Tax deductions provide a means for individuals to reduce their tax burden. Among the various tax-saving options, most individuals prefer to claim tax deduction under Section 80C of the Income Tax Act, 1961. Section 80C allows individuals and HUFs to claim tax deduction of up to Rs. 1,50,000 from their gross total income for certain investments and payments.
The following investments and payments are eligible for deduction under Section 80C of the Income Tax Act, 1961:
Life Insurance : Premiums paid toward all life insurance policies are eligible for tax benefits under Section 80C. This deduction can be claimed for premiums paid towards insuring self, spouse, dependent children and any member of Hindu Undivided Family. An important point to be noted is that if the policy is issued on or prior to March 31, 2012, annual premium up to a maximum of 20% of the sum assured becomes tax deductible. For insurance policies issued on or after April 1, 2012, annual premium up to a maximum of 10% of the sum assured is tax deductible.
Sukanya Samriddhi Yojana : Investments made in Sukanya Samriddhi Yojana, which is a saving scheme for the girl child, are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. A parent or legal guardian of a girl child, who has not reached the age of 10 years, can open this account. Sukanya Samriddhi Yojana account can be opened for two girl children (one account per girl child) and can be extended to a third if twins are involved.
Public Provident Fund : Public Provident Fund (PPF) contributions are eligible for tax deductions under Section 80C. PPF accounts have a maximum deposit limit of Rs. 1,50,000 per year, therefore, all deposits made to your PPF account can be claimed as deductions under Section 80C. The money that you put into a PPF account will be locked-in for a period of 15 years. Partial withdrawals are permitted after 7 years.
Equity Linked Saving Scheme : Investments in equity linked savings scheme qualify for tax deduction under section 80C of the Income Tax Act. Now, an essential point to be noted about equity linked savings scheme is that they have a mandatory lock-in period of three years from the date of investment. If you are considering investing in this scheme, make sure to invest for longer periods like five to seven years as they are equity schemes. Equity schemes are an ideal option for wealth creation over a long period.
Five Year Bank Deposit : Most banking institutions offer tax saving fixed deposits where deductions can be claimed under Section 80C of the Income Tax Act. The condition associated with tax saver fixed deposits is that they come with a lock-in period of 5 years. Premature withdrawal is not allowed under this investment. Interest earned on tax saver fixed deposits, however, are taxable and will be deducted at source.
Stamp Duty and Registration Charges : While buying a property, one of the largest expenses you will have to bear is the stamp duty and registration charges. To give taxpayers some relief, the government has included these expenses under Section 80C of the Income Tax Act, 1961. The deduction can only be claimed once the property construction is complete and you have legal possession of the house.
Senior Citizens Savings Scheme : Investments in Senior Citizens Saving Scheme, which as the name would suggest is suitable for senior citizens, qualify for deduction under Section 80C of the Income Tax Act. This scheme has a tenure of 5 years. To participate in the Senior Citizens Saving Scheme, an individual has to be at least 60 years of age. Those who have taken VRS (voluntary retirement scheme) can opt for it after the age of 55.
National Savings Certificate : To encourage taxpayers to park their money in National Savings Certificate scheme, the government has allowed tax deductions to be claimed under Section 80C on the investments made in it. Interest earned on National Savings Certificates are liable to tax. However, if this interest is reinvested, it will be eligible for deduction under Section 80C. The interest rate on this scheme is similar to that of tax savings fixed deposits, PPF and other fixed income earning instruments.
Home Loan Principal Repayment : The amount that goes into repaying the principal on a home loan is eligible for deduction under Section 80C. To claim this tax benefit, construction of the property should be complete. If you transfer the property before the end of 5 years from the year you had taken its possession, no tax benefits will be awarded. Additionally, the amount claimed as deduction in the earlier years shall become taxable in the year that the property is transferred.
Section 80C of the Income Tax Act has certain sub sections. They are:
| Tax Saving Sections | Tax Deduction | Investments Eligible |
|---|---|---|
| Section 80CCC | Rs. 1,50,000 | Payments made toward pension plans or annuity plans of insurance companies. |
| Section 80CCD | Rs. 1,50,000 | Contributions made to the Pension Scheme of Central Government. (This deduction is available only to individuals and not HUFs). |
| Section 80CCF | Rs. 20,000 | Investments made toward long-term government-approved infrastructure bonds. |
| Section 80CCG | Rs. 25,000 | Investments made under a government-approved equity savings scheme. |
Who can claim deductions under Section 80C of the Income Tax Act, 1961?
Any individual or Hindu Undivided Family (HUF) can claim deductions up to Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.
What are the investments eligible for deduction under Section 80C?
The following are the popular investments that qualify for deductions under Section 80C:
Life insurance premium
Contribution towards PPF
Investments in ULIPs
Contribution towards Senior Citizens Saving Scheme
Tax saving fixed deposit
Investments in Equity Linked Savings Scheme
Does the limit of Rs. 1,50,000 means that a taxpayer can invest in more than one instrument and claim deductions of up to Rs. 1,50,000 for each investment?
No, a taxpayer cannot do that. The limit of Rs. 1,50,000 means that after taking into consideration all the investments made in all approved instruments under Section 80C, the maximum benefit that can be claimed is Rs. 1,50,000.
Is the interest earned through investments in these instruments eligible for tax deductions under 80C?
No, the interest earned on most of the investments mentioned above is liable for tax under other sections. However, in the case of National Savings Certificates, if the interest is reinvested, it becomes eligible for deduction under Section 80C, in the year it is reinvested in.
What are the tax benefits that can be claimed on life insurance?
Premiums paid toward all life insurance policies are eligible for tax benefits under Section 80C up to Rs. 1,50,000. This deduction can be claimed for premiums paid towards insuring self, spouse, dependent children and any member of Hindu Undivided Family. An important point to be noted is that if the policy is issued on or prior to March 31, 2012, annual premium up to a maximum of 20% of the sum assured becomes tax deductible. For insurance policies issued on or after April 1, 2012, annual premium up to a maximum of 10% of the sum assured is tax deductible.
Besides this, proceeds from a life insurance policy, be it maturity benefits or death benefits, are tax exempt under Section 10(10D) of the Income Tax Act, 1961.
Who can claim tax benefits under Section 80C of the Income Tax Act on a Senior Citizens Savings Scheme?
To claim deductions on the investments in a Senior Citizens Saving Scheme, an individual has to be at least 60 years of age. Those who have taken VRS (voluntary retirement scheme) can opt for it after the age of 55.
Investments in Senior Citizens Saving Scheme, which as the name would suggest is suitable for senior citizens, qualify for deduction under Section 80C of the Income Tax Act. This scheme has a tenure of 5 years.
What are the conditions associated with claiming tax deductions under Section 80C on home loan principal repayment?
The amount that goes into repaying the principal on a home loan is eligible for deduction under Section 80C of the Income Tax Act, 1961. To claim this tax benefit, construction of the property should be complete. If you transfer the property before the end of 5 years from the year you had taken its possession, no tax benefits will be awarded. Additionally, the amount claimed as deduction in the earlier years shall become taxable in the year that the property is transferred.
Does term insurance premiums come under 80C?
Yes, it does. Tax deduction up to Rs. 1,50,000 of premiums can be claimed under Section 80C of the Income Tax Act, 1961 for premium payments made towards a term insurance policy. This deduction can also be claimed for term insurance premiums paid for your spouse and/or children.
Which is the best tax saving option under Section 80c of the Income Tax Act, 1961?
There are multiple investment options that provide deductions under Section 80C of the Income Tax Act, 1961. Section 80C allows individuals and HUFs to claim a tax deduction of up to Rs. 1,50,000 from their gross total income for investments in these schemes. You can invest in any of the following:
