A taxpayer can claim a deduction from his total income and lower down his taxable income by investing in tax- saving options. In this article, let us discuss tax-saving options under section Section 80C deductions
- What is Section 80C?
- Tax saving options under section 80C deductions
- Comparison between ELSS and other tax-saving options
- Section 80C deductions for expenses incurred
- Subsections of Section 80C
- Frequently Asked Questions
What is Section 80C?
Under Section 80C, a taxpayer can claim a deduction for the investments made and expenses incurred up to Rs 1,50,000 in a financial year. The investments and expenses must be made with the respective financial year to claim a deduction.
For example- To claim a deduction in Financial Year 2019-2020, the deduction and expenses must be made in the period April 2019 till March’2020.
Deduction under section 80C is allowed only to individual taxpayers and HUF. This deduction is not allowed to a partnership firm, LLP and company.
Tax saving options under section 80C deductions
Below is the list of tax-saving options which are eligible for section 80C deductions:
Life Insurance Premium
Amount paid by a taxpayer towards life insurance premium for spouse, children, and self is allowed as deduction. Premium paid for parents, brothers and sisters are not allowed as a deduction under section 80C. Premium paid by a HUF for its member is also allowed as a deduction
The policy must be taken from an Insurance Company registered under the Insurance Regulatory and Development Authority of India or IRDAI.
Public Provident Fund
PPF is a government scheme eligible for a deduction, the minimum amount of investment is Rs 500 and maximum is Rs 1.5 lakh in a financial year. Principal as, well as interest amount is tax-free with a lock-in period of 15 years.
Employee Provident Fund
Section 80C allows the amount paid as a contribution towards employee provident as a deduction
Equity Linked Savings Scheme
ELSS is a type of mutual fund, with a lock-in period of 3 years. This fund invests at least 80% of assets in equity (stocks) offering a which benefit the investor in the long term
- Section 80C allows the investment as a deduction
- Interest earned is taxable at 10% (LTCG) and dividend earned is taxable at 10% as Dividend Distribution Tax.
Unit Linked Insurance Plan
This plan offers both an investment as well as insurance. A portion of the amount is invested in an equity-oriented mutual fund or debt- oriented mutual fund and the rest in life insurance. The portion of investments are decided based on the investor’s goals
Section 80C allows a deduction of investment up to Rs 1.5 lakh and interest earned is tax-free
National Pension Scheme (NPS)
NPS aims at providing monthly income post-retirement of the investor. The investor must invest during his employment. The entire amount is accumulated and broken down to an annual plan and the annual amount is paid every month to the investor after retirement
NPS is allowed as deduction under section 80CCD (1) and section 80C up to Rs 1.5 lakh and additional Rs 50000 under section 80 CCD (1B). The total amount invested towards NPS cannot exceed Rs 1.5 lakh and Rs 50000, Rs 2 lakh in totality.
Tax Saving Fixed Deposits
Section 80C deduction covers the principal amount and the interest is taxable at a slab rate. The lock-in period is 5 years.
Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana is a government saving scheme to benefit a girl child aging 10 years less. A maximum of 2 accounts can be opened by a parent or guardian.
The principal amount is allowed as a deduction and the interest earned is tax-free. The account matures after 21 years of investment or at the event of the marriage of a girl child.
Pradhan Mantri Vaya Vandhana Yojana (PMVVY)
PMVVY is a pension scheme for senior citizens aged 60 years or more with an assured interest of 8.3% per annum. The locking period is 10 years. Section 80C deduction covers the principal amount and the interest earned is tax-free.
Senior Citizen Saving Scheme (SCSS)
Senior Citizen Saving Scheme (SCSS) aims at providing a regular income for senior citizens aging above 60 years available at a certified bank and all the post offices across India. The locking period is 5 years. Section 80C deduction covers the principal amount and the interest earned is tax-free.
Comparison between ELSS and other tax-saving options
ELSS is a popular among the investment among the various tax-saving options. Let us compare these tax- saving options for the risk, interest and tax implication they offer.
|Scheme Plan||Lock-in period||Risk Level||Interest Rate||Tax Implication|
|Equity Linked Savings Scheme (ELSS)||3 years||High||12% annually (historical). Subject to market movements||Principal amount- 80C deduction|
Interest- 10% LTCG
Dividend- 10% DDT
|Public Provident fund (PPF)||15 years||Low||8% p.a. (Annually Compounded)||Principal amount- 80C deduction|
|National Savings Certificate (NSC)||5 years||Low||8.0 % p.a. (Compounded Annually)||Deduction on a deposit made up to Rs 1.5 lakh|
|Unit Linked Insurance Plan (ULIP)||5 years||High||Subject to ULIP fund performance in the market||Principal amount- 80C deduction|
|Tax Saving Fixed Deposits||5 years||Low||6.50% – 7.25%, differs bank to bank||Principal amount- 80C deduction|
Section 80C deductions for expenses incurred
Other than the investments listed above, Section 80C allows below expenses as deductions
- Repayment of the principal amount of a home loan taken to buy or construct a residential property. Section 80C allows stamp duty, transfer expense, and registration fee as a deduction
- Tuition fees paid to educate a maximum of two children for a full- time course to any school, college or university
Subsections of Section 80C
Section 80C laid down the deductions allowed, whereas Subsections of Section 80C provide clarity to the taxpayers
Section 80CCC – Insurance Annuity Plan
Section 80C provides for deduction for life insurance premium paid and section 80CCC provides a deduction for the amount deposited in an annuity insurance plan. Under annuity plan the pension received, surrender claim and interest all are taxable in the year of receipt. The total amount combining 80C and 80CCC cannot exceed Rs 1.5 lakh
Section 80CCD Contribution towards Pension Funds
- The amount deposited in the pension fund is can be claimed as a deduction. If the taxpayer is an employee deduction of 10% of the salary will be allowed. If the taxpayer is a self- employed individual, a deduction of 20% of gross total income up to Rs 1.5 lakh will be allowed.
- Investment in NPS up to Rs 50000 will be allowed over and above the limit of Rs 1.5 lakh under section 80C. Hence total Rs 1.5 lakh plus additional Rs 50000 can be claimed as a deduction.
- Employer’s contribution towards NPS can be claimed as a deduction. The amount contributed must not exceed 10% of the basic salary plus dearness allowance of the employee.
Section 80CCF Investment in Long Term Infrastructure Bond
This section allows a deduction for investments made in the Government notified long term infrastructure bond. The investor be an individual taxpayer and HUF investing up to Rs 20000
Section 80CCG Government Notified Equity Schemes
Contribution towards Government notified equity schemes by an individual taxpayer up to Rs 25000 can be claimed as a deduction. Deduction claimed will be limited to 50% of the invested amount.
Frequently Asked Questions
Is SIP covered under section 80c deductions?
Through SIP, investments are made in mutual funds. Mutual fund tax saving schemes i.e. ELSS are covered under section 80c and deduction can be claimed.
Can deduction be claimed at the time of filing of the return, even if a proof is no submitted to the employer?
Yes, the investments can be claimed at the time of filing of return. The investments must be made with the financial year itself to claim a deduction
If the investment is made in May 2019, can the deduction be claimed for the financial year 2018-2019?
No, this investment made before the filing of the return for FY 2018-2019 but after the end of FY 2018-2019. This investment can be claimed in FY 2019-20
Can deduction on life insurance premium be claimed even if the insurance is paid to a private insurance company?
An insurance company can be a private company or a public company, it must only be registered under the Insurance Regulatory and Development Authority of India or IRDAI.