A Complete Guide to 80C Deductions: How to Maximize Your Tax Saving
Section 80C of the Income Tax Act is an important section that allows taxpaying individuals and Hindu Undivided Families (HUFs) to claim a deduction from their taxable income for certain investments and expenses. It permits a maximum annual deduction from an investor’s total taxable income of Rs. 1.5 lakh.
Section 80C is one of the most well-known and liked sections among taxpayers because it enables them to make investments or incur certain qualified expenses that save them money on taxes. There are a set of sub-sections under Income Tax 80C, namely; 80CCC, 80CCD(1), 80CCD(1B), and 80CCD(2). Finnable has curated a complete guide for you in one place, so now, you won’t need to scramble around for information on the topic.
Eligible Investments: A Comprehensive List
The 80C investment options eligible for deduction under section 80C are categorized according to 80C’s sub-sections as well. Here’s a list we compiled for you to easily understand the eligible investments in 80C income tax.
| Sections | Eligible Investments |
|---|---|
|
Section 80C |
PFs like PPF, EPF, etc. |
|
Section 80CCC |
Payments done for: |
|
Section 80CCD(1) |
Payments done for government schemes: |
|
Section 80CCD(1B) |
Investments in NPS up to Rs. 50,000 are exempt from tax. |
|
Section 80CCD(2) |
Employer contributions to NPS are exempt, up to 10% of basic salary and any applicable dearness allowance. |
Understanding the Tax Benefits of 80C Deductions
The tax benefits differ depending on the investment options. Here’s a list of some of the investments:
Life Insurance Premiums
Tax benefits for this investment include exemptions for policies held by an individual, their spouse, etc. Up to 10% of the tax from the total sum assured of the annual premium policy is exempted.
PPF (Public Provident Fund)
The investor can claim the total amount that has been deposited in PPF since PPF’s maximum deposit limit is Rs. 1.5 lakh.
NSC (National Savings Certificate)
There is no limit to how much you can invest in NSC but the deduction under section 80C is the maximum amount of Rs. 1.5 lakh every financial year.
SSY (Sukanya Samriddhi Yojana)
In this savings scheme, the interest that is earned from investing in the scheme is the amount of tax that is exempted.
ELSS (Equity Linked Savings Scheme)
For ELSS tax saving, the deduction under 80C is the exemption limit of up to Rs. 1.5 lakh. When investing in this scheme, there’s a mandatory lock-in period of 3 years.
The Limitations and Restrictions of 80C Deductions
The 80C investments have many benefits but they also have their limitations. Here are some to keep an eye out for:
Life Insurance Premium Policies
- When a parent buys a life insurance policy for their dependent child, they can claim for deduction under 80C, but an individual that purchases the policy for their parent cannot claim the deduction.
- Under section 80C, only the person that falls into HUF (Hindu Undivided Family) can claim a deduction for all the family members.
- You can claim a deduction only if you continue paying the premiums for the policy for 2 years consecutively.
ELSS (Equity Linked Savings Scheme)
- These funds come with a mandatory lock-in period of 3 years.
- If the ELSS fund units are purchased via monthly SIP, each unit will have a 3-year locking period.
PPF (Public Provident Fund)
- You can only claim your own, your spouse’s, and your child’s annual contributions to PPF accounts.
- One cannot use section 80C to deduct their PPF contribution if they are a HUF.
SCSS (Senior Citizen Savings Scheme)
- The deduction is not available to any retired person. The individual must be older than 60.
- Deposits must be held for a minimum of five years.
Maximize Your Tax Savings: Strategies and Tips
- Invest in long-term funds: Investing in long-term plans like mutual funds can help you a lot in the long run. Long-term investments are considered to be a wise choice as they provide greater potential for earning higher returns over the long term.
- Plan out your tax-saving every year: Keep a track of all your expenses such as premiums paid for insurance policies, loan repayment amount for your home, your children’s school or college fees, etc. This helps in figuring out how much your budget allows you to invest in tax-saving investments like ELSS, PPF, etc.
- Explore tax-saving options available beyond section 80C: There are several options available in section 80 itself. For example, when you pay interest on your home loan, according to section 80EE, you can claim a deduction of up to Rs. 50,000 on your home loan interest.
Conclusion: How to Make the Most of Your 80C Deductions
Section 80C of the Income Tax Act is more than about claiming the maximum limit of Rs. 1.5 lakh. By investing in the right plans, schemes, funds and options, you can secure your present as well as your future. The section helps you learn and achieve things that may seem beyond your reach. You can gain access to a plethora of options, like mutual funds, life insurance policies, PPF, and more which aids you in receiving an income that exceeds inflation and helps build a corpus over time.
AMIT ARORA
Frequently Asked Questions About 80C Deductions
Yes, you can claim for 80C deduction if you file your income tax returns before the assessment year ends.
No, taxpayers are only eligible for a maximum tax exemption of Rs. 1.5 lakh when taking into account all investments made in Section 80C tax-saving instruments.
Yes, life insurance premiums paid to any insurance aggregator recognised by IRDAI are eligible for a deduction under Section 80C.
In accordance with Section 80C, you can proceed with the claim for stamp duty paid on the purchase of a home in the year in which the payment is made.
Yes, you can, but only if you have not received HRA as a part of your salary. You can claim the deduction under section 80GG. Also, the maximum limit allowed for HRA deduction is Rs. 60,000 per annum.
Life Insurance tax benefits should be one of the many other reasons when purchasing it. For example, aspects like the premium amount, the tenure of the policy, policy’s terms and conditions.
