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The Income Tax Act, 1961 offers tax-saving benefits on investment instruments such as savings plans, life insurance premium, PPF and much more under Section 80C and its sub-sections. Section 80C deduction enables you to reduce your taxable income by up to Rs. 1.5 lakh every financial year.
Deductions under Section 80C
Section 80C of the Income Tax Act prescribes several instruments that not only offer income tax saving benefits, but also provide financial returns throughout the policy period. Total 80C limit as per the Income Tax Act, 1961 is Rs.1.5 lakh per financial year. Following are some of the 80C deduction options available as per the Income Tax Act, 1961:
- Life Insurance Premium
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- Equity Linked Savings Scheme (ELSS)
- Unit Linked Insurance Plan (ULIP)
- Tax Saver Fixed Deposits
- National Pension Scheme (NPS)
- Home Loan Principal Repayment
- Sukanya Samriddhi Yojana
- Senior Citizens Savings Scheme
- National Savings Certificate
Let us understand the 80C deductions as per the Income Tax Act, 1961 in detail below:
1. Life Insurance Premium
If you buy any life insurance policy for yourself, your spouse or children, you can claim 80C deduction on the premium paid towards the plan. However, if you pay premium for your parents or parents-in-law, then you will not be eligible to receive such a benefit. If you hold more than one policy, then you can claim tax benefits on all of them up to the limit of Rs. 1.5 lakh as per Section 80C of Income Tax Act.
If you are an HUF, then also you will be eligible to claim such income tax saving deduction benefits on the amount of premium.
Read more: Frequently Asked Questions About Life Insurance Tax Benefits
Buying life insurance can help you in income tax saving under Section 80C of Income Tax Act, as it not only helps you in reducing your tax liability but also help protecting your loved ones financially against life’s unforeseen challenges. One of the types of life insurance is Term Insurance which provides your family with a sum assured upon the occurrence of an unfortunate incident. You can check the Max Life Insurance term insurance premium using the calculator below.
2. Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government scheme that allows you to invest as low as Rs. 500 to Rs. 1.5 lakh in a given financial year. Under the provisions of Section 80C of the Income Tax Act, your taxable income will reduce by the amount you invest in the fund.
Also, the PPF interest you receive on such a fund is tax-free, meaning you can gain an all-around financial advantage under Section 80C, by investing in PPF.
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2. Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government scheme that allows you to invest as low as Rs. 500 to Rs. 1.5 lakh in a given financial year. Under the provisions of Section 80C of the Income Tax Act, your taxable income will reduce by the amount you invest in the fund.
Also, the interest you receive on such a fund is tax-free, meaning you can gain an all-around financial advantage under Section 80C, by investing in PPF.
3. Employees’ Provident Fund (EPF)
Under Section 80C of Income Tax Act, Employees’ contribution to the EPF account is also eligible for 80C deductions. Whereas, employer’s contribution remains free from tax but not available as 80C deduction.
4. Equity Linked Savings Scheme (ELSS)
ELSS is another type of investment scheme covered under Section 80C, in which you enjoy income tax saving benefits on the amount you put into the fund. Such a scheme offers you higher returns as your money gets invested in equity funds, but the point to note is that equity investment is prone to higher market-related risks.
There is no upper limit on the amount that you can invest in ELSS. However, you can only avail income tax saving benefit up to the total limit stated under Section 80C.
5. Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan offers the twin benefit of life cover and investment benefit. Under Section 80C, it also provides income tax saving benefit, up to Rs. 1.5 lakh, on the amount invested. You can avail of tax-deduction benefits up to either 10% of the sum assured or annual premiums, whichever is lower. Investing in ULIPs will help you enjoy flexibility of maximising your savings through a variety of market-linked fund options. Max Life Fast Track Super Plan (UIN: 104L082V04)(Unit Linked Non Participating Individual) offers you the option to invest in 6 types of funds and allows you up to 12 free switches in a year.
To get an estimate of how much insurance coverage will be enough for your loved ones and how much you need to pay for the same, then you can use a ULIP calculator to make the assessment yourself.
6. Tax Saver Fixed Deposits
Tax Saver Fixed Deposits also come under Section 80C deduction. Any deposit that you make with a bank for a period of 5 years is eligible for tax deductions, up to the specified limit stated under Section 80C of Income Tax Act, 1961.
7. National Pension Scheme (NPS)
Contributions made towards the National Pension System are tax deductible under Section 80CCD, which is a subset of Section 80C of Income Tax Act. However, the combined deduction under Section 80C and Section 80CCD (1) cannot be more than Rs. 1.5 lakh.
In case, you contribute an additional Rs. 50,000 under NPS (over and above the Section 80C limit of Rs. 1.5 lakh), the total amount can be claimed as deduction under Section 80CCD (1B).
In other words, you can claim tax deduction on the contributions made towards NPS, of up to Rs. 1.5 lakh and Rs. 50,000 as per Section 80C limit and Section 80CCD (1B) respectively.
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Contributions made towards the National Pension System are tax deductible under Section 80CCD, which is a subset of Section 80C of Income Tax Act. However, the combined deduction under Section 80C and 80CCD cannot be more than Rs. 1.5 lakh.
In case, you contribute an additional Rs. 50,000 under NPS (over and above the Section 80C limit of Rs. 1.5 lakh), the total amount can be claimed as deduction under Section 80CCD (1B).
In other words, you can claim tax deduction on the contributions made towards NPS, of up to Rs. 1.5 lakh and Rs. 50,000 as per Section 80C limit and Section 80CCD (1B) respectively.
However, the additional NPS tax deduction benefit of Rs 50,000 can only be availed if you have a Tier 1 NPS account.
8. Home Loan Principal Repayment
If you have availed home loan from any bank or financial institution, you can avail 80C deduction up to Rs.1.5 lakh on the home loan principal repayment amount.
9. Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a saving scheme for girl child and is eligible for 80C deduction of Income Tax Act. This account is for the girl child under 10 years of age. This account can be opened for a maximum of 2 girl childs and claim income tax deductions under Section 80C of Income Tax Act.
10. Senior Citizens Savings Scheme
Senior Citizens Saving Scheme is for senior citizens with at least 60 years of age. Senior Citizens who have opted for Voluntary Retirement Scheme (VRS) can opt for it after 55 years of age. Any investments made under this scheme is eligible for 80C deductions with the maximum 80C limit remains Rs.1.5 lakh only.
11. National Savings Certificate
Any investments made under the National Savings Certificate can also be claimed under Section 80C deductions. Not only the investment amount, but also the interest accrued for the first 4 years are eligible for deduction under Section 80C of Income Tax Act. You can reduce the taxable income up to Rs.1.5 lakh (Section 80C limit).
Eligibility Criteria
The provisions of Section 80C deductions apply to both an individual and a HUF. Also, this income tax saving Section covers both Indian residents and NRIs. The deduction is not available to companies, partnerships, and other corporate bodies.
You can avail tax deductions under Section 80C by filing your income tax return (ITR) by 31st July each year by all individuals. So, file your ITR on time to reap the income tax saving benefits offered under Section 80C.
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Eligibility Criteria
The provisions of Section 80C deductions apply to both an individual and a HUF. Also, this income tax saving Section covers both Indian residents and NRIs. The deduction is not available to companies, partnerships, and other corporate bodies.
You can avail tax deductions under Section 80C by filing your income tax return (ITR) by 31st July each year by all individuals. So, file your ITR on time to reap the income tax saving benefits offered under Section 80C.
How to Maximize Tax Saving under Section 80C?
Under Section 80C, there is an overall ceiling of Rs. 1.5 lakh on the amount of income tax saving benefits you can enjoy. As mentioned above, the provisions cover a number of fund options that offer both insurance investment benefits. The most noteworthy point about saving tax under section 80C is that it allows you to invest either the entire amount of Rs. 1.5 lakh in one investment or diversify across different instruments.
There is no ideal way to enjoy Section 80C deductions, as it depends on an individual’s specific needs. That is why it is essential to pick up the right instruments. Your choice must be guided by your financial goals and risk profile.
Also Read: How to Save Income Tax?
See how the latest budget impacts your tax calculation. Updated as per latest budget on 1 February, 2020. No deductions will be allowed under the new tax regime.
You can decide to include different investments for deductions under Section 80C of Income Tax Act, so that you can enjoy income tax saving benefits up to the limit of Rs. 1.5 lakh, while also receiving other security and financial advantages provided by them.
If you have higher risk appetite, you can purchase ELSS, and if you want an instrument that can offer security as well as financial gains, you can opt for ULIP plan. You may give priority to life insurance plans such as term insurance, as they offer comprehensive security to your loved ones and offer income tax saving under Section 80C.
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You can decide to include different investments for deductions under Section 80C of Income Tax Act, so that you can enjoy income tax saving benefits up to the limit of Rs. 1.5 lakh, while also receiving other security and financial advantages provided by them.
If you have higher risk appetite, you can purchase ELSS, and if you want an instrument that can offer security as well as financial gains, you can opt for ULIP plan. You may give priority to life insurance plans such as term insurance, as they offer comprehensive security to your loved ones and offer income tax saving under Section 80C.
Choose the Right Instruments under Section 80C
If you are seeking tax saving benefits, Section 80C deduction of Income Tax Act offers you significant scope for the same. It is critical that you choose the right kind of policy or instrument so that you can enjoy maximum financial and security benefits along with tax-saving benefits.
Depending on your financial needs, build a portfolio by including life insurance which not only provide life cover but also gives you benefit of tax saving and minimize your taxable income under Section 80C. Doing this will take a significant share of tax liability burden off your mind, and save your hard-earned money from getting drained out.
Section 80C investments provide great respite to taxpayers. Analyze your individual and family needs and then purchase the right income tax saving plans for enjoying benefits under Section 80C.
Frequently Asked Questions
Q. What are covered under 80C?
A. The following are the popular investments that qualify for 80C deductions:
- Life Insurance Premium
- Contribution towards PPF
- Employees’ Provident Fund (EPF)
- Equity Linked Savings Scheme (ELSS)
- ULIP Investment
- Tax Saver Fixed Deposits
- National Pension Scheme (NPS)
- Home Loan Principal Repayment
- Sukanya Samriddhi Yojana
- Senior Citizens Savings Scheme
- National Savings Certificate
Q. Is EPF part of 80C?
A. Yes Employees’ Provident Fund (EPF) is a part of 80C deduction. The Employer’s Contribution in the provident fund is tax free but not available as 80C deduction.
Q. Who can claim deductions under Section 80C of the Income Tax Act, 1961?
A. Any resident individual or HUF can claim 80C deduction upto Rs.1.5 lakh. Not only this, NRIs are also eligible for tax deductions under Section 80C of Income Tax Act, 1961.
Q. Is personal accident insurance covered under Section 80C of Income Tax Act, 1961?
A. Yes, section 80C of Income Tax Act, 1961 covers all types of life insurance premiums, which includes personal accident insurance premium as well which will pay out in case of death due to accident.
Q. Is term insurance premium included under 80C deduction?
A. Yes, deduction against term insurance premium can also be availed upto the 80C limit of Rs.1.5 lakh.
Source:
[1]https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx
Disclaimer:
Save 46800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are:
- Regular Individual
- Fall under 30% income tax slab having taxable income less than Rs. 50 lakh
- Opt for Old tax regime
ARN:- Jan/Bg/04D
