Section 80C of the Income Tax Act, 1961 came into effect on April 1, 2006. It allows you to claim deductions of up to Rs. 1.5 lakh and reduce the tax liability by spreading your investments across PPF, ELSS, NSC, and more.
Here’s a comprehensive guide on Section 80C of the Income Tax Act.
You can avail tax deduction under Section 80C in the following ways:
You can avail deductions and reduce your tax liability under Section 80C by making the following investments:
Equity Linked Saving Scheme is an equity mutual fund that invests mainly in equity and equity-related instruments. It comes with a lock-in period of three years.
2. National Pension System
The National Pension System is a voluntary retirement savings scheme that allows you to save money systematically throughout your working life.
3. Public Provident Fund
PPF or Public Provident Fund is a retirement savings scheme provided by the Government of India that allows you to have a financially secure life after retirement. The minimum deposit per year is Rs. 500 while the maximum amount is Rs. 1.5 lakh.
4. National Savings Certificate
NSC or National Savings Certificate is a fixed income scheme that you can easily open at a post office. It is a secure and low-risk investment instrument.
Popularly known as ULIP, Unit Linked Insurance Plan offers the benefits of both investment and insurance under one integrated plan. As a ULIP policyholder, you have to make regular premium payments that would cover both insurance and investment.
6. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) refers to a government-backed small deposit scheme that aims to meet the marriage and education expenses of a girl child.
7. Tax Saver Fixed Deposits
This refers to a certain kind of fixed deposit through which you can avail of tax deductions under Section 80C of the IT Act.
8. Senior Citizen Savings Scheme
SCSS is a retirement benefits program launched by the Government of India. Senior citizens of the country can invest a lump sum in the scheme to get regular income along with tax benefits.
In addition, taxpayers can also avail of deductions through the following investments:
9. NABARD Rural Bonds
The National Bank for Agricultural and Rural Development offers NABARD Rural Bonds and Bhavishya Nirman Bonds. However, only investments in NABARD Rural Bonds are eligible for tax exemption under Section 80C of the Income Tax Act. You can avail of a maximum deduction of Rs. 1.5 lakh.
10. Infrastructure Bonds
Also known as infra bonds, these bonds are issued by infrastructure companies. You can avail of 80C deductions by investing in these financial instruments.
11. Post Office Time Deposit Scheme
The post office deposit scheme is quite similar to fixed deposits of banks. These schemes usually come with a duration ranging between one year and five years. You can claim tax deductions only on the interest earned on a five-year post office time deposit scheme.
Also Read: 80C Tax Saving Mutual Funds
Apart from investment, you can also claim tax deductions under Section 80C for certain payments/expenses. These include the following:
1. Home Loan Principal Repayment
If you have a home loan, then the principal component of your EMI payments during a year will be eligible for tax deduction under Section 80C. The interest component of the EMI is, however, not eligible for any deductions.
2. Stamp Duty or Registration Charge
If you buy a home or any property, you can claim a tax deduction for the payment of registration charges and stamp duty.
In addition, you can avail tax benefits for expenses incurred on the following:
It is best to invest during the beginning of a financial year if you are looking to claim deductions. This would help you to earn interest for an entire year from April to May, along with making considerable savings through tax deductions.
Now that you know about the deductions under Section 80C, let’s take a look at some of the sub-sections and the different investments that you can consider for claiming income tax deductions:
|Section 80CCD (1)||Contribution to National Pension Scheme||For salaried individuals: Up to 10% of (basic salary + DA) not exceeding Rs. 1.5 lakh; For self-employed individuals: Up to 20% of their gross overall income but not exceeding Rs. 1.5 lakh|
|Section 80CCD(2)||Employer’s contribution to National Pension Scheme||Up to 10% of (basic salary +DA)|
|Section 80CCC||Amount paid towards LIC or any other annuity plan for funds as stated in Section 10 (23AAB)||Up to Rs. 1.5 lakh|
|Section 80CCD 1(B)||Any extra contribution to National Pension Scheme||Rs. 50,000 (over and above the deduction limit of Rs. 1.5 lakh under Section 80C)|
|Section 80CCG||Rajiv Gandhi Equity Savings Scheme (RGESS)||50% of the overall amount invested amount not exceeding Rs. 50,000|
By claiming deductions under Section 80C of the Income Tax Act, you can reduce your tax liability significantly. So go ahead and invest carefully in the above-mentioned schemes. Note that these deductions are not available if you opt for the new tax regime.
Ans: There are various factors such as age, amount of investment and risk appetite that will determine which options would be suitable for you to reduce your tax liability. You have to consider the type of investment that you wish to opt for.
Ans: No, the interest that you earn through most of these investment options does not qualify for deduction under this section. However, in the case of NSC, if you reinvest the interest, it gets eligible for deduction.
Ans: If you want to save on tax, you can make an investment of Rs. 1.5 lakh in any of the investment instruments. Also, you can invest in NPS to avail additional tax benefits under Section 80CCD (1B).
Ans: Form 16 is a certificate that is issued by an employer. This acts as a proof for your annual TDS. It shows that your employer has made necessary tax deposits in your name. In addition, Form 16 also provides a break-up of yearly salary.
Ans: Here are the lock-in periods of the different options by investing in which you can claim tax deductions under Section 80C:
ULIP – 5 years
ELSS funds – 3 years
PPF – 15 years
Tax Saving Fixed Deposits – 5 years
NPS – Till 60 years of age
Before you go…