Types Of Deductions Under Section 80C 

Section 80C of the Income Tax Act is based on two types of financial transactions: expenses, savings, and investments. Expenses are based on spending activities, and savings and investments are related to purchasing financial products that help save funds for the future or invest funds for capital appreciation.

1. Expenses - Expenditures incurred towards paying school tuition fees for children, repayment of the home loan principal and the stamp duty and registration cost incurred towards purchasing or constructing a new residential property.
2. Savings and Investments - Savings and investments made in the following financial products will qualify for a tax deduction under Section 80C Income Tax Act 1961.
   
   
   1. Life Insurance
   2. Public Provident Fund (PPF)
   3. Employees Provident Fund (EPF)
   4. Equity Linked Savings Scheme (ELSS)
   5. Bank Fixed Deposit
   6. Unit Linked Insurance Plan (ULIPs)
   7. Sukanya Samriddhi Yojana
   8. Senior Citizens Savings Scheme
   9. National Savings Certificate (NSC)
   10. Post Office Time Deposit

These expenses, savings, and 80C investments will qualify for the tax deduction based on the stated individual terms and conditions that define their eligibility. Also, there is a maximum limit to which the respective individuals and HUFs can claim the tax deduction.

Therefore, understanding the different products and saving and investing funds based on the provisions is important to enhance the financial benefits.

What Is Covered Under Section 80C?
 

Section 80C of the Income Tax Act provides tax deduction benefits to individuals and HUFs for some of their expenses, savings, and investments made in a financial year. Here is a detail about what is covered under the 80C deduction.

1. Savings and Investments

The following are the different financial products that provide savings and investment benefits while saving on tax. The 80C deduction list is as follows:

2. Expenses:

The following expenses qualify for a tax deduction under Section 80C.

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Limit for Deductions Under Section 80C
 

The maximum limit for the 80C deduction list is ₹1.5 Lakh. The 80C deduction limit is ₹1.5 Lakh for the aggregate of expenses and investments and is not separate for individual spending or contribution made to specific products. Therefore, the applicable expenses incurred, and the contribution made to the savings and investment options qualify up to ₹1.5 Lakh in total for the maximum deduction under 80C.

It also needs to be noted that the total 80C deduction limit under Section 80C, Section 80CCC and Section 80 CCD (1) is ₹1.5 Lakh.

However, the tax deduction under Section 80 CCD(1b) of ₹50,000 is over and above the deduction under Section 80C. Therefore, the total tax benefit under Section 80C and the contribution to NPS that qualifies for the tax deduction under Section 80CCD(1b) is ₹2 Lakh.  

How To Calculate Tax Deductions Under Section 80C?

Calculating the tax deduction for the respective expenses or contributions to the savings or investments is a simple process.

Let us consider a few scenarios.

Important Point to Consider - Old Tax Regime vs New Tax Regime
 

It is important to note that the taxpayer has to choose the old tax regime to claim deductions under Section 80C of the Income Tax Act.

The new tax regime provides a comparatively lesser rate for income tax slabs. However, it does not provide the option to include most of the deductions under Section 80C.

The choice of the regime is left to the discretion of the taxpayer. Therefore, based on savings and investments, the taxpayer can choose the appropriate tax regime to maximize the financial benefits.
 

Eligibility Criteria for Deductions Under Section 80C

The stated tax provisions for the 80C deduction list apply to individuals, both resident and Non-Resident Indians and Hindu Undivided Families (HUFs).

They do not apply to companies, partnership firms, etc. Eligible taxpayers can avail of the tax deduction benefits while filing their Income Tax Returns (ITR) every financial year. While having the necessary documents are not essential to file the ITR and claim the benefits, it is important to have them for any future clarifications, if required, from the Income Tax Department.  

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How To Maximize Tax Deduction Benefits Under Section 80C?

Section 80C under the Income Tax Act 1961 provides a tax deduction benefit of up to ₹1.5 Lakh for contributing to various savings and investment financial products.

What Is the Minimum Holding Period for The Investments for The Tax Deduction Under Section 80C?

The 80C deduction is applicable for tax-saving investments when the taxpayer stays invested in it for a certain period. For example, the tax benefits are applicable for the Unit Linked Insurance Plan (ULIP Plan) when the taxpayer pays the premium regularly for 5 consecutive years, the lock-in period.

These terms and conditions are less known to the taxpayers. However, it is important to note for claiming the deduction under Section 80C of the Income Tax Act.

The minimum holding period for the different investment options is as follows:

Frequently Asked Questions