Section 80C of Income Tax Act – Limits, Deductions, and Additional Deductions

The Income Tax Act, 1961 offers several benefits and deductions when you invest in certain financial products. Section 80C is a clause in the Act that lists the investments and expenses that are eligible for income tax deductions.

For effective financial planning, you need to be completely aware of tax planning. Being aware of Section 80C of the Income Tax Act is imperative for the same. This article will go over the details of Section 80C Income Tax.

What is Section 80C of the Income Tax Act?

Section 80C allows you to deduct up to 1.5 lakh from your taxable income for certain investments. In instance, Section 80CCC allows a person to deduct up to 1.5 lakh per year for contributions paid to selected pension schemes. However, there are certain sub-section of Section 80C of the Income Tax Act, 1961 called 80CCC, 80CCD(1), 80CCD(1B) and 80CCD(2). <Details of these sections are mentioned below>.
Thus, the overall tax deduction available under section 80C is Rs 1.5 lakhs (under sections 80C, 80CCC, 80CCD(1) and 80CCD(2)) and an additional amount of Rs 0.5 lakhs under section 80CCD(1B).

How does Section 80C work?

If you are new to the list of tax benefits and Section 80 C, let us take a step-by-step look into how it works. Section 80 C is a set of deductions that you can avail of against your overall taxable income for the previous year. It enables individuals to minimize their taxable income by making tax-advantaged investments or incurring qualified expenses. It enables a maximum deduction of Rs 1.5 lakh from the taxpayer’s total income per year.

Assume you got total taxable earnings of Rs 20,00,000 in the previous year, 2023-24. The Assessment Financial Year will be 2024-25 when you calculate and pay the tax amount on this earning. 

The overall tax deduction available under section 80C is Rs 1.5 lakhs (under section 80C, 80CCC, 80CCD(1) and 80CCD(2)) and an additional amount of Rs 0.5 lakhs under section 80CCD(1B), thereby amounting to a total of Rs 2 lakhs.

Suppose you have invested Rs. 2 lakhs of these earnings in any or all of the activities described in Sec 80C. In that case, you reduce your overall tax liability for the previous year to Rs 1.8 lakhs.

Eligibility criteria for section 80C deductions

The benefits are available to individuals and HUFs. Additionally, Indians, as well as Non-Resident Indians (NRIs), are eligible for tax deductions.

You must file your income tax return (ITR) by July 31 every year to enjoy the Section 80C benefits.

How can I get tax breaks from Section 80C of the Income Tax Act?

Tax deductions make a huge difference when it comes to tax filing. Suppose you want to keep as much money as possible for yourself. In that case, you will want to know about every single itemized deduction available. The best way to do that is to talk to your accountant if you have one or to use an online tax calculator during tax season.

Section 80C activities are grouped into two categories:

• Investments: You place your funds in assets for some time and then withdraw them.
  • Provident Fund (VPF – Voluntary Provident Fund or EPF – Employee Provident Fund)
  • National Saving Certificate
  • 5-year Post Office Time Deposit
  • NHB Deposit Scheme
  • Public Provident Fund
  • Tax-saving 5-year Fixed Deposit from Bank
  • Senior Citizen Saving Scheme
  • Life Insurance Premium
  • Equity Linked Saving Scheme
  • Unit Linked Insurance Plans
  • Atal Pension Yojana (New Pension Scheme)
  • Insurance Company Pension Plans
    
    
• Spending: You spend your cash on the activities indicated in section 80C.
  • Principal Amount Repayment of Home Loan
  • Stamp Duty & Home Registration Cost
  • 2-children Tuition Fees

To take full advantage of Section 80C of the Income Tax Act, you need to be aware of the elements you can add to the list. At least one of these elements must apply to every taxpayer. If anyone adds more, they could likely reduce their tax liability considerably. 

This deduction is just an addition to your annual expenses. However, you should not miss it since the savings on that front can go a long way in helping you meet other financial goals.

How much tax break can I get from Section 80C of the Income Tax Act?

Here is a breakdown of the tax breaks offered by Section 80C of the Income Tax Act:

The numbers above might not necessarily get you a big tax refund. But they should ensure you don’t lose out on any tax deductions. However, note that the specific provisions of Section 80C are subject to change every year. So be sure to stay on top of the latest income tax trends to avoid learning about all the changes at tax time.

How long do I keep my investment to get tax breaks from Sec 80C of the Income Tax Act?

Time is a critical commitment that many taxpayers overlook when investing under the Income Tax Act sections 80C, 80CCC, and 80CCD. Various investment vehicles have different time constraints that must be adhered to prevent the reversal of the tax deduction:

A tax-savvy investor should know the time constraints of each of the three tax-efficient investment options. Not only does this knowledge inform you about when to make your first and subsequent investments, but it also gives you the power to control your taxes better.

Use-cases of Section 80C for Income Tax Savings

Public Provident Fund (PPF)

You can utilise PPF which is a long-term savings scheme with a lock-in period of 15 years.  Interest earned from PPF is tax-free, provided the redemption is done after maturity.
Example: If a taxpayer invests ₹1 lakh in a PPF account, this amount is deducted from their taxable income which can help alleviate some of the tax burden on an individual.

Employees’ Provident Fund (EPF)

EPF is mandatory for salaried employees in organizations with more than 20 employees. EPF amount invested by an employee qualifies for 80C deduction.

National Savings Certificate (NSC)

NSC is Issued by post offices with a fixed tenure of 5 years. The Interest earned is taxable but qualifies for deduction under 80C.

Tax-Saving Fixed Deposits (FDs)

Fixed deposits with a tenure of 5 years or more in approved banks. Interest earned is taxable, but the principal amount qualifies under 80C. 

Life Insurance Premiums

You can claim tax deduction on insurance premiums paid of policies for self, spouse, or children. You can show up deductions of up to Rs. 1.5 Lakh under 80C in total taxable income.

Equity Linked Savings Scheme (ELSS)

ELSS is a type of mutual fund with a 3-year lock-in period which offers potential for high returns along with tax benefits. 

Repayment of Principal on Home Loan

You can show a tax deduction of up to Rs. 1.5 Lakhs with the principal portion of the EMI paid on a home loan.

Tuition Fees

Tuition fees paid for up to two children (Including fees for full-time education in India) can be used to show deductions under Section 80C.

Sukanya Samriddhi Yojana (SSY)

Sukanya Samriddhi Yojana is a government-backed savings scheme for the girl child. Contributions, interest earned, and maturity amount are all tax-free for SSY.

Unit-Linked Insurance Plans (ULIPs)

Combines insurance with investment in equity, debt, or a mix of both.
Premiums paid are eligible under 80C.

Senior Citizen Savings Scheme (SCSS)

SCSS is a savings scheme for individuals above 60 years of age. Under Section 80C, the interest is taxable, but the principal qualifies under 80C.

Post Office Time Deposit(POTD): 5-Year Tenure)

POTD is similar to fixed deposits but offered by the Indian Post Office. Interest earned is taxable, however, the principal amount qualifies for deduction.

Infrastructure Bonds (Tax-Saving Bonds)

These are bonds issued by infrastructure companies or government-approved institutions like Infra bonds from Housing And Urban Development Corporation Limited, National Highways Authority Of India, NHPC LIMITED, etc. Here, the interest income is taxable, but investment qualifies for deduction.

Pension Plans (Section 80CCC)

Premiums paid for pension plans offered by life insurance companies are deductible. Do remember that the combined limit for 80C, 80CCC, and 80CCD(1) is ₹1.5 lakh.

Voluntary Provident Fund (VPF)

Employees can contribute over and above their mandatory EPF contribution and this contribution will form the VHF. The entire contribution is eligible under Section 80C.

Stamp Duty and Registration Charges for Property Purchase

Expenses incurred for stamp duty and registration during property purchase are deductible.

Housing Loan Pre-EMI Payments

Pre-EMI principal repayments for under-construction properties are eligible and the claim can only be made after possession for the property is obtained.

NABARD Rural Bonds

Investments in specific bonds issued by the National Bank for Agriculture and Rural Development (NABARD) qualify under Section 80C for deductions.

Example:

Ramakant, a salaried individual, uses multiple options under section 80C to save tax based on his needs and expenses.

EPF Contribution: ₹40,000
PPF Investment: ₹50,000
Life Insurance Premium: ₹30,000
Tuition Fees for his child: ₹30,000

Total Deduction Claimed will be: ₹40,000 + ₹50,000 + ₹30,000 + ₹30,000 = ₹1.5 lakh

A point to note is under Section 80CCD(1B), additional ₹50,000 for NPS can be utilised as a deduction (over and above the ₹1.5 lakh limit).

The Bottom Line

Section 80C is one of the most exciting among the Income Tax Act sections. This section deals with tax deductions for investments, pension plans and other lifestyle-centric activities. You can make huge tax savings yearly if you spend smartly on these categories. 

Just like any other deduction created by the government, you cannot claim a deduction unless you are eligible to make a claim. This article provides an overview of the rules surrounding Section 80C to help you plan your spending activities and financial investments accordingly.

FAQs

When can taxpayers receive the 80C tax reduction?

Taxpayers can make claims for the Income Tax Act Section 80C deduction while filing their income tax return before the close of the Assessment Year.

Is it possible to seek a Section 80C tax deduction for life insurance premiums paid to any private insurance provider?

Yes, life insurance premium amounts paid to any life insurance provider authorized by the Insurance Regulatory and Development Authority are deductible under Income Tax Section 80c.

Are donations qualified for Section 80C tax breaks?

Donations given to designated institutions and funds are exempt from taxes under Section 80C of the Income Tax Act.

Can taxpayers enroll in many investment policies and claim the Rs. 1.5 lakh deduction for each?

No, taxpayers are permitted a total tax deduction of Rs. 1,50,000 for all capital invested in instruments covered by the Income Tax Act Section 80C.

Can companies qualify for an Income Tax Act Section 80C tax deduction?

No. Companies are not eligible for an Income Tax Act Section 80C tax deduction. Only Hindu Undivided Families and individual taxpayers can use it.

Can I claim life insurance premiums under Section 80C?

Yes, premiums paid for life insurance policies for self, spouse, or children qualify under Section 80C.

Is tuition fee payment eligible for deduction under Section 80C?

Yes, tuition fees for up to two children are eligible for deduction under Section 80C.

Can I claim Sukanya Samriddhi Yojana contributions under Section 80C?

Yes, contributions to Sukanya Samriddhi Yojana are eligible under Section 80C.

Can stamp duty and registration charges be claimed under Section 80C?

Yes, stamp duty and registration charges for property purchase are deductible under Section 80C.

Are recurring deposits eligible for Section 80C deductions?

Only 5-year post office recurring deposits qualify under Section 80C.

Are NABARD bonds eligible for Section 80C deductions?

Yes, specific NABARD bonds qualify for deductions under Section 80C.

Can multiple investments be claimed together under Section 80C?

Yes, you can combine multiple eligible investments, but the total deduction is limited to ₹1.5 lakh.