Section 80C Deduction List I Income tax year end Tax Saving
Section 80C deduction are available as per the Income Tax Act of india . Section 80C provides for various deductions that can be claimed by individuals and Hindu Undivided Families (HUFs) from their gross total income. The maximum deduction allowed under this section is Rs. 1.5 lakh per financial year. Some of the popular deductions available under Section 80C are:
- Employee Provident Fund (EPF) contributions
- Public Provident Fund (PPF) contributions
- National Savings Certificate (NSC) investments
- Equity Linked Saving Scheme (ELSS) investments
- Tax-saving fixed deposits (FDs) with banks and post offices
- Life insurance premium payments
- Sukanya Samriddhi Yojana (SSY) deposits
- Senior Citizens Savings Scheme (SCSS) investments
- Unit Linked Insurance Plan (ULIP) investments
- Principal repayment of home loan
Apart from these, there are other investments and expenses that are also eligible for deduction under Section 80C, such as
- Tuition fees paid for children’s education : Deduction is allowed for tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter to any university, college, school or other educational institution situated within India; . Dedduction of Tuition Fees is allowed in the case of an individual for any two children of such individual.
- Stamp duty and registration charges for purchase of a house : stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee but shall not include any payment towards or by way of—
and certain contributions made to notified pension schemes. It is important to note that the total deduction under Section 80C cannot exceed Rs. 1.5 lakh per financial year.
Section 80C Deduction for Employee Provident Fund (EPF) contributions
Under Section 80C of the Income Tax Act, contributions made to the Employee Provident Fund (EPF) are eligible for deduction from the gross total income. The EPF is a retirement benefits scheme that is available to employees who are eligible for it. Both the employer and employee make contributions to the EPF account, which is maintained by the Employees’ Provident Fund Organisation (EPFO).
The contributions made by the employee to the EPF account can be claimed as a deduction under Section 80C, subject to a maximum limit of Rs. 1.5 lakh per financial year. The contribution made by the employer towards the EPF account is not taxable in the hands of the employee.
The EPF contributions made by the employee are also eligible for interest, which is calculated on a monthly basis and credited to the EPF account at the end of the financial year. The interest earned on the EPF contributions is also exempt from tax, as long as the employee has completed at least 5 years of continuous service.
It is important to note that in case of premature withdrawal of EPF contributions, the tax implications may vary depending on the reason for withdrawal and the length of service. Therefore, it is advisable to consult a tax expert or a financial planner before making any decision regarding the withdrawal of EPF contributions.
The block-in period for Employee Provident Fund (EPF) refers to the minimum number of years for which the employee has to contribute to the EPF scheme in order to be eligible for certain benefits. The block-in period for EPF is 5 years, which means that an employee has to contribute to the EPF account for at least 5 years to become eligible for various benefits such as:
- Withdrawal of EPF contributions without any tax implications
- Transfer of EPF balance from one employer to another
- Availing loan against the EPF balance
If an employee withdraws the EPF contributions before completing the 5-year block-in period, the withdrawn amount will be taxable in the hands of the employee. However, in certain exceptional circumstances such as retirement, permanent disability, or migration abroad, the EPF contributions can be withdrawn before the completion of the 5-year block-in period without any tax implications.
It is important to note that the EPF scheme is mandatory for all employees who are eligible for it and the employer is also required to make contributions to the EPF account. The EPF contributions made by the employee are eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year.
Section 80C Deduction for Public Provident Fund (PPF) contributions
The Public Provident Fund (PPF) is a popular long-term investment scheme offered by the Government of India. Contributions made to the PPF account are eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year.
An individual can open a PPF account at designated post offices, nationalized banks, and some private banks. The minimum contribution for a PPF account is Rs. 500 per year, and the maximum contribution is Rs. 1.5 lakh per year.
The PPF account has a tenure of 15 years, which can be extended in blocks of 5 years. The interest rate on PPF contributions is set by the Government of India and is reviewed every quarter. The current interest rate on PPF contributions is 7.1% per annum (as of January-March 2021).
One of the key features of the PPF scheme is that it offers tax-free returns. The interest earned on PPF contributions, as well as the maturity amount, is completely tax-free. This makes it an attractive investment option for individuals looking for long-term tax-saving instruments.
It is important to note that premature withdrawal of PPF contributions is allowed only in exceptional circumstances such as critical illness, higher education, or marriage. The withdrawal amount is subject to certain conditions and penalties, as per the rules set by the Government of India.
Overall, the PPF scheme is a safe and reliable long-term investment option for individuals looking to save tax and build a corpus for their future financial needs.
Section 80C Deduction for National Savings Certificate (NSC) investments
The National Savings Certificate (NSC) is a popular small savings scheme offered by the Government of India. The NSC is a fixed-income investment that is designed to help individuals save money and earn a guaranteed return on their investment.
NSC can be purchased at designated post offices across India. The minimum investment amount for NSC is Rs. 100, and there is no maximum limit on the investment amount. The NSC has a fixed tenure of 5 years, and the interest rate is revised every quarter by the Government of India.
The interest rate on NSC is currently 6.8% per annum (as of January-March 2021). The interest earned on NSC investments is compounded annually, which means that the interest earned in the previous year is added to the principal amount, and the interest is calculated on the total amount.
One of the key features of NSC is that the investment amount and the interest earned on it are eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year. However, the interest earned on NSC investments is taxable as per the individual’s income tax slab rate at the time of maturity.
NSC is considered a safe investment option as it is backed by the Government of India. The investment amount is protected against market fluctuations, and the principal amount is guaranteed by the government.
Overall, NSC is a good investment option for individuals who are looking for a safe and secure investment option with tax-saving benefits.
Section 80C Deduction for Equity Linked Saving Scheme (ELSS) investments
Equity Linked Saving Scheme (ELSS) is a type of mutual fund that is designed to help individuals save tax and earn returns on their investment through equity investments in the stock market. ELSS is considered one of the most popular tax-saving investment options in India.
ELSS has a lock-in period of 3 years, which means that the invested amount cannot be redeemed before the completion of the lock-in period. The minimum investment amount for ELSS is Rs. 500, and there is no maximum limit on the investment amount.
ELSS invests a minimum of 80% of the total assets in equity and equity-related instruments. ELSS investments are subject to market risks, and the returns are not guaranteed. However, over the long term, ELSS has the potential to generate high returns, as equity investments tend to perform well over the long term.
One of the key features of ELSS is that the investment amount is eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year. ELSS also offers the benefit of long-term capital gains tax, which means that the gains made on the investment after the completion of the lock-in period are exempted from tax up to a certain limit.
ELSS is managed by professional fund managers who have expertise in equity investments. The fund managers analyze the market and invest in the best stocks that have the potential to generate high returns.
Overall, ELSS is a good investment option for individuals who are looking to save tax and earn high returns through equity investments. However, it is important to note that ELSS is subject to market risks, and individuals should invest in ELSS only after understanding the risks involved and after assessing their risk appetite.
Section 80C Deduction for Tax-saving fixed deposits (FDs) with banks and post offices
Tax-saving fixed deposits (FDs) are special fixed deposit schemes that are offered by banks and post offices in India. These schemes are designed to help individuals save tax and earn a guaranteed return on their investment.
Tax-saving FDs have a lock-in period of 5 years, which means that the invested amount cannot be redeemed before the completion of the lock-in period. The minimum investment amount for tax-saving FDs is Rs. 100, and there is no maximum limit on the investment amount.
Tax-saving FDs offer a higher rate of interest than regular fixed deposits, and the interest earned on these deposits is compounded quarterly. The interest rate on tax-saving FDs is fixed at the time of investment and remains the same throughout the tenure of the deposit.
One of the key features of tax-saving FDs is that the investment amount is eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year. However, the interest earned on tax-saving FDs is taxable as per the individual’s income tax slab rate.
Tax-saving FDs are considered a safe investment option as they are backed by banks and post offices. The investment amount is protected against market fluctuations, and the principal amount is guaranteed by the government.
Overall, tax-saving FDs are a good investment option for individuals who are looking for a safe and secure investment option with tax-saving benefits. However, it is important to note that tax-saving FDs offer lower returns than other tax-saving investment options such as Equity Linked Saving Schemes (ELSS) and National Pension Scheme (NPS). Individuals should consider their investment goals and risk appetite before investing in tax-saving FDs.
Section 80C Deduction for Life insurance premium payments
Payment of life insurance premium is considered a tax-saving investment under Section 80C of the Income Tax Act. Individuals who pay life insurance premium can claim a deduction of up to Rs. 1.5 lakh per financial year under Section 80C.
The deduction is available for premium payments made towards life insurance policies that are issued by a registered insurer. The premium paid towards term insurance policies, endowment policies, and unit-linked insurance plans (ULIPs) are all eligible for tax deduction under Section 80C.
It is important to note that the premium paid towards health insurance policies is not eligible for tax deduction under Section 80C. The tax deduction for health insurance premium payments is available under Section 80D of the Income Tax Act.
The deduction under Section 80C is available for the premium paid towards the policyholder, spouse, and dependent children. The policyholder can claim the tax deduction on the premium paid for policies taken in their name, their spouse’s name, or their children’s name.
In order to claim the tax deduction, the policyholder must provide proof of payment of the premium. The policyholder must also ensure that the premium payment is made from their own income, and not from the income of their spouse or children.
Overall, payment of life insurance premium is a good tax-saving investment option, as it not only provides tax benefits but also helps in building a financial safety net for the policyholder and their family.
Section 80C Deduction for Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a government-backed small savings scheme designed specifically for the benefit of the girl child. The scheme offers a high rate of interest and tax benefits to parents who save money for the future of their girl child.
Parents or guardians of a girl child can open an SSY account in the name of the child before she turns 10 years old. The account can be opened at any authorized post office or bank branch. A minimum deposit of Rs. 250 is required to open the account, and a maximum of Rs. 1.5 lakh can be deposited in the account each financial year.
The SSY account has a tenure of 21 years, and the account matures when the girl child turns 21. However, partial withdrawals can be made from the account after the child turns 18 for the purpose of higher education or marriage.
The interest rate on the SSY account is fixed by the government and is revised every quarter. Currently, the interest rate is 7.6% per annum. The interest earned on the SSY account is tax-free, and the deposit made towards the account is eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year.
The SSY account can be a good investment option for parents who are looking to save for the future of their girl child. The scheme not only provides high returns but also offers tax benefits and encourages the education and empowerment of girls. However, it is important to note that the funds deposited in the SSY account can only be used for the benefit of the girl child, and there are penalties for premature withdrawal.
Section 80C Deduction for Senior Citizens Savings Scheme (SCSS) investments
The Senior Citizens Savings Scheme (SCSS) is a government-backed savings scheme specifically designed for senior citizens above the age of 60. The scheme offers a high rate of interest and tax benefits to senior citizens who are looking to save money for their post-retirement years.
Any individual who has crossed the age of 60 is eligible to invest in the SCSS. The scheme can also be availed by individuals who have crossed the age of 55 and have retired on superannuation or under a voluntary or special voluntary retirement scheme. The maximum investment limit is Rs. 15 lakh, and the tenure of the scheme is 5 years, which can be extended by an additional 3 years.
The interest rate on the SCSS is fixed by the government and is revised every quarter. Currently, the interest rate is 7.4% per annum. The interest earned on the SCSS is taxable, and tax will be deducted at source (TDS) if the interest amount exceeds Rs. 50,000 in a financial year.
Investments made in the SCSS are eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year. However, the total deduction claimed under Section 80C cannot exceed the maximum limit of Rs. 1.5 lakh.
The SCSS can be a good investment option for senior citizens who are looking for a safe and secure investment option with high returns. The scheme not only offers high interest rates but also provides tax benefits and can help in generating a regular income stream during the post-retirement years. However, it is important to note that premature withdrawal from the scheme is subject to penalty.
Unit Linked Insurance Plan (ULIP) investments
A Unit Linked Insurance Plan (ULIP) is a hybrid investment product that combines life insurance with investment options. ULIPs provide the investor with the option to invest in a variety of funds such as equity, debt, or balanced funds, and the returns on the investment are dependent on the performance of the chosen funds.
A part of the premium paid towards a ULIP is used to provide life insurance coverage, while the remaining part is invested in the chosen fund. The premium paid towards a ULIP is eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year.
The returns on ULIPs are not guaranteed, and the value of the investment is subject to market risks. The investor has the option to switch between different funds offered by the ULIP, depending on their investment goals and risk appetite.
The maturity proceeds of a ULIP are tax-free under Section 10(10D) of the Income Tax Act, subject to certain conditions. However, if the policyholder surrenders the policy before the completion of the lock-in period of 5 years, the surrender value received will be taxable as per the policyholder’s income tax slab rate.
ULIPs can be a good investment option for investors who are looking for a combination of life insurance and investment options. The product not only offers tax benefits but also provides flexibility in choosing investment options based on the investor’s risk appetite and financial goals. However, it is important to note that ULIPs come with charges such as premium allocation charges, fund management charges, mortality charges, and surrender charges, which can impact the returns on the investment.
Principal repayment of home loan
The principal repayment of a home loan is eligible for deduction under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 lakh per financial year. This deduction can be claimed by the individual who has taken the home loan and is repaying the principal amount.
The home loan should be taken from a recognized financial institution, such as a bank or a housing finance company, to be eligible for the tax deduction. The deduction is available for the repayment of the principal amount of the home loan, and not for any charges or fees associated with the loan, such as processing fees or prepayment charges.
The deduction under Section 80C can be claimed for the principal repayment made during the financial year, and can be claimed only after the completion of the construction of the property or on possession of the property, whichever is earlier. The deduction is available only for the amount paid towards the principal repayment, and not for any interest component of the home loan.
( CA Satbir Singh : Taxheal@gmail.com )
Also Read Tax saving schemes other than 80c of Income Tax Act
For more you can read Income tax website of India
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