,000, allowing an investor to claim the entire deposited amount as an exemption under this Income Tax act.
Any voluntary contribution made by the employee towards the provided fund is also eligible for tax deduction under Section 80C of the Income Tax Act.
- NABARD Rural Bonds –
NABARD stands for National Bank for Agriculture and Rural Development. Rural Bonds offered by NABARD are eligible for tax exemption under the Income Tax Act of India. The maximum deductible amount is capped at Rs.1.5 lakh under Section 80C.
- Unit Linked Insurance Plans (ULIPs) –
Unit Linked Insurance Plans offer more returns in the long term when compared to conventional insurance policies. They have become especially popular in recent years thanks to the tax benefits offered under Section 80C of the Income Tax Act, 1961. Investors can avail tax exemptions up to Rs. 1.5 lakh on the invested amount u/s 80C income tax provisions.
- National Savings Certificate –
NSC or National Savings Certificate is one of the most popular tax-saving instruments for risk-avert individuals. Interest earned on NSC is compounded semi-annually, and the maximum maturity period ranges from 5 to 10 years.
Investors do not have to follow any limitation on the total sum invested towards NSC in a financial year; however, only a maximum of Rs.1.5 lakh will be subject to exemption every financial year under Section 80C.
- Tax Saving FD –
Tax Saving FDs are fixed deposit schemes offered by both banks and post offices that allow tax deduction under Section 80C. These FDs have a lock-in period of 5 years and offer a maximum of Rs.1.5 lakh tax exemption (on the principal amount). However, the returns of such instruments are liable for taxation.
- EPF –
The return earned from Employee Provident Fund (EPF), including the interest, is eligible for tax exemption under Section 80C of the Income Tax Act, 1961. It is only eligible for employees who have continued his or her service for at least 5 years. If individuals make voluntary contributions to their EPF accounts, such amount is eligible for tax exemptions under Section 80C.
- Infrastructure Bonds –
Section 80C of the Income Tax Act allows tax exemptions on infrastructure bonds, provided the investment is equal to or higher than Rs.20,000. The limit of Rs.1.5 lakh stays applicable for these long-term secured bonds as well.
- Equity-Linked Saving Scheme –
Equity Linked Saving Schemes, or ELSS, falls under Section 80C’s exemption category for up to its maximum limit (Rs.1.5 lakh). These investment schemes come with a mandatory 3 year lock-in period.
- Senior Citizens Savings Scheme –
Any investments made towards Senior Citizens Saving Scheme, (or SCSS) is eligible for tax exemption up to the maximum allocated 80C limit, i.e. Rs. 1.5 lakh. Individuals above the age of 60 (people opting for voluntary retirement scheme is eligible to participate in SCSS after the age of 55 years) years are eligible to get benefit from SCSS, which has a minimum lock-in tenure of 5 years.
- Principal repayment made towards home loan –
Only the repayments made towards the principal component of home loan EMIs are eligible for deduction under Section 80C. However, the borrower has to fulfil certain clauses to avail of this benefit; these are –
- Exemptions can only be claimed if the construction of the property is completed.
- Transference of the property within 5 years of possession will exclude it from the tax exemptions provided under Section 80C of the Income Tax Act, 1961.
- Any amount claimed as a tax deduction should be taxable in the transfer year if a handover is made after 5 years of the property’s possession. Failing to meet this clause will also render it excluded from Section 80C’s guidelines.
- Stamp duty and registration charges –
Stamp duty and registration charges can be considered as the two largest expenses made towards taking ownership of a property. The Government of India allows a deduction of tax liability till the 80C limit on the stamp duty and registration charges paid towards house procurement. However, exemptions can only be claimed in the year that these duties are paid; otherwise it will not be eligible for consideration under Section 80C deduction.
- Sukanya Samriddhi Yojana –
Sukanya Samriddhi Yojana is a saving scheme specially designed to meet the financial requirements for a girl’s education and marriage. Parents or legal guardians of a girl child (not older than 10 years of age) can open this account and parents of 2 or more (only in case of twins) girls can also invest in this plan. The interest earned from this investment scheme is eligible for tax exemption under Section 80C.
Section 80C features multiple instruments, a comprehensive idea of which should be present with every investor. The benefits offered by this act can help save a substantial amount from one’s tax liability.
Frequently Asked Questions
- Are taxpayers allowed to claim 80C deductions while filing Income Tax return?
Claim for 80C deduction is allowed while filing income return before the end of that Assessment Year.
- Which year will the investments reflect in the Income Tax return?
Assume a taxpayer made investments in accordance with Section 80C guidelines on 30th April 2019. Then, he or she will be able to claim tax exemption on such investments in the Assessment Year 2019-2020.
- Can someone claim an 80C deduction on the life insurance premium paid to private insurance aggregator?
Yes, deduction under Section 80C is available for life insurance premiums paid to any insurance aggregator recognised by IRDAI (Insurance Regulatory and Development Authority of India). It is applicable for both public and private sector companies.
- Are donations eligible for tax exemptions under Section 80C?
Donations made to specific institutions and funds are eligible for tax exemption under this section.
- Can taxpayers invest in more than one investment policy and claim Rs.1.5 lakh exemption for each investment?
No, taxpayers are allowed a maximum tax exemption of up to Rs.1,50,000 considering all investments made towards tax-saving instruments under Section 80C.