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Section 80C of income tax

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Section 80C Deduction for A.Y 2016-17

Under Section 80C of the Income Tax Act of 1961, a taxpayer is allowed certain deductions that allow him to lower his tax liability against his taxable income. These deductions are as per Budget 2016 and are applicable for AY 2014-15, AY 2015-16, AY 2016-17, and AY 2017-18.

Tax deductions are offered for the taxpayer to save tax and to lower the amount of tax he needs to pay. The amount varies with the type of deductions you are claiming. It could be for medical expenses, tuition fees, or donations!

These tax exemptions are offered by the Government as a type of encouragement to individuals and corporations to provide for social causes.

What Tax Deductions Fall Under Section 80C of Income Tax Act:

An individual and HUFs can claim deductions under Section 80C on payments made to the following:

  • Premium for Life Insurance for self, spouse, or children.
  • Deferred Annuities payable by self and the Government.
  • Contribution towards PPF.
  • Contribution towards PFs operated by the Central Government.
  • Contribution towards a Recognized PF.
  • Contribution towards a Superannuation Fund.
  • Subscription for a Government Deposit or Security.
  • Subscription for Saving Certificates.
  • Subscription to ULIP, 1971.
  • Contribution towards ULIP of LIC Mutual Fund.
  • Insurance company’s Annuity Plans including LIC.
  • Subscription to Notified units of Mutual Fund.
  • Contribution to the Pension Fund of Notified units of Mutual Fund.
  • National Housing Bank’s Pension Fund.
  • Subscribing to the Deposit Scheme of a Public Sector companies allocating long-term financing for housing.
  • Tuition fees for a maximum of 2 children studying in India.
  • Repayment of housing loan taken for a residential property.
  • Subscription to Mutual Funds units recommended by Central Board of Direct Taxes.
  • An FD from a scheduled bank with a minimum tenure of 5 years.
  • NABARD notified bonds.
  • Contributions to Senior Citizens Saving Scheme.
  • Tax Saving 5 Year FD.

Section 80C Income Tax Act

Rs.150,000 is the maximum deduction that can be claimed under Section 80C and all its subsections combined.

You may also like to Read: Section 80D Deductions

Subsections of Section 80C, Income Tax Act, 1961

Subsections were created to give clarity to the taxpayers regarding which deductions they are eligible for.

1: Section 80CCC

Only an individual can claim a maximum of Rs.150,000 as tax deductions under this section against payments made towards Pension Funds.

2. Section 80CCD

An individual taxpayer can claim a deduction under this section if he and his company make contributions to Central Government certified pension schemes. Both the amounts are eligible for a tax deduction if the amount does not exceed 10% of the individual taxpayer’s salary.

3. Section 80CCF

Tax deduction under this section can be claimed by both an individual and HUFs on investments made in Government notified long-term Infrastructure Bonds. The maximum deduction of Rs.20, 000 can be claimed under this section.

4. Section 80CCG

Under this section only specified individuals can claim a maximum benefit of Rs.25,000 against investments made in Government notified Equity Schemes. Deduction claimed cannot be more than 50% of the invested amount.

Popular Schemes Eligible For Deductions Under Section 80C

Section 80C deductions are offered to investments made in a variety of instruments. Several of these are more popular than others because of different reasons. The government too promotes a few as tax saving instruments to encourage individuals to make investments.

Income Tax Deduction on Investment in PPF and Provident Funds

  • An individual can claim deductions for deposits made in PPF accounts in the name of self, spouse, and children even if major.
  • HUFs can claim the deduction under the section for deposits made for any member of the family.
  • The maximum deduction allowed is Rs.100,000 for AY 2014-15 and Rs.150,000 for AY 2015-16, AY 2016-17, and AY 2017-18.
  • Investments in PPF earn fixed annual compound interest. For FY 2016-17, an interest of 8.1% has been declared by the Ministry of Finance.
  • PPF has a 15-year tenure, from which the amount can not be withdrawn prematurely.
  • Partial withdrawals equivalent to the total of the last three years contribution to the PPF account is allowed, that too after completion of a set number of years.
  • You can also take a loan against the total available amount in the account.
  • Contribution to EPF not exceeding Rs.150,000 too earns tax benefit under Section 80C. 12% of the salary is invested in EPF. Currently, it is earning an interest rate of 8.8%.!

Income Tax Deduction on Investment in NSC or National Savings Certificates

Deductions on NSC are allowed in the year of their purchase.

  • A maximum investment of Rs.150,000 can be made in NSC to claim deductions under Section 80C.
  • NSCs are issued by the Post Office and have a lock-in time of 5 years.
  • The compound interest earned on NSC annually is taxable. For the FY 2016-17, the compound interest is calculated at 8.1% p.a.
You may also like to Read: Save Tax with Health Insurance

Income Tax Deduction on Investment in Tax Saving Fixed Deposits

  • These fixed deposits have a fixed tenure of 5 years and cannot be withdrawn prematurely.
  • They are eligible for deductions under Section 80C for a maximum investment of Rs.150,000.
  • The rate of interest offered is at the discretion of the bank, but it is usually between 7% to 9%.
  • The total interest earned becomes eligible for taxation upon the FDs maturity.
  • FDs give us guaranteed returns with 100% capital security.

Income Tax Deduction on Investment in Equity Based Mutual Funds or ELSS

  • Equity Linked Saving Scheme gets a Tax deduction under the section for a maximum investment of Rs.150,000.
  • At least 65% of the ELSS funds are invested in the equity market.
  • ELSS are one of the top tax saving instruments because not only do they offer a higher rate of returns, but they have the shortest lock-in time of 3 years amongst all tax-saving schemes.
  • Also, the returns on the ELSS funds held for more than a year are considered Capital Gains as and are therefore 100% tax-free!
  • Investing in a diverse ELSS portfolio through SIPs is the recommended option by financial and tax planners.

Income Tax Deduction on Investment in NPS or National Pension Scheme

The pension system is the Government’s effort to afford pensions on retirement to working professional and those working in the unorganized sector.

  • A maximum investment of Rs.150,000 can be claimed for deduction under Section 80C.
  • As per Budget 2016, an extra Rs.50,000 can be claimed under Section 80CCD(1B) if the investment made by the individual is voluntary.
  • An individual can choose from the various NPS plans as per his risk endurance.

The disadvantages that NPS suffers from are:

  • NPS earnings are taxable at maturity.
  • There is no guarantee of earnings with NPS.

Income Tax Deduction on Investment in ULIP or Unit Linked Insurance Plans

  • It is an amalgamation of investment and insurance in the equity market.
  • They are also eligible for deductions on a maximum investment of Rs.150,000 under Section 80C.
  • They do not offer promised returns and suffer from vagueness about where the amounts are invested and what is deducted as expenses and commission.

Income Tax Deduction on Investment in Sukanya Samriddhi Yojna

  • This scheme is specifically set up for investments made for girl child by her parent or the guardian.
  • The amount eligible for tax deductions cannot exceed Rs.150,000. Compound interest of 8.6% p.a. is the current rate of interest enjoyed by this scheme.
  • The account matures after 21 years. Qualified withdrawal of a maximum of 50% of last year’s total balance is permitted when the girl reaches 18 years of age.

Income Tax Deduction on Investment in SCSS or Senior Citizen Saving Scheme

  • This scheme is for citizens over 60 or a voluntary retiree of over 55 years of age.
  • A maximum investment of Rs.150,000 earns an interest of 8.6% p.a. and tax benefit under Section 80C
  • It has a lock-in requirement of 5 years.

Comparing the Popular Tax Saving Instruments under section 80C:

Tax Saving Investment options Under Section 80C

Risk Profile

Interest (in %)

Guaranteed Returns

Lock-in Time (in years)

PPF

Risk free

8.1

Yes

15

NSC

Risk free

8.1

Yes

5

Tax Saving FDs

Risk free

7 - 9 approx

Yes

5

ELSS

Equity oriented

12 - 15 approx

No

3

NPS

Equity oriented

8 - 10 approx

No

Up Till retirement

ULIP

Equity oriented

8 -10 approx

No

5

Sukanya Samriddhi Yojna

Risk free

8.6

Yes

21

SCSS

Risk free

8.6

Yes

5

 

Payments Earning Tax Benefits under Section 80C

  • Premiums paid on Life Insurance during the FY for self, spouse, and children are eligible for deductions conditioned to the fact that paid premiums should not be over 10% of the assured sum. Life Insurance premiums paid any of the family members in case of an HUF are eligible for tax deductions under Section 80C. Children include non-dependent adult children, including a married daughter.
  • Tuition fees paid for a maximum of two kids studying in India is allowed for tax deductions under Section 80C. A maximum of Rs.150,000 can be given as fees for any educational institute or university, college, or school. The only condition is that the course has to be full time.
  • Repayment of the principal amount of the home loan is eligible for tax deductions. The loan can be for construction or purchase of residential property. Deductions are allowed for registration fees, transfer expenses, and stamp duty.
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