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The Guide to Section 80C of Income Tax

Get into the details of Section 80c investment options 

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There are several smart ways to save taxes and enjoy maximum benefits. Unfortunately, tax planning is always a do-it-later affair for most people. 

An intelligent approach is to begin investing in the initial quarters of the financial year to get  enough time to plan well and hence get maximum returns. 

Speaking of investment for the purpose of tax saving, it is essential to know about Section 80C of Income Tax as most tax-saving investment options operate according to the parameters of this section. A clear understanding of the section and investment options under 80C can ensure that you are saving as much as you can in tax while you are investing

What is Section 80C? 

Section 80C is a commonly used section to claim an income tax deduction. It allows a deduction of Rs.1,50,000 and can be used by both salaried individuals and other taxpayers, irrespective of their source of income. 

The deduction in tax is applicable for certain 80c investment instruments. The deductions can be claimed for individual investment instruments or multiple instruments. 

What is the Eligibility Criteria for Section 80C? 

The provisions of section 80c of income tax apply to individuals and Hindu Undivided Family (HUF). Besides, this section covers both Indian residents and NRIs. 

However, the deduction in tax for 80C investment is not available to partnerships, companies, and other corporate bodies. 

If you want to avail tax deductions under this section, you must file an income tax return by 31st July. File your income tax on time to reap maximum benefits with 80c investment options. 

What are Some 80C Investment Options? 

Investment Options Under 80C for Individuals 

Whether you're salaried or self-employed, it's important to consider various options to save tax. Tax deduction under section 80C is the most claimed among other tax-saving options. 

The good news is that there are several 80C investment options that work as tax-saving instruments in the market. Let's take a look at the best investment options under 80c. 

Section

Investment Instrument

Conditions (if any)

Tax Benefits and Deductions

80C

Life Insurance Premiums

Not applicable if policy is bought for parents or parents in law

Tax Deduction Limit – INR 1,50,000(if any)

Income on maturity is tax -free

80C

PPF

Maximum amount that can be invested in a year – INR 1.5 lakh

Tax Deduction Limit – INR 1,50,000

80C

EPF (Employee Provident Fund)

NA

Tax Deduction Limit – INR 1,50,000-

Interest is also tax-exempted

80C

ELSS (Equity Linked Savings Scheme)

NA

Tax Deduction Limit – INR 1,50,000

80C

ULIP (Unit Linked Investment Plans)

 

Tax Deduction Limit – INR 1,50,000

80C

Fixed Deposits

Any bank deposit for a minimum of 5 years is eligible for tax deduction under 80C.

Tax Deduction Limit – INR 1,50,000

Interest taxed at slab rates.

80C

Home Loan Principal Payment

NA

Tax Deduction Limit – INR 1,50,000

80C

SSY (Sukanya Samridhhi Yojana)

NA

Tax Deduction Limit – INR 1,50,000

Maturity amount is exempted from taxes

80C

NSC (National Saving Certificate)

the interest accrued in first 4 years is eligible for deduction.

Tax Deduction Limit – INR 1,50,000

80C

NPS (National Pension Scheme)

NA

Tax Deduction Limit – INR 1,50,000

80C

SSC (Senior Citizen Scheme)

NA

Tax Deduction Limit – INR 1,50,000

 

· Life Insurance Premium

The most common 80c investment option is the life insurance premium. Life insurance not only helps in tax saving but also protects your family's financial future in case of unforeseen events.

If you purchase a life insurance premium policy for yourself, your partner and your children, you can claim a tax deduction under section 80C on the premium paid for the policy. However, you won't be eligible to receive such a benefit if you buy the policy for your parents or parents-in-law. In case you hold more than a single policy, you can claim tax benefits on this 80C investment up to the limit of 1,50,000. 

· Public Provident Fund (PPF) 

Another popular investment option under 80C is the Public Provident Fund. It allows you to invest INR 500 - 1,50,000 in a financial year. 

Under the provisions of section 80C of the income tax, your taxable income will decrease by the amount invested in the fund. 

Moreover, the interest you receive is tax-free, which implies an all-around financial advantage. 

· Employee Provident Fund (EPF) 

The next 80C investment option is Employee Provident Fund, which is a benefit scheme available only for salaried employees. Here, both the employee and the employer invest a certain amount of money every month.  interest is paid regularly on the amount available in the EPF account. 

· Equity Linked Saving Scheme 

Another 80C investment option is the Equity Linked Saving Scheme. It allows you to enjoy tax-saving benefits on the amount paid towards the fund. 

This scheme offers higher returns as the money gets invested in equity funds. However, it is to be noted that equity investment is prone to market risks, so make decisions according to your risk-appetite to avoid unaffordable losses.

While there is no upper limit on the amount invested in Equity Linked Saving Scheme, you can avail income tax benefits only up to Rs 1,50,000. 

· Unit Linked Insurance Plan

Unit Linked Insurance Plan is an excellent option as it offers the dual advantage of life cover and investment benefit. 

Under section 80C of income tax, it offers a tax-saving benefit of up to INR 1.5 lakhs. Investing your money in Unit Linked Insurance Plan allows maximizing savings through various market-linked fund options. 

If you wish to get an estimate of how much insurance coverage will be enough for your family and how much you need to pay for the same, you can use a ULIP calculator

· Tax Saver Fixed Deposits 

Another 80C investment option is the Tax Saver Fixed Deposit. Any deposit you make with a bank for a minimum of 5 years is eligible for tax deduction under 80C. 

A tax saver fixed deposit allows you to choose a nominee who can withdraw the deposit pre or post maturity period in case of your death. However, you must know , you cannot make a premature withdrawal from a tax saver fixed deposit. 

If you contribute an additional sum of INR 50,000 under the National Pension Scheme (over and above the limit of 1,50,000 of section 80C), the total sum can be claimed as a deduction under section 80CCD. Remember that the additional deduction can only be claimed if you have a tier I NPS account. 

· Tax Saver Fixed Deposits

Another 80C investment option is the Tax Saver Fixed Deposit. Any deposit you make with a bank for a minimum of 5 years is eligible for tax deduction under 80C. 

A tax saver fixed deposit allows you to choose a nominee who can withdraw the deposit pre or post maturity period in case of your death. However, you must know , you cannot make a premature withdrawal from a tax saver fixed deposit. 

If you contribute an additional sum of INR 50,000 under the National Pension Scheme (over and above the limit of 1,50,000 of section 80C), the total sum can be claimed as a deduction under section 80CCD. Remember that the additional deduction can only be claimed if you have a tier I NPS account. 


· Home Loan Principal Repayment 

In case you've taken a home loan from any bank or financial institution, you can avail a deduction of 1,50,000 under section 80C on the repayment of home loan principal. 

· Sukanya Samriddhi Yojana 

Sukanya Samriddhi Yojana is a scheme devised for the welfare of a girl child at the time of significant events of her life such as education and marriage. 

This scheme is eligible for tax saving under section 80C of income tax. You can open the account for 2 girl children under 10 years of age. It is an excellent investment option under section 80C.

· National Savings Certificate 

The last 80C investment option is the National Savings Certificate. The investment you make under this scheme is eligible for a tax deduction. Besides, even the interest accrued for initial 4 years is eligible for deduction. 

80C Investment for Senior Citizen 

Senior Citizens who are looking for tax-saving investments can invest in the following investment schemes:

1.  Recurring Deposits and Fixed Deposits

Recurring Deposits and Fixed Deposits are the two most preferred tax savings investment schemes, especially for senior citizens. Under Section 80C of the Income Tax Act, senior citizens can enjoy tax-free interest income of up to Rs. 50,000.

· Senior Citizens Saving Scheme 

The Senior Citizen Saving Scheme is specially devised for senior citizens of 60 years of age or above. Senior citizens who have chosen Voluntarily Retirement Scheme can opt for this scheme at 55 years. 

Any investment made under this scheme is eligible for a deduction, and the maximum limit remains 1,50,000. 

· National Pension Scheme 

National Pension Scheme encourages you to invest money in a pension account at regular intervals during the period of your employment. Senior Citizens up to the age of 70 years can invest in the National Pension Schemes.  The contribution made towards this scheme allows tax deduction under section 80CCD, a subset of 80C. However, the combined deduction under both sections cannot be more than INR 1,50,000. 

2. Tax Free Bonds 

Public sector undertakings issued bonds can be a beneficial tax saving instrument for senior citizens who look for safer investment options. The bonds can be bought through a Demat account. The interest earned on these bonds are tax-free.

80C Investment Options for Hindu Undivided Family

As Hindu Undivided Family (HUF) is considered a distinct identity in the eyes of law in India, investment options are different for HUF. Under Section 80C of Income Tax, HUF are allowed a tax exemption of Rs. 2,50,000 in a year.

Apart from that, HUF is exempted from making investments in some investment instruments.

These instruments are government’s small investment plans such as PPF (Public Provident Fund), monthly saving schemes, National Savings Certificate, and recurring deposits.

HUF can however invest in equity, Mutual Funds, Fixed Deposits, Life Insurance and Equity Linked Savings Scheme (ELSS).

The HUF tax benefits under Section 80C for these investment instruments are same as the benefits available for individuals. 

What are the Payments Eligible for Deduction Under Section 80C?

A few payments are also eligible for deduction under section 80C:

· Payment towards Life Insurance 

Needless to say, the premium paid towards a life insurance policy is one of the most popular ways to save tax. However, the exemption is only applicable if the premium is lower than 10% of the sum insured. 

· Repayment of House Loan

Tax exemption is also applicable to the repayment of a home loan taken by a person to construct or purchase a residential property. The deduction also applies to stamp duty, registration fees and transfer expenses. 

· Payment towards Children's Fees

Another payment eligible for deduction is the education fees paid for children up to Rs 1,50,000. It is applicable for tax deduction under section 80C of income tax. 

80C Investment Proof 

These investment schemes can help saving tax. For that, you have to submit investment proofs every year to ensure your employer doesn’t deduct higher taxes. Submitting proofs can be perplexing for when you are not aware of the documents required. To make it all easier for you, here’s a table you can refer to:

Type of Investment

Investment Proof

ELSS Mutual Funds

Consolidated email statement of ELSS investment or copy of investment certificate

Fixed Deposit

A copy of FD receipt or bank statement

Insurance Policy

Copy of policy document and premium payment proofs

PPF

Copy of deposit receipt

ULIP/ Pension Schemes

Premium Payment proofs

House Loan

Interest Certificate from bank with proof of principal payment and interest

Interest accrued on NSC

Copy of NSC bought

Children Tuition Fees

Copy of Payment Receipt

All other Tax Saving Funds

Copy of Investment Certificate

Frequently Asked Questions (FAQs)

1. Who can claim tax deduction under Section 80c? 

A resident individual or Hindu Undivided Family can claim tax deduction under section 80C of the income tax. In addition, NRIs are also eligible for tax deduction under this section. 

2. Does Section 80C cover personal accident insurance?

Yes, section 80C covers all types of life insurance premium, including personal accident insurance and the ones which will get paid in case of demise due to accident.

3. Which type of mutual fund is eligible for 80C? 

The equity-linked saving scheme, also known as ELSS, is the only type of mutual fund covered under section 80C of income tax. 

By investing money in ELSS, you become eligible to claim a tax deduction of up to Rs 1,50,000 a year. 

4. Who is not qualified to avail tax exemptions under Section 80C?

Tax exemption under section 80C cannot be availed by companies, partnerships and corporate bodies. 

5. Is it possible to invest in different types of instruments and claim a deduction of INR 1,50,000 for each?

While it is possible to invest in different tax-saving instruments, an individual can only claim a maximum of INR 1,50,000 in a financial year. 

 

 Source:

https://www.incometaxindia.gov.in/Pages/tools/deduction-under-section-80c.aspx

https://www.incometaxindia.gov.in/pages/rules/equity-linked-savings-scheme.aspx

https://www.incometaxindia.gov.in/pages/rules/national-savings-certificates-viii-issue-scheme-2019.aspx

https://www.incometaxindia.gov.in/pages/rules/senior-citizens-savings-scheme-2019.aspx

https://www.incometaxindia.gov.in/pages/rules/nps-tax-saver-scheme-2020.aspx

https://www.india.gov.in/sukanya-samriddhi-yojna

https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx

ARN No: Feb22/Bg/23

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