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.
The Government of India provides certain tax deductions under section 80C. Here, if you invest up to Rs 1.5 lakhs per annum in the listed products, the government would deduct the same amount from your gross taxable amount. It thereby reduces your overall tax burden.
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 section 80C, 80CCC, 80CCD(1) and 80CCD(2)) and an additional amount of Rs 0.5 lakhs under section 80CCD(1B).
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.
Assume you got total taxable earnings of Rs 20,00,000 in the previous year, 2021-22. The Assessment Financial Year will be 2022-23 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.
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.
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:
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.
Here is a breakdown of the tax breaks offered by Section 80C of the Income Tax Act:
|Sec||Deduction Received on||Allowed Maximum Limit for Financial Year 2021-22|
|80C||PPF Investment, Employee contribution to PF, Premium Payment of Life Insurance, Home Loan Principal Repayment, ULIPs, Deferred annuity purchase amount, savings scheme for senior citizens, UTI or Mutual Fund set Pension Fund Contribution, Deposit scheme subscription to a company engaged or public sector housing finance equity share or debenture subscription of an eligible issuer notified LIC annuity plan Contribution, Notified NABARD bond subscription, National Housing Bank Home Loan subscription notifies deposit scheme or securities subscription five-year deposit scheme, ELSSSukanya Samriddhi Account investment, Tuition Fee of Children, NSCs||Rs 1.5 lakh|
|80CCC||The amount deposited in an annuity scheme of LIC or another insurance provider for a pension from any fund referred to in Section 10(23AAB)||It is a sub-section of 80C and is included in the overall limit of Rs 1.5 lakhs of 80C.|
|80CCD (1)||An employee’s contribution to an NPS account is subject to a limit of Rs 1.5 lakh.||It is a sub-section of 80C and is included in the overall limit of Rs 1.5 lakhs of 80C.|
|80CCD (2)||Contribution of an employer to the NPS account||Up to a limit of basic salary + dearness allowance’s10% up to the total limit of 1.5 lakhs u/s 80C.|
|80CCD (1B)||Additional NPS contribution||Rs 50,000|
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.
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:
|Investment||Holding Period Needed|
|ELSS or Equity Linked Saving Schemes||3 year|
|Unit Linked Insurance Plans||5 year|
|Purchase Cost or Construction Costs of Residential House or, Home Loan Principal Repayment||5 year|
|Senior Citizen Saving Schemes Deposit||5 year|
|Bank or Post Office Time Deposit||5 year|
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.
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.
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.
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.
Donations given to designated institutions and funds are exempt from taxes under Section 80C of the Income Tax Act.
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.
No. Companies are not eligible for an Income Tax Act Section 80C tax deduction. Only Hindu Undivided Families and individual taxpayers can use it.