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The Income Tax Department provides different deductions that can encourage saving and investments among taxpayers, and 80C is one of these deductions that helps with tax liability.
What is 80C in income tax?
Under Section 80C of the Income Tax Act 1961, a taxpayer can get a deduction of up to Rs 1.5 lakh per financial year. However, the 80C deduction is not available to partnerships, companies, and corporate bodies but to individual taxpayers and Hindu undivided families.
Section 80C has sub-sections 80CCC & 80CCD. You could deduct the amount from your total taxable income for the Previous Year (PY) if you used some of your income for these purposes during the PY.
What is the eligibility for investment and deduction under 80C?
1. Life Insurance Premium
Premiums for life insurance help with tax deductions under Section 80C. However, if it is a single premium policy, the insurance coverage cannot be cancelled within two years after its start date.
In the case of multiple premiums, you must pay the premiums for the next two years. The Section 80C deduction will be reversed if this is not done. ULIPs are unit-linked life insurance policies that are also deductible under Section 80C.
Tax on Returns: According to Section 10(10)(D) of the Income Tax Act, the returns on life insurance policies with insurance covers that are at least ten times the annual premium are tax-free.
2. Investment in ELSS mutual funds:
ELSS mutual funds invest 80% of their corpus in stocks and have a 3-year lock-in period.
Tax on return: Long-term capital gains tax charged at a rate of 10% on ELSS profits over Rs. 1 lakh.
3. Public Provident Fund (PPF):
This government savings program has an interest rate that the government manages. It has a fifteen-year term.
Tax on Returns: There is no tax due on PPF returns. However, you are required to include PPF results in your yearly income tax return.
4. Employees’ Provident Fund (EPF):
Section 80C deducts employee EPF contributions. Employer contributions are tax-free but not deductible. EPF interest is tax-free unless you quit the EPF-registered firm or withdraw before 5 years.
5. National Pension System (NPS):
Sections 80CCD (1) and (2) permit the deduction for NPS. Under Section 80C, both employer and employee contributions to the NPS fall under deduction. To take advantage of this part, your employer’s payments must not exceed 10% of your basic wage plus your dearness allowance.
The benefit is also available to self-employed individuals who contribute up to 20% of their gross income.
Additionally, under Section 80C, voluntary donations to the NPS up to Rs. 50,000 are exempt above and above Rs. 1.5 lakh. Under Section 80CCD (1B), these voluntary contributions are tax deductible.
Tax on Returns: Until maturity, NPS returns are tax-exempt. 40% of the total corpus is tax-free when it matures.
6. Sukanya Samriddhi Yojana:
This is a government-sponsored program that encourages female students to save money. Parents can open an account for their daughters younger than ten years old. The program lasts 21 years or until the girl child marries after turning 18.
Returns Tax: Sukanya Samriddhi Scheme returns are tax-free.
7. Tax Saving FD
Fixed deposit products, known as Tax Saving FDs, are available from both banks and post offices and qualify for Section 80C tax deductions. These FDs give a maximum tax exemption of Rs. 1.5 lakh and a 5-year lock-in period. However, these instruments’ returns are subject to taxation.
What are sub-sections of 80C and tax-saving investment options?
| Sections | Eligibility for Tax Deductions |
| 80C | Payment made towards pension plans and mutual funds. |
| 80CCC | Contributions made towards government-sponsored plans such as the National Pension System, the Atal Pension Yojana, and others. |
| 80CCD (1) | Investment towards government-sponsored plans such as the National Pension System, the Atal Pension Yojana, and others. |
| 80CCD (1B) | Investments of up to Rs.50,000 in NPS. |
| 80CCD (2) | Contribution by the employer towards NPS (up to 10%, comprising basic salary and dearness allowance) |
Takeaway
To get the best benefit of deduction under Section 80C, you must connect with the right income tax expert who can help you get the deduction and tax benefits.
FAQs
80C property deduction is a tax benefit for buying or constructing a residential house property. It allows you to deduct the payments made towards stamp duty, registration charges, and the principal repayment of home loans from your taxable income, up to Rs. 1.5 lakhs.
Only the first 1.5 lakhs of your total investment may be deducted under Section 80C. Tax-wise, there are no issues with the increased contributions other than the fact that you are unable to deduct them under Section 80C.
Yes, FD comes under 80C if it is a tax-saving fixed deposit account. This type of FD account offers a tax deduction of up to Rs. 1.5 lakh per year under Section 80C of the Income Tax Act, 1961. However, it has a lock-in period of 5 years.
Yes, you can claim both 80C and 80CCC deductions, but the total amount of deduction under these sections cannot exceed Rs 1.5 lakh. The difference between 80C and 80CCC is that 80C covers various investments and expenses, while 80CCC covers only pension funds.
Yes, an LIC pension is a taxable income under the head ‘Income from Other Sources’. Up to a total of Rs. 1,50,000 in a financial year are eligible for deduction under Section 80CCC for premiums paid towards pension/annuity plans for obtaining a pension from a fund.