Section 80C: Income Tax Deduction under Section 80C

• 16th Feb 2018
• 46,993
• Share

You must have heard about investing in certain financial instruments to reduce your taxable income. But are you aware of all of them? Not only are these instruments useful in claiming income tax deductions but they also help in creating wealth for the long-term. Let’s understand what Section 80C is and go through various tax-savings investments that you should consider:

What is Section 80C of Income Tax Act, 1961?

Section 80C of Income Tax Act, 1961 allows individuals to claim tax deductions and reduce their amount of taxable income. It also enables individuals and Hindu Undivided Family (HUF) to claim INR 1,50,000 from their annual income as non-taxable income by making certain investments. Here is a list of investments eligible for deduction under Section 80C:

Eligible Deductions under Section 80C

1. Public Provident Fund (PPF)

You can invest in PPF which has a maximum investment limit of INR 1,50,000 per year and a lock-in period of 15 years and claim it under Section 80C. Also, the returns after maturity are exempt from taxes giving you a dual advantage.

2. Life Insurance

You can claim premiums paid for life insurances for self, children or your spouse under Section 80C and enjoy tax benefits. You can also choose to invest in tax saving life insurance like ULIPs (Unit-Linked Insurance Plan) which has a lock-in period of 5 years.

3. Equity-Linked Savings Scheme (ELSS)

ELSS or Equity-Linked Savings Scheme is a diversified equity mutual fund with a lock-in period of 3 years. It gives you tax-saving benefits with long-term returns. The lock-in period lessens the impact of lows of the stock market and compounds the money invested.

4. Employees’ Provident Fund (EPF)

EPF account is used to accumulate a part of your salary on a monthly basis which is exempted from tax. Interest earned on the corpus should be kept in check as interest above a certain limit is taxable.

5. Fixed Deposit

Fixed deposit in a bank is eligible for deduction under Section 80C but they come with a lock-in period of 5 years where premature withdrawal is not allowed. The interest earned in the five-year fixed deposit is taxable and isn’t eligible for tax-saving benefits.

6. National Savings Certificate (NSC)

NSC is a tax-saving scheme that can be claimed under the income tax Section 80C and has a lock-in period of five-years. The interest earned is taxable but as the interest accumulates in the account, and is deemed as reinvested, it is eligible for a new claim under Section 80C.

7. Senior Citizens Savings Scheme (SCSS)

SCSS is suitable for senior citizens and qualifies for deduction under the income tax Section 80C with a tenure of five years. To invest in this scheme, you have to be at least 60 years of age. If you were to take voluntary retirement, then you can opt for it after the age of 55.

8. Sukanya Samriddhi Yojana

This is a savings scheme for a girl child which is eligible for tax benefits. The parent or legal guardian of the girl child can open an account under this scheme till the child reaches the age of 10. The scheme is available for two girl children and is extended to a third child in the case of twins. The amount has to be deposited for a total of 15 years which will mature after 21 years.

9. National Pension Scheme (NPS)

National Pension Scheme is a pension program for employees that do not have a pension system created for retirement. This scheme was started by the Government of India as an opportunity for employees working in private sectors to have savings for their retirement. This a good investment tool for working professionals which is open from the age group of 18 to 60. The investment remains in a lock-in till you reach the retirement age but can be partially withdrawn after completing 10 years in the scheme.

Payments Eligible for Deduction under Section 80C

1. Payments Towards Life Insurance:

If you have bought life or term insurance, then the payments made towards premiums can be claimed under Section 80C of Income Tax Act, 1961. For this, the insurance can be in your name or your wife and child’s name. The total amount that can be claimed for exemption should be 10% of the sum assured.

2. Repayment of House Loan

If you are repaying the principal component of a home loan, then that amount is eligible for deduction under Section 80C. This tax exemption also includes payments made towards stamp duty and registration.

3. Payments Towards Children’s Fees

You can claim fees paid for admission of your child in schools, colleges or universities in India for full-time courses only. The tax exemption under Section 80C can be claimed for up to two children for that particular financial year.

Section 80C - Frequently Asked Questions (FAQs)

1. Who can claim tax exemption under Section 80C of the Income Tax Act, 1961?

Any individual and the Hindu Undivided Family (HUF) can claim INR 1,50,000 from their annual income under Section 80C of Income Tax Act, 1961.

2. Can an individual invest in various financial instruments and claim deductions of up to INR 1,50,000 for each type of investment?

No, an individual can claim only INR 1,50,000 for that particular financial year even if they are investing in different financial instruments.

3. What are the tax benefits that can be claimed on life insurance?

You can claim the premiums paid towards securing life insurance under Section 80C of Income Tax Act, 1961. You can also get tax exemption on the maturity benefit or the death benefit received by your family in the event of your death under Section 10(10D).

4. Who can claim tax exemption on a Senior Citizens Savings Scheme under Section 80C?

As Senior Citizens Savings Scheme is meant for senior citizens, you will have to be of 60 years to invest in SCSS. But if you have taken voluntary retirement, then you can start investing after you turn 55 years of age.

5. What is Section 80C?

Section 80C under the Income Tax Act, 1961 lists the investments and expenditures providing tax savings. You can claim deductions up to ₹1.5 lakhs from your taxable income under this clause. This benefit applies to individual taxpayers and Hindu Undivided Families (HUFs) only.

6. Does investment in ULIP come under Section 80C? When can I withdraw?

Premiums paid for ULIPs are eligible for Section 80C deductions. After the five-year lock-in phase, you can redeem part of your accumulated funds for urgent financial needs. Several ULIPs are available from Kotak Life. You can select one matching your investment and tax-planning goals.

- A Consumer Education Initiative series by Kotak Life