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.
The maximum deduction under this section is limited to INR 1.50 lakhs per year. The benefits under this section are available only to individuals and Hindu Undivided Families (HUFs).
Sub-sections under 80C
Section under the Income Tax Act, 1961
Eligible investment schemes
Provident fund schemes like National Savings Certificate (NSC), Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Employee Provident Fund (EPF), life insurance premiums, home loan principal repayment, Equity-Linked Savings Scheme (ELSS), and Senior Citizen Savings Scheme (SCSS)
Investments in pension plans offered by insurers. This deduction is available only to individuals.
Investments in Central Government-notified pension schemes made by individuals and their employers. This deduction is available only to individual taxpayers.
Investments in National Pension System (NPS) and Atal Pension Yojana (APY).
An additional investment of up to INR 50,000 made in NPS is tax-exempt.
Employer’s contribution of up to 10% of your salary plus dearness allowance (DA) towards NPS is eligible for tax deductions.
Any investment made in government-notified long-term infrastructure bonds is eligible for deduction up to INR 20,000.
Investments made by specified individual residents in government-notified equity savings schemes are eligible for deductions up to a maximum limit of INR 25,000.
Eligible investments under section 80C
Section 80C investments not only provide tax exemption but also offer returns that help in building wealth. Some of the eligible financial products under this section are as follows.
Life insurance premiums
Annual premium paid towards life insurance plans for you, your spouse, and your children is an eligible deduction under 80C. However, the deduction is available only if the premium is less than 10% of the sum assured (SA).
These bonds are issued by infrastructure companies and investments of up to INR 1.50 lakhs per year can be claimed for 80C tax benefits.
Public Provident Fund (PPF)
You may invest between INR 500 and INR 1.50 lakh per year in PPF, which is a government-backed investment scheme.
It has a 15-year lock-in period, and the investment tenure can be extended for an additional five years. PPF offers assured tax-free returns. The current interest rate is 7.1%.
Employees Provident Fund (EPF)
EPF is available to salaried individuals whose basic monthly salary is more than INR 15,000. Minimum contribution by the employer and employee should be 12% of the basic salary plus DA to be eligible for tax benefits.
The present rate of interest is 8.5% and the entire corpus including interest is tax-free if you withdraw it five years after continuous service.
Equity-Linked Savings Scheme (ELSS)
Deduction under section 80C is also available when you invest in ELSS, which is a type of mutual fund that comes with a three-year lock-in period. Your money is invested in equity and equity-related products to deliver high returns; however, the risks are high, too. Although you can invest any amount in ELSS, the tax deduction is capped at INR 1.50 lakhs per year.
National Savings Certificate (NSC)
The 80C deductions list includes investments in NSC. It has a five-year lock-in period and currently offers a 6.8% rate of interest. In addition to your initial investment, interest earned on NSC is tax-free.
Unit-Linked Insurance Plans (ULIPs)
ULIPs offer life insurance along with investment returns. A portion of the premium is used to provide life cover and the balance is invested in your chosen financial products.
Section 80C deduction is available for the lower of 10% of the sum assured or the annual premium amount. ULIPs have a five-year lock-in period and the returns depend on the market fluctuations and are subject to a moderate level of risks.
Sukanya Samriddhi Yojana (SSY)
This scheme from the Indian Government is aimed towards the betterment of girls in the country. Parents of a girl child can open an account until she turns 10 years old.
SSY has a lock-in period of 21 years and up to 50% of the accumulated amount can be withdrawn once the girl is 18 years old. Currently, the interest rate is 7.6% and both the investments and withdrawal amounts are tax-free.
Tax-saving fixed deposits (FDs)
Any deposit account opened with a bank for five years is eligible for tax benefits under section 80C of the Income Tax Act, 1961.
The rate of interest may vary from one bank to another.
NABARD rural bonds
The National Bank for Agriculture and Rural Development (NABARD) offers rural bonds that are eligible for 80C tax benefits. The maximum deduction is limited to INR 1.50 lakhs per annum.
Principal repayment on home loan
The principal repaid on a home loan is eligible for deductions subject to the following criteria.
- The home should be fully constructed.
- If you sell the home within five years of possession, the 80C tax benefits will not be available.
- If the property is transferred after five years, the tax deduction is taxable in the same year as that of the transfer.
Stamp duty and registration charges for property
The stamp duty and registration charges paid on property purchases are eligible for 80C income tax benefits.
However, you must claim the deduction in the year when you register the property. If you fail to meet this clause, the benefits will not be available.
Senior Citizen Savings Scheme (SCSS)
This scheme is available for seniors who are 60 years and above. However, any senior citizen who opts for the voluntary retirement scheme (VRS) can claim the tax benefits after 55 years of age.
The maximum deduction for investments in SCSS is limited to INR 1.50 lakhs per year.
National Pension System (NPS)
The NPS, launched by the Government of India, is available to the unorganized sector and working professionals. Any individual aged between 18 and 60 years can invest in NPS.
The amount matures when you reach the age of 60 years; however, partial withdrawal after 15 years is allowed under special conditions.
Five-year post-office time deposit scheme
Post-office time deposit schemes are like bank FDs with maturities between one and five years.
However, the 80C benefits are available only on the interest earned on the five-year post-office deposit schemes. Additionally, the returns are not impacted by market volatility.
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 the tax deductions.
You must file your income tax return (ITR) by July 31 every year to enjoy the Section 80C benefits.
Frequently asked questions (FAQs)
Can I claim 80C deductions while filing the ITR?
Yes, you can claim the 80C deductions while filing the ITR before the end of the particular assessment year.
In which year do the investments reflect in the ITR?
If you invest as per the guidelines during the financial year, you can claim the benefits during the assessment year.
Is the insurance premium benefit available for premium paid to private aggregators?
Premium paid to avail of life insurance from an insurer recognized by the Insurance Regulatory and Development Authority of India (IRDAI) is eligible for the section 80C tax benefits.
Can you claim tax benefits for each investment?
The maximum benefit under section 80C is limited to INR 1.50 lakhs per annum. All investments exceeding this limit will not qualify for tax benefits.
Are donations eligible for 80C benefits?
Certain donations made to specified funds and institutions are eligible for benefits under this section.
What is meant by 80C deductions under Chapter VI A?
The Income Tax department allows you to reduce your taxable income if you invest in certain financial instruments and on eligible expenses under Chapter VI A.
Some of the eligible products include life insurance premiums, ELSS, PPF, EPF, SSY, SCSS, ULIPs, tax-saving deposits, and infrastructure bonds.
How much tax can you save under section 80C?
The maximum deduction allowed under section 80C is capped at INR 1.50 lakhs per year. You may reduce your tax liability depending on your tax slab.
What is ‘tuition fee’ under section 80C?
You can claim tax deductions for the tuition fees paid for two children within the maximum 80C limit of INR 1.50 lakh per year.
What other options are available to save taxes?
Other sections under the Income Tax Act, 1961, such as 80D, 80EE, 24, 80EEB, 80G, 80GG, 80TTA, and 54 – 54F offer tax deductions for medical insurance premium, home loan interest, housing loan, automobile loan to buy an electric vehicle, donations to charities, rent, interest earnings, and capital gains, respectively.
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