Section 80C of the Income Tax Act

Section 80C of the Income Tax Act, 1961 is a crucial provision that offers you the opportunity to avail tax deductions on your gross total income. This section was introduced to encourage savings and investments. Section 80C allows you to claim deductions up to Rs. 1.5 Lakh per fiscal year for specified investments and expenses. This helps in reducing your tax liability while filing your income tax returns.

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Section 80C: Deduction on Investments

An individual can claim up to a maximum deduction of Rs.1.5 Lakhs from the total taxable income under Section 80C of the Income Tax Act 1961. 

You can claim the Section 80C deduction while filing your annual Income Tax Return (ITR). The Income Tax Department of the Government of India refunds the excess money to your bank account. 

This section helps you to reduce your taxable income while filing your taxes.

Deductions Under 80CDeductions Under 80C

Important Updated in Budget 2023 on Section 80C:

The Union Budget 2023 brought significant changes to Section 80C deductions under both the old and new tax regimes for FY 2023-24 (AY 2024-25) in India:

  • Removed most of the deductions under Section 80C in the new tax regime

  • Unlike the new regime, Section 80C deductions continue to be available in the old tax regime

Eligibility Criteria for Section 80C Deductions

You should fulfil the following eligibility conditions to avail of deductions under Section 80C of the Income Tax Act, 1961:

  • You are one of the following taxpayers:

    • Individual

    • HUF (Hindu Undivided Family)

  • Maximum Deduction: Rs. 1.5 lakh per financial year

  • Eligible Contributions: Invest in best investment options like life insurance premiums, ULIP plans, Provident Fund contributions, National Savings Certificates (NSCs), ELSS schemes, Sukanya Samriddhi Yojana (SSY), and tax saving FDs

  • Other Eligible Expenses:

    • Tuition fees for children's education

    • Repayment of home loan principal

  • Lock-in Period: Apply to certain investments like ELSS, PPF, and ULIP

  • Premature Withdrawal: Lead to loss of deduction under Section 80 C of Income Tax Act

  • Financial Year: Deductions are applicable for the financial year in which you make the investment.

Sub-Sections of Section 80C, Income Tax Act, 1961

Sub-Sections were created to give you clarity regarding which best investment plans and expenses allow you to avail deductions under Section 80C of the Income Tax Act: 

Section under Income Tax Act, 1961 Investments Eligible for Deduction Maximum Deduction
Section 80C Unit Linked Insurance Plan (ULIP), Equity Linked Saving Schemes (ELSS), Provident Fund contributions, Life Insurance premiums, Principal of home loan, SCSS, SSY, and NSC Rs. 1.5 lakhs 
Section 80CCC Contributions to pension funds Rs. 1.5 lakhs 
Section 80CCD(1)  Contributions to Atal Pension Yojana (APY) or other government-sponsored pension schemes
  • Employed: 10% of Basic Salary + DA
  • Self-Employed: 20% of Total Income
Section 80CCE Overall deduction under Section 80C, 80CCC and 80CCD(1) Rs. 1.5 lakhs 
Section 80CCD(1B)  Contributions to NPS  Rs. 50,000 (over and above the deductions under Section 80CCE)
Section 80CCD(2)  Employer’s contribution to NPS (outside Rs 1.5 lakhs limit under Section 80CCE)
  • Central Government Employer: 14% of Basic Salary +DA
  • Other Employers: 10% of Basic Salary +DA

Details of Sub-Sections under Section 80C of the Income Tax Act, 1961

  1. Section 80CCC- Retirement Savings

    • Purpose: Encourages retirement savings by offering deductions on premiums paid for annuity plans from approved insurance providers.

    • Eligibility: Individuals contributing towards pension plans are eligible for deductions under this section.

    • Deduction Limit: Up to Rs. 1.5 lakhs can be claimed under this section, in combination with other specified deductions.

  2. Section 80CCD (1) - Employee’s Contribution to NPS

    • Purpose: Encourages employees to invest in the National Pension System (NPS) for retirement planning.

    • Eligibility: Applicable for salaried individuals contributing to NPS scheme.

    • Deduction Limit: Limited to 10% of the salary (for salaried individuals) or 20% of gross income (for self-employed individuals). The deduction limit is subject to an overall limit of Rs. 1.5 lakhs with other specified deductions.

  3. Section 80CCE: Overall Deduction Limit

    • Purpose: Acts as an overall cap on deductions claimed under sections 80C, 80CCC, and 80CCD(1).

    • Deduction Limit: Total deductions under these sections combined cannot exceed Rs. 1.5 lakhs in a financial year.

  4. Section 80CCD (1B) - Additional Deduction on Contribution to NPS

    • Objective: Encourages voluntary contributions to NPS for an extra deduction apart from the limits in Section 80C of the Income Tax Act.

    • Eligibility: Open to individuals making voluntary contributions to their NPS accounts.

    • Deduction Limit: Allows an additional deduction of up to Rs. 50,000 over and above the limit specified in Section 80CCD(1).

  5. Section 80CCD (2) - Employer’s Contribution to NPS

    • Purpose: Encourages employers to contribute to their employees' NPS accounts.

    • Eligibility: Applies to individuals whose employers contribute to their NPS* accounts.

    • Deduction Limit: The deduction is allowed for the amount contributed by the employer, limited to 10% of the salary (including basic salary and dearness allowance).

    *The returns on the NPS account are tax exempted until maturity. At the time of maturity, 40% of the accumulated sum is tax-free.

Invest & Save upto ₹46,800 per annum in taxInvest & Save upto ₹46,800 per annum in tax

Section 80C Deduction List

The contributions to the following tax-saving investments are eligible for deduction under Section 80C of the Income Tax Act, 1961:

Tax Saving Investments Risk Profile Interest (in %) Guaranteed Return Lock-in Time (Minimum)
Unit Linked Insurance Plan (ULIP) Moderate to High 11% - 22% p.a. (depending on the chosen plan) No 5 years
Capital Guarantee Plan Low 5% – 18% p.a. Yes 5 years
Equity Linked Savings Scheme (ELSS) High 12% - 15 % approximately No 3 years
National Pension Scheme (NPS) High 9% to 15% p.a. No 3 years
Life Insurance Low Returns vary from plan to plan Yes Varies from plan to plan
Public Provident Fund (PPF) Low 7.1%  p.a. Yes 15 years
National Savings Certificate (NSC) Low 7.7% p.a. Yes 5 years
Tax Saving FDs Low 5.5% to 7.75% p.a. Yes 5 years
Sukanya Samriddhi Yojana (SSY) Low 8% p.a. Yes Less of, 21 years or till girl’s marriage after 18 years of age
Senior Citizen Saving Scheme (SCSS) Low 8.20% p.a. Yes 5 years

List of Tax-Saving Investments under Section 80C

The list of tax-saving instruments under Section 80C of the Income Tax Act, 1961 are listed below:

  1. Life Insurance:

    • Any premium paid towards the life insurance policies up to the maximum limit of Rs.1,50,000 is eligible for deduction under section 80C of the Income Tax Act, 1961. 

    • On the other hand, the returns on life insurance policies are applicable for tax exemption under section 10(10D) of the Income Tax Act.

  2. Equity Linked Saving Scheme (ELSS) Funds:

    • Equity Linked Saving Scheme gets a tax deduction under the Section for a maximum investment of Rs. 1,50,000. 

    • ELSS scheme has a lock-in period of 3 years during which you can not withdraw your contributions. 

    • Also, the returns on the ELSS funds held for more than a year are considered as Long Term Capital Gains (LTCG)

    • The LTCG on ELSS is subject to a flat tax rate of 10% without the benefit of indexation. 

  3. Public Provident Fund (PPF):

    • This is a government-backed long-term savings scheme

    • You can claim deductions for deposits made to your PPF accounts. 

    • The maximum deduction allowed is Rs.1,00,000 under section 80C of the Income Tax Act. 

  4. Employee Provident Fund (EPF):

    • The contributions made towards the Employee Provident Fund (EPF) are eligible for tax benefits.

    • A maximum investment limit of Rs.1.5 lakh is eligible for deduction under section 80C of the Income Tax Act.

  5. National Savings Certificates (NSC):

    • National Savings Certificate is a government-initiated saving instrument that comes with a tenure of 5 years. 

    • The interest earned in NSC is applicable for deduction under Section 80C of the IT Act.

  6. Sukanya Samriddhi Yojana (SSY):

    • Sukanya Samriddhi Yojana is a government-initiated savings scheme for the girl child. 

    • The policy tenure of the scheme is 21 years. 

    • Under this scheme, the deduction is applicable up to the maximum limit of Rs. 1,50,000 under Section 80C of the Income Tax Act.

  7. Unit Linked Insurance Plan (ULIP):

    • Unit Linked Insurance Plan is an insurance cum investment plan

    • Premiums paid in this savings plan offer tax benefits of up to Rs. 1.5 lakhs under Sec 80 C of the Income Tax Act. 

    • The return earned towards ULIP plans is also eligible for exemption under 10(10D) of the IT Act.

  8. NABARD Rural Bonds:

    • Rural Bonds are offered by the National Bank for Agriculture and Rural Development (NABARD).

    • These bonds are also eligible for tax benefits of up to an amount of Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.

  9. Tax Saving Fixed Deposits (Tax–Saver FDs):

    • Banks and post offices both offer tax-saving fixed deposit schemes. 

    • Fixed deposits with a minimum lock-in period of 5 years are eligible for deductions of up to Rs. 1,50,000 under Section 80C. 

    • It is important to know that returns on FDs are taxable.

  10. Infrastructure Bonds

    • Under infrastructure bonds, if the investments are made of at least Rs. 20,000 and above, then the bonds are eligible for deductions from taxable income.

    • You can avail of deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act.

  11. Senior Citizen Savings Scheme (SCSS):

    • You can contribute to the Senior Citizen Savings Scheme (SCSS) at the age of 60 and above 

    • You must invest in the SCSS scheme for a minimum of 5 years lock-in period, which is extendable by 3 years

    • The maximum limit to claim deduction under Sec 80C for the contributions in SCSS scheme is Rs. 1,50,000.

Summing It Up

Section 80C of the Income Tax Act serves as a significant financial tool for taxpayers in India. This provision offers you the opportunity to reduce your taxable income and build a corpus with long-term investments through a range of eligible investments and expenditures. The diverse investment options available under this section empower you to make strategic financial decisions and responsible financial planning for a secure future.

Frequently Asked Questions

  • What is Section 80C?

    Section 80C of the Income Tax Act, 1961, is a provision that allows you to deduct certain investments and expenses from your taxable income, hence, reducing your income tax liability.
  • How to calculate the 80C deduction?

    Calculating your 80C deduction involves understanding which expenses and investments qualify, their limits, and then determining the optimal mix to maximize your tax benefit within the overall limit of Rs. 1.5 lakhs per year.
  • What comes under 80C?

    Under Sec 80C if you invest or spend money on certain things allowed, the government will reduce your taxable income by that amount. This means you will pay less income tax.

    Some of the common eligible investments and expenses under Section 80C are as follows:

    • Unit Linked Insurance Plans (ULIPs)

    • Provident fund (PF) contributions

    • Equity Linked Saving Schemes (ELSS)

    • National Pension System (NPS)

    • Tuition fees

    • Home loan principal repayment

  • Is PF part of 80C?

    Yes, PF (Provident Fund) is part of Section 80C of the Income Tax Act, 1961, in India. This means that contributions made towards your PF account (both Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF)) are eligible for deduction from your taxable income up to a maximum limit of Rs. 1.5 lakhs in a financial year.
  • Can I invest in more than 1 investment policy and claim Rs. 150,000 exemptions each?

    No. Rs. 1,50,000 is the maximum exemption limit regardless of the number of policies or investments made under Section 80C of the Income Tax Act, 1961.
  • Is donation eligible for tax exemption?

    Yes, but only specific funds and institution donations are eligible for the exemption of tax under Section 80C of the IT Act.
  • When can I claim my 80C deductions?

    Deductions under any Section can be claimed during the filing of Income Tax Return at the end of each assessment year.
  • Which investment method should I go for to save taxes?

    There are many Insurance Policies, Fixed Deposits, Mutual Funds, Public Provident Funds, etc. available in the market which an individual or Hindu Undivided Family (HUF) can opt for to save their taxes. However, keeping in mind factors like personal appetite, age, and assets in hand, is very important before making any kind of investment.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

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