Deduction Under Section 80C BY CA Sandeep Kanoi

CA Sri Sandeep Kanoi has presented following article which is beneficial for all and particularly for service class people. I have received te same from my colleague. I share the same with you .

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Articles deals with deduction under Section 80C of the Income Tax Act and explains who is eligible for deduction, Eligible Investments, Limit for deduction, who can invest for whom and time period for investment. 

Background for deduction under Section 80C of the Income Tax Act (India) / What are eligible investments for Section 80C:

Section 80C replaces the Section 88 with more or less same investment mix available in Section 88.  The new section 80C has become effective w.e.f. 1st April, 2006.  Even the section 80CCC on pension scheme contributions was merged with the above Section 80C.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The Maximum limit of deduction under section 80C is Rs 1.50 lakh from Financial year 2014-15 / Assessment Year 2015-16. Before FY 2014-15 the limit was Rs. 1 Lakh. Under this heading many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C.

Most of the Income Tax payee try to save tax by saving under Section 80C of the Income Tax Act.  However, it is important to know the Section in toto so that one can make best use of the options available for exemption under income tax Act.   One important point to note here is that one can not only save tax by undertaking the specified investments, but some expenditure which you normally incur can also give you the tax exemptions.

Besides these investments, the payments towards the principal amount of your home loan are also eligible for an income deduction. Education expense of children is increasing by the day. Under this section, there is provision that makes payments towards the education fees for children eligible for an income deduction

Section 80C of the Income Tax Act is the section that deals with these tax breaks. It states that qualifying investments, up to a maximum of Rs. 1.50 Lakh , are deductible from your income. This means that your income gets reduced by this investment amount (up to Rs. 1.50 Lakh), and you end up paying no tax on it at all!

This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1.50 Lakh, you save tax of Rs. 45,000. Isn’t this great? So, let’s understand the qualifying investments first.

Investments Qualifying for deduction under section 80C

Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Interest is tax-free. Must Read-EPF Act 1952 vis-á-vis Income Tax Act – Tax Treatment of PF Dues 

Public Provident Fund (PPF): Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Interest is Compounded Yearly and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed. Read more- All about PPF and Income tax benefit

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.  Read More-Life Insurance Premium- Tax benefit on Payment and Maturity 

Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. Read More-Section 80C – Investment in Equity Linked Savings Scheme (ELSS) 

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.-Income Tax Benefits from House Property and Loan

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

Sukanya Samriddhi Account : Sukanya Samridhi Account’ can be opened at any time from the birth of a girl child till she attains the age of 10 years, with a minimum deposit of Rs 1000. A maximum of Rs 1.5 lakh can be deposited during the financial year. Interest on this account is fully exempt from tax  in the year of accrual as well as in the year of receipt. Sukanya Samriddhi Account meaning Girl Child Prosperity Scheme is a special deposit scheme launched by Prime Minister Narendra Modi on 22 January 2015 for girl child. The scheme of Sukanya Samriddhi Account came into effect via notification of Ministry of Finance. The notification details are Notification No. G.S.R.863(E) Dated 02.12.2014. Scheme will be governed by ‘Sukanya Samriddhi Account Rules, 2014’.

• Per girl child only single account is allowed. Parents can open this account for maximum two girl child. In case of twins this facility will be extended to third child
• Minimum deposit amount for this account is ₹ 1,000/- and maximum is ₹ 1,50,000/- per year
• Money to be deposited for 14 years in this account.
• Interest  is calculated on yearly basis ,Yearly compounded.
• Passbook facility is available with Sukanya Samriddhi account.
• From FY 2014-15 the interest earned on account will be tax exempted. As per Finance Bill 2015-16.

National Savings Certificate (NSC) (VIII Issue): 

NSC is a time-tested tax saving instrument with a maturity period of  Five and Ten Years.  Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of upto Rs 150,000 p.a. under Section 80C. Furthermore, the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh.

5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Interest Senior Citizen Savings Scheme 2004 is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax. The account may be opened by an individual,

1. Who has attained age of 60 years or above on the date of opening of the account.
2. Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement.
3. No age limit for the retired personnel of Defence services provided they fulfill other specified conditions.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C. Interest is compounded quarterly but paid annually. The Interest is entirely taxable.

NABARD rural bonds: There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Unit linked Insurance Plan : ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term.

Others: Apart form the major avenues listed above, there are some other things, like children’s education expense (for which you need receipts), that can be claimed as deductions under Section 80C.

So, where should you invest?

Like most other things in personal finance, the answer varies from person to person. But the following can be the broad principles:

Provident Fund: This is deducted compulsorily, and there is no running away from it! So, this has to be the first. Also, apart from saving tax now, it builds a long term, tax-free retirement corpus for you.

Home Loan Principal: If you are paying the EMI for a home loan, this one is automatic too! So, it comes as a close second.

Life Insurance Premiums: Every earning person having dependents should have adequate life insurance coverage. (For more on this, please read “Life after life – Why you should buy Life Insurance”) Therefore, life insurance premium payments are the next.

Voluntary Provident Fund (VPF) / Public Provident Fund (PPF): If you think that the PF being deducted from your salary is not enough, you should invest some more in VPF, or in PPF.

Equity Linked Savings Scheme (ELSS): After the above, if you have not reached the limit of Rs. 1,50,000, then you should invest the remaining amount in Equity Linked Savings Scheme (ELSS).

Equities provide the best, inflation-beating return in the long term, and should be a part of everyone’s portfolio. After all, what can be better than something that gives great return and helps save tax at the same time?

When to Invest for 80C deduction?

Many of us start looking for investment avenues only in February or March, just before the Financial Year is getting over. This is a big mistake! One, you would end up investing your money without putting proper thought to it. And secondly, you would end up losing the interest / appreciation for the whole year. Instead, decide where you want to make the investments, and start investing right from the beginning of the financial year – from April. This way, you would not only make informed decisions, but would also earn the interest for the full year from April to March.

(Republished with amendments)

A complete tax benefits details section wise: *Section 80c* Under Section 80C, the maximum tax exemption limit is Rs 1.5 Lakhs per annum. The various investments that can be claimed as tax deductions under section 80c are listed below: # PPF (Public Provident Fund) # EPF (Employees’ Provident Fund) 5 years # Bank or Post office Tax saving Deposits # National Savings Certificates (NSC) # ELSS Mutual Funds (Equity Linked Saving Schemes) # Children’s Tuition Fees, Life Insurance  # Premium Sukanya Samriddhi Account # Deposit Scheme SCSS (Post office Senior Citizen Savings Scheme) # Repayment of Home Loan (Principal only) # National Pension System NABARD rural Bonds # Stamp duty charges for purchase of a new house *Section 80CCC* Contributions made towards Annuity plans available with any of the Life Insurance Companies for receiving pension from the fund can be considered for tax benefit. The maximum Tax deduction allowed under this section is Rs 1.5 Lakhs. *Section 80CCD* Employees can contribute to National Pension Scheme (NPS). The maximum contributions can be up to 10% of the salary (Basic+DA) for salaried or gross income in case of self employed. From 2017-18 and additional tax deduction of up to Rs 50,000 u/s 80CCD (1b) is allowed for excess employee contributions and this is over and above the limit of Rs 1.5 Lakhs. The definition of Salary is ‘Basic + Dearness Allowance + any other bonus’. If the employer also contributes to Pension Scheme, the entire employer contribution (maximum 10% of the salary) can be claimed as a tax deduction under Section 80CCD (2). This is over and above the limit of Rs.1.5 Lakhs. It is to be kindly noted that the total deductions under sections 80C, 80CCD (1) and 80CCC put together cannot exceed Rs 1,50,000 for the financial year 2017-18. *Section 80DD* Up to Rs 75,000 can be claimed for spending on medical treatments of your dependents (spouse, parents, children or siblings) who have 40% disability. The upto Rs 1.25 lakhs can be deducted in case of severe disability (80%). *Section 80DDB* Any individual below the age of 60 years can claim upto Rs 40,000 for the treatment of certain specified critical diseases. This can also be claimed for his/her dependents. Senior Citizens (above 60 years) can claim upto Rs 60,000 and very Senior Citizens (above 80 years) can claim Rs 80,000 under this section. It is mandatory for an individual to obtain a Medical Certificate from a specialist doctor in a Hospital, to claim Tax deductions under Section 80DDB *Section 80U* This section is similar to Section 80DD but here the Tax deduction is permitted for the employee himself who is physically or mentally challenged. *Section 80D* Upto Rs. 30,000 can be deducted towards the medical insurance premium for senior citizens (above 60 years) and upto Rs. 25,000 can be deducted towards medical insurance of self and dependents (spouse & children). Additionally, a deduction of up to Rs. 25,000 towards medical insurance premium of parents (father/mother/both) is available. If both the parents (Father & Mother) are senior citizens, then the deduction allowed is up to Rs. 30, 000. Section 24: Income Tax Benefit for Interest paid on Home Loan Income tax benefit on payment of Interest paid on home loan is allowed for deduction under Section 24. The maximum deduction allowed under this Section for a self-occupied house property is upto Rs. 2 Lakhs. In case, the home Loan has been taken for the property which is not self-occupied, there is no maximum limit prescribed and the entire interest paid is fully exempted. If the taxpayer has availed a home loan for repair works or reconstruction, a maximum deduction of upto Rs 30,000 per financial year is permitted. *Section 80EE* In Budget 2017-2018, a new proposal has been made in which, first time home buyers are eligible for an additional tax deduction of up to Rs 50,000 on home loan interest payments under section 80EE. For claiming tax deductions under this new section 80EE, the following criteria have to be met. The home loan should have been availed or sanctioned in FY 2017-2018. The Loan amount should be less than Rs 35 Lakhs The value of the home should not be more than Rs 50 Lakhs The buyer should not possess any other residential house under his/her name. *Section 80 TTA* Under this section 80TTA, upto Rs. 10,000 from the total gross income can be claimed towards income generated from interest on savings account deposits with a bank or post office or co-operative society. This deduction cannot be claimed on income generated from interest on fixed deposits. *Section 80GG* As per the budget 2017, the permissible tax deduction under 80GG has been raised from Rs 24,000 p.a to Rs.60,000 p.a. 80GG is applicable only for those individuals who do not receive HRA from employer and do not possess a residential property. The maximum tax deduction will be limited to the least of the following criteria: Rent paid minus 10 percent of the total income Rs.5000 per month 25% of the total income *Section 80G* Contributions made to charitable institutions and certain relief funds are claimed as a deduction under Section 80G. This deduction can be claimed only when the contribution is made through cheque or draft. In case of cash contribution, a maximum of Rs.10,000 is allowed as deduction. Contributions such as clothes, food material, medicines, etc are not eligible for deduction under section 80G. *Section 87A Rebate* From 2017-2018, if the taxable income of a Taxpayer after various permissible income tax deductions, is below Rs.5 lakhs, he/she is eligible for upto Rs.5,000 on Tax payable as tax rebate under this section. In case, if the tax payable is less than Rs.5,000 for FY 2017-18, the rebate will be restricted to actual income tax payable only. *Section 80E* Interest paid towards your education loan can be claimed under Section 80E as a tax deduction. This loan should have been ideally availed by you, your spouse or children or by a student whom you are the legal guardian, for higher education purposes. Only interest paid can be claimed and not the principal. Under section 80E, there is no specific limit on the amount of interest claimed as deduction. The deduction can be claimed for a maximum of 8 years or until the interest is fully repaid, whichever is earlier. *Section 80GGC* A taxpayer can claim deduction for the amount that he/she has contributed to a political party or an electoral trust formed to oversee the election process. The contributions made in cash are not allowed for deductions. (Political party refers to any political party registered under the section 29A of the Representation of the People Act, 1951) *Section 80RRB* Income received through Patent royalty (registered on/after 01.04.2003), under the Patents Act 1970 can be claimed upto Rs. 3 lakhs or the income actually received, whichever is less. The taxpayer must be a resident of India

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10 Income Tax-Saving Options Beyond Section 80C Limit.. Additional income tax deduction of Rs. 50,000 is allowed for contribution to the National Pension Scheme (NPS) under Section 80CCD. Updated : January 06, 2018 12:12 IST Many taxpayers exhaust the Rs 1.5 lakh tax deduction limit under Section 80C (Representational image) Income tax deductions on life insurance premium, an employee's contribution towards EPF (Employee Provident Fund), PPF (Public Provident Fund), children's tuition fees, pension plans, principal repayment on home loans and a host of other investment options are covered under Section 80C of the Income Tax Act. Many taxpayers exhaust the Rs 1.5 lakh tax deduction limit under Section 80C. Additional investment in the various options will not provide further tax benefits. Here are some of the sections under income tax laws, apart from Section 80C, that help in cutting down the income tax burden. 1) NPS Additional income tax deduction of Rs 50,000 is allowed for contribution to the National Pension Scheme (NPS) under Section 80CCD. This extra deduction of Rs. 50,000 on NPS increases the total deduction allowed under Section 80C and 80CCD to Rs. 2 lakh. 2) NPS Contribution Routed Through Employer Under the NPS corporate model, an employee can deposit the contribution directly or route the contribution through the employer he or she is working with. Employer's contribution to NPS up to 10 per cent of basic salary (plus DA) is allowed deduction under Section 80CCD (2). There is no cap for this deduction but the total deduction claimed for contribution by the employer should not exceed 10 per cent of the salary. (Read more) 3) Deduction of interest on housing loan Under Section 24B of the Income Tax Act, interest paid up to Rs. 2 lakh on housing loan is allowed as deduction from taxable income. On rented properties, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years. 4) Deduction under Section 80EE Under Section 80EE, an additional deduction of Rs. 50,000 is available over and above the limit of Section 24B on interest paid on home loans if the person is buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). 5) Deduction under Section 80D An individual can claim deduction of up to Rs. 25,000, if he or she is below 60 years of age, and Rs. 30,000 if above 60 years of age, towards medical insurance premium paid for self, spouse and children. Additional deduction of Rs. 25,000 is available if one has bought medical insurance for his parents. This deduction can go up to Rs. 30,000 if parents are above the age of 60. 6) Deduction under Section 80E A taxpayer can claim deduction for interest paid on education loan for him, spouse or children. There is no upper limit on the amount of deduction. 7) Deduction under Section 80DD If an individual has dependants who are differently-abled, he or she can claim deductions up to Rs. 75,000 for expenses on their maintenance and medical treatment under this section. This deduction can increase to Rs. 1.25 lakh in case of severe disability. 8) Deduction under Section 80DDB An individual can claim deduction of up to Rs. 40,000 for treatment of certain diseases for self and dependants. The deduction can go up to Rs. 60,000 if the taxpayer is above 60 years and up to Rs 80,000 if above 80 years. 9) Section 80GG If you don't receive HRA from employer and make payments towards rent, you can claim deduction under section 80GG towards rent that you pay. The deduction is lowest of the following: (a) Rs 5,000 per month or (b) 25% of total income or (c) Rent paid less 10% of income 10) Section 80G Donations To Charity Donations to charitable organisations are entitled to up to either 50 per cent or 100 per cent deduction but the highest deduction allowed is capped at 10 per cent of the donor's total income.