Taxes are the main source of revenue for the government and in order to encourage tax payment by the residents of the nation, some tax exemptions and deductions are allowed to reduce the tax liability of the taxpayer. Section 80C of the Indian Income Tax Act is one such section that covers tax deductions on certain investments and expenses. Section 80C provides tax benefits to Individuals and Hindu Undivided Families (HUFs) only and is the most popular and widely utilized section for tax-saving purposes. Individuals and Hindu Undivided Families are eligible to claim deductions from their Gross Total Income (GTI) for specific investments and expenses.
Section 80C not only helps in tax saving but also motivates taxpayers to make some beneficiary investment expenditures that have long-term benefits. Besides this, Section 80C promotes diversified investment options. It should be noted that the maximum amount of deduction under Section 80C is restricted to ₹1,50,000 every year. Before availing any deduction benefit under this section, a Gross Qualifying Amount is to be calculated, which is an aggregate of the following:
Section 80 C Deduction List
1. Life Insurance Premium
A premium paid by the taxpayer for a life policy or endowment policy shall be covered under this. Such policy shall be taken in the name of the individual, the spouse, or any child of such individual, and in the case of HUF, the policy shall be held in the name of any member of the HUF.
Maximum Qualifying Amount for premium shall be restricted to 10% of the capital sum assured under the policy (20% if the policy is issued before 1st April 2012). Here capital sum assured means the minimum sum assured under the policy on the happening of the insured event at any time during the term of the policy.
Further sub-section (3A) of section 80C by the Finance Act 2013 provides that the policy issued on or after 1st April 2013 to insure the life of a person:
- who is disabled or severely disabled as referred to under section 80U;
- who is suffering from diseases as specified under section 80DDB;09
then, the maximum qualifying amount shall be 15%.
2. Provident Fund
A provident fund is a retirement savings scheme offered to employees by their employers. Under this, both the employee and the employer contribute a percentage of the employee’s salary to the Employee Provident Fund (EPF). The current contribution rate is 12% of the employee’s basic salary plus dearness allowance, with equal contributions from both the employee and the employer. The amount contributed by an individual towards the Employee Provident Fund, Voluntary Provident Fund (VPF), 15 years Public Provident Fund (maximum contribution allowed ₹1,50,000 in case of PPF), or towards any superannuation fund is eligible for tax deduction under 80C.
3. Equity-Linked Saving Scheme
Equity-Linked Saving Scheme is a type of mutual fund scheme that primarily invests in equity or equity-related instruments. ELSS comes with a mandatory lock-in period of three years from the date of investment. It offers diversified investment opportunities, with investing through a Systematic Investment Plan (SIP), making it popular among young people. Equity-Linked Saving Scheme (ELSS) is eligible for tax deduction under section 80C.
4. Tax-saving Fixed Deposits
Tax-saving fixed deposits (FDs) are a fixed deposit scheme offered by banks in India. It is specifically designed to provide tax benefits under Section 80C. Both individuals and Hindu Undivided Families (HUFs) who are residents of India are only eligible to invest in tax-saving FDs. It comes with a mandatory lock-in period of five years. The amount deposited in Fixed Deposit for a period of at least 5 years in accordance with a scheme framed by the government is covered under section 80C.
5. National Saving Certificate
National Saving Certificate is a fixed-income generating investment channel offered by the Government of India through the Department of Posts. Such investments are made for a fixed tenure of 5 years with a minimum amount of ₹100 only. However, an amount up to ₹ 1.5 Lakhs deposited in National Saving Certificate (NSC) with a lock-in period of 5-10 years by an individual or HUF is eligible for deduction under Section 80C. Any interest accrued on NSE is also qualified for 80C.
6. Unit-Linked-Insurance Plan
Unit-Linked-Insurance Plan is an insurance scheme that offers insurance coverage along with investment options. Along with providing protection, insurance companies under this scheme allow their client to invest their premium amount in different funds that may include equity funds, debt funds, balanced funds, or other asset classes.ULIPs have a lock-in period of five years, as made mandated by the Insurance Regulatory and Development Authority of India (IRDAI). A contribution made by an individual for himself, for his spouse, or for any child and in the case of HUF for any member, towards the Unit-Linked-Insurance Plan (ULIP) of Unit Trust Of India (UTI) and LIC Mutual Fund (Dhanraksha Plan), is qualified for deduction under section 80C.
7. Pension fund
Pension Fund is an investment vehicle that offers financial security after retirement. A Pension Fund is designed to accumulate and grow assets over time, which are then used to provide income during retirement. This scheme is generally sponsored by employers or governments to provide security to employees after retirement from their active jobs. Contribution towards notified Pension fund set up by Mutual Fund or Unit Trust Of India (UTI), like HDFC retirement saving fund is qualified for 80C.
8. Repayment of Home Loan Principal
Only the principal component of EMIs paid towards a home loan (taken for purchase or construction of new residential house property) is eligible for deduction under Section 80C, including any payments made towards stamp duty and registration charges.
9. Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is a government initiative launched under the Beti Bachao, Beti Padhao campaign. It aims to promote the welfare and financial security of the girl child under which parents or legal guardians of a girl child offered a long-term investment option to save for the education and marriage expenses of their girl child. The girl child should be below the age of 10 years at the time of account opening, and a minimum initial deposit of just ₹ 250 is required. Only one account is allowed per girl child, and a maximum of two accounts are permitted for a family, with an exception for twins or triplets. Tax deductions are allowed by the government on SSY to promote it among the parents.
The following are eligible for tax deduction under section 80C in this regard:
- Any sum deposited in the Sukanya Samriddhi Account Schemes.
- Any interest accruing on such deposit.
- Any amount is withdrawn from such scheme as per the rules.
10. Annuity Plan
An annuity plan is a financial Plan offered by an insurance company or a financial institution to provide a regular source of income to an individual during retirement. Under this, the individual makes regular payments or a lump sum contribution to the annuity plan, and in return, the insurance company guarantees a steady income in the form of periodic payments. Any contribution made by an individual or HUF towards notified annuity plan of LIC or the insurer is qualified for 80C up to a certain specified limit.
11. Deferred Annuity
Deferred Annuity can be understood as a retirement saving scheme that allows an individual to accumulate funds over time, and accumulated funds grow on a tax-deferred basis. These earnings within the annuity are not subject to immediate income taxation, but rather taxes are deferred on growth until the income payments begin. Any amount deducted from the salary payable of an individual in the name of a deferred annuity or for making provision for his wife or children is eligible for a deduction maximum of up to 20% of salary.
12. Units Investment
Units investment is an investment strategy where an individual purchases units of a collective investment scheme, such as a mutual fund or exchange-traded fund (ETF). The money of all the investors is pooled together and then invested in a diversified portfolio of securities. Unit Investments are generally governed and regulated by the Unit Trust Of India (UTI). Subscription by an individual or HUF to any notified units of Mutual Fund or Unit Trust Of India (UTI) is covered under section 80C.
13. Home Loan Account Scheme
The National Housing Bank (NHB) is an apex financial institution in India, established with the motive to promote and regulate a stable and efficient housing finance system in India. It provides financial assistance, refinancing facilities, and promotional initiatives to Housing Finance Companies. Any sum deposited by an individual or HUF as a subscription to the Home Loan Account Scheme of the National Housing Bank or contribution to notified pension fund set up by the National Housing Bank is liable for a tax deduction.
Further, any sum paid by an individual or HUF as the subscription to notified deposit scheme of:
- Public sector companies engaged in providing long-term finance for the construction or purchase of houses in India for residential purposes (HUDCO), or
- Housing Board constituted in India for the purchase of planning, developing, and improving cities, towns, and villages, or both.
14. Tuition Fee
Any amount paid as tuition fee at the time of admission or otherwise, to any university, school, college, or any other educational institution in India for full-time education, for up to a maximum of 2 children is qualified under 80C.
Note: Part-time and distance courses, development fees, bus fees, hostel fees, library charges, and mess charges are not covered.
15. Time Deposit
Time Deposit is a type of saving account where funds are deposited for a fixed period of time. It yields a fixed rate of interest, and the rate of interest is usually higher than other saving account schemes. Time deposits done with the Department of Post of India are eligible for deduction under Section 80C. Any sum deposited in 5 years time deposit account with the post office is covered.
16. NABARD Rural Bonds
Rural Bonds offered by National Bank for Agriculture and Rural Development (NABARD) are qualified to tax deduction under this section up to the limit of ₹ 1.5 lakhs. NABARD Rural Bonds are debt instruments issued to raise funds to provide credit and financial assistance to farmers, promote rural infrastructure development, support agricultural research and development, and implement rural welfare schemes.
17. Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme (SCSS) is a government initiative designed to offer a regular source of income to Senior Citizens of India (anyone above 60 years or more) in the form of interest. SCSS is offered by government-owned banks and post offices. The minimum investment amount in the SCSS is Rs. 1,000, and the maximum investment allowed is Rs. 15 lakh. Any sum deposited in this account under Senior Citizen Rules, 2004 are covered under section 80C and is exempted up to a limit of ₹ 1.5 Lakhs.
NOTE: No deduction under section 80C can be claimed under NEW TAX REGIME.
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