Understanding Deductions Under 80C
Making income tax* payments on your earned income is your way as an Indian citizen to take part in the country's growth. Along with this, it is a federal duty, and you will need to pay income tax* on the aggregate income which you earn during a financial year from all possible sources. However, you can save your tax liable income by opting for certain tax-saving instruments.
While the Indian Income Tax Act, 1961 offers the guidelines for calculating your tax liability, it also holds different income tax* deductions and exemptions that you can claim from your taxable income.
A tax deduction will provide a means for individuals to lower their tax liability. There are many instruments in the country that provide individuals with the ability to lower their tax liability. However, among the tax-saving options in India, many individuals opt for the income tax deduction under Section 80C of the Income Tax Act, 1961.
What is Section 80C?
Section 80C of the Income Tax Act, 1961 lists different investments in instruments that are exempt from taxation*. The maximum 80C limit is ₹1.5 Lakh annually from an individual's taxable income. Deductions under Section 80C are only applicable for Hindu Undivided Families (HUFs) and individual taxpayers. Corporate institutions, partnership firms and businesses are not eligible for Section 80C exemption.
Listed below are tax*-saving investments and payments under 80C of the Income Tax Act:
The premiums paid towards all life insurance plans are eligible for tax* benefits as per Section 80C. The deduction can be claimed for the premiums paid towards a plan for self, spouse, children or any individual from a Hindu Undivided Family.
However, you must purchase a life insurance cover with the objective of insurance coverage rather than earning the tax* benefits.
Sukanya Samriddhi Yojana:
The Sukanya Samriddhi Yojana is a scheme for the girl child, and the girl child's investments are offered tax1 deduction up to ₹1.5 Lakh as per Section 80C of the Income Tax Act. A parent or a legal guardian of the girl child, who isn't ten years old, can open the account. The Sukanya Samriddhi Yojana account can be opened for two girl children and can be extended to a third if twins are involved.
Equity Linked Saving Scheme (ELSS):
Investments made in an Equity Linked Savings Scheme will qualify for tax deduction under Section 80C of the Income Tax Act. You must keep in mind that ELSS plans have a mandatory lock-in period of three years from their initiation date. If you are looking to invest in them, you must ensure you stay invested in them for long durations, which will help you build wealth over the long term.
Stamp Duty and Registration Charges:
When purchasing a property, a huge expense you will have to handle is the registration charges and stamp duty. The Government has included these expenses under Section 80C of the Income Tax Act. You will be able to claim the amount once property construction is over and you have legal possession of the house.
Five Year Bank Deposit:
Most banks offer tax1-saving fixed deposits where the deductions can be claimed under Section 80C of the Income Tax Act. But the interest earned on these instruments is taxable and will be deducted at the source. As the name suggests, these investments come with a lock-in period of 5 years. You cannot prematurely withdraw your funds under this investment.
National Savings Certificate:
The Government has allowed tax deductions to be claimed under Section 80C to encourage citizens to invest in the National Savings Certificate scheme. The interest earned on these investments is liable to tax1. But, if the interest is reinvested, it will be eligible for deduction under Section 80C.
Senior Citizens Savings Scheme:
Investments in these schemes qualify for deduction under Section 80C of the Income Tax Act. The plan has a tenure of 5 years, and individuals have to be at least 60 years of age. Those who have opted for VRS can get the plan at the age of 55.
Home Loan Principal Repayment:
The amount used for repaying the principal on a home loan is eligible for deduction under Section 80C. However, to claim the tax benefit, the property construction must be complete. If you transfer the property before the five years have passed since you have owned it, no tax benefits are awarded.
What are the Sub-sections under Section 80C?
Section 80C of the Income Tax is subdivided into different sections that offer a tax deduction on specific investments.
80CCC: Payments made towards specific pension plans and mutual funds.
80CCD(1): Payments made towards Atal Pension Yojana, National Pension System, etc.
80CCD(1B): Investments of up to ₹50,000 in NPS are eligible for exemption as per this section.
80CCD(2): The employer's contribution to National pension scheme (10% of basic salary) is eligible for exemption under this subsection.
Remember this when claiming a deduction under Section 80C
While Section 80C allows you decent deductions on specific investments and expenses, you must keep a few points in your mind when claiming a deduction under this section:
The highest deduction that can be made under Section 80C, 80CCC and 80CCD (1) cannot be higher than ₹1.5 Lakh.
The deduction will be available for the financial year in which you invest or incur the expenditure.
There's no limit on how many investment avenues you can opt for without any restrictions. However, the maximum deduction is limited to ₹1.5 Lakh.
The Government of India determines the limit on Section 80C. However, it is not fixed and can be changed by the Government through a resolution passed in the Union Budget.
Section 80C investments and expenses can be used to lower your taxable1 income, so your tax outflow will also reduce. It is critical to understand the eligible expenses and investments, as you'll be able to plan your financial and investment portfolio based on your suitability and tax planning.
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