Section 80C of the Income Tax Act

Tax Deductions Which Falls Under Section 80C of Income Tax Act

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

• The premium for Life Insurance for self, spouse, or children.

• Deferred Annuities are 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 Deduction of Income Tax Act, 1961 and Deductions Under Sub-sections of 80C

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. This tax deduction under section 80C can be claimed by individuals and Hindu Undivided Families (HUFs) while filing an income tax return.  The income tax department refunds the excess money to the bank account of the individual. 80C deductions include insurance premiums, ELSS mutual fund, tax saving FD, PPF, ULIP plans, and many other schemes. 

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- Insurance Premium

   The premium paid towards the life insurance policy up to the maximum limit of Rs.1.5 Lakhs is applicable for tax exemption under Section 80C of the Income Tax Act. Section 80CCC also offered a tax deduction to the individuals on any amount deposited and paid in any LIC annuity plan or annuity plan of any other insurer. The pension received under the annuity plan or the amount received in case of surrendering the annuity plan, including the bonus accrued and the interest on an annuity, is taxable in the year of receipt.

2. 80CCD - Pension Contribution

   The 80CCD deduction is applicable for the contribution to the pension plan.

3. Section 80CCD (1) - Employee’s Contribution

   An individual can claim tax deduction under Section 80CCD of the IT Act if they make a deposition in the pension account. In case, the taxpayer is an employee then they can claim a maximum deduction of 10% of the salary. If the taxpayer is self-employed then they can avail tax benefit of 20% of the gross total income or up to Rs.1.5 lakh, whichever is less.

4. Section 80CCD (1B) - IT Deduction for self-contribution to NPS

   This is a new section which has been introduced under which an additional deduction up to Rs. 50,000 is applicable for the amount deposited by the individuals to their NPS account. The contribution made towards the Atal Pension Yojana is also eligible for tax deduction under section 80CCD of the IT Act.

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

   The employer’s contribution towards the NPS account is also eligible for tax deduction under Section 80CCD of the IT Act. However, the contribution made towards the NPS account should not exceed 10% of the basic salary + 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.

6. 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.

7. 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.

8. Section 80TTA - Interest on Savings Account

   Section 80TTA deduction from the gross total income is applicable for the interest on the savings bank account.

   The individuals and Hindu Undivided Families (HUFs) can claim a maximum deduction of Rs. 10,000 against the interest earned from the savings account of a co-operative society, bank, or post-office. It is important to keep in mind that the deduction under Section 80TTA is not applicable on the interest income earned from the recurring deposit, fixed deposit, or interest earned from corporate bonds.

Comparing the Popular Tax Saving Investments under section 80C:

Popular Scheme Eligible for Deduction under 80C

1. Investment Schemes

   Unit Linked Insurance Plans (ULIPs), Equity Linked Mutual Fund (ELSS).

2. Insurance Schemes

   Life Insurance

3. Retirement Savings Schemes

   Public Provident Fund (PPF), National Pension Scheme(NPS), Employee Provident Fund.

4. Fixed Income Schemes

   Senior citizen Saving Scheme (SCSS), National Saving Certificate (NSC), Sukanya Samriddhi Yojana, home loan repayment, tuition fees payment.

Let Us Elaborate

1. Life Insurance:

   Any premium paid towards the life insurance policies up to the maximum limit of Rs.1,50,000 is eligible for tax deduction under section 80C of the Income Tax Act. 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. At least 65% of the ELSS funds are invested in the equity market. ELSS is 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 as Capital Gains and are therefore 100% tax-free. Investing in a diverse ELSS portfolio through SIPs is the recommended option by financial and tax planners.

3. Public Provident Fund (PPF):

   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.1,00,000 under section 80C of the Income Tax Act.

4. Employee Provident Fund (EPF):

   The contribution made towards the Employee Provident Fund (EPF)up to the maximum limit of Rs.1.5 lakh is eligible for tax 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 tax deduction under Section 80C of the IT Act.

6. Sukanya Samriddhi Yojana:

   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 tax 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, which offers tax benefit under section 80C of the IT Act on the premium paid towards the policy. The return earned towards ULIP plans is also eligible for tax exemption under 10(10D) of the IT Act.

8. NABARD Rural Bonds:

   Rural Bonds offered by National Bank for Agriculture and Rural Development (NABARD) are also eligible for tax exemption up to an amount of Rs. 1,50,000 under Section 80C of the Income Tax Act, 1961.

9. Tax Saving Fixed Deposits:

   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 tax exemption of Rs. 1,50,000 (maximum) 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 tax exemption up to a limit of Rs. 1.5 lakhs under Section 80C of the Income Tax Act.

11. Senior Citizen Savings Scheme (SCSS):

    Individuals at the age of 60 and above are eligible for tax exemption in case of investments made under the Senior Citizen Savings Scheme. Only after the completion of 5 years lock-in period, the individual is eligible for exemption under Section 80C rules.

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 by any of the family members in case of a 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 are allowed for tax deductions under Section 80C. A maximum of Rs. 1,50,000 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 the construction or purchase of the residential property. Deductions are allowed for registration fees, transfer expenses, and stamp duty.

FAQ's