List of Inclusions covered under Section 80C

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Scenario 1:

Remember Isha the techie girl? 

She resolved her queries about deduction in her salary. Those deductions were the provident fund and income tax. 

What is her next mission?

She is determined to ethically save her taxes and make the most out of her income. This is why she is learning more about the sections of the Income Tax Act of India. 

Want to know how?

Get along and let’s know about section 80C in this chapter.  

There are various expenditures and investments which are exempted from Income Tax under Section 80C of the Income Tax Act of India. The maximum deduction, which is allowed to be exempted on an investor’s total taxable income is up to Rs.1.5 lakh every year. 

The income of individual taxpayers and Hindu Undivided Families is only exempted under Section 80C. The business firms, corporate bodies, partnership firms do not qualify to avail tax exemptions under this act. There are some subsections of Section 80C, let’s understand them.

 

Subsections of Section 80C

Tax saving sections 

Eligible investments for tax exemptions

Section 80C

Investments made for Provident Funds such as EPF, PPF, etc., payment made towards life insurance premiums, Equity Linked Saving Schemes, payment made towards the principal sum of a home loan, SSY, NSC, SCSS, etc.

Section 80CCC

Payment made towards pension plans and mutual funds.

Section 80CCD(1)

Payment made for various Government-backed schemes like National Pension System, Atal Pension Yojana, etc.

Section 80CCD(1B)

Investments of up to Rs.50,000 in NPS is also exempted under this section.

Section 80CCD(2)

Employer’s contribution towards NPS (up to 10%, comprising basic salary and dearness allowance, if any) is exempted.

Investments eligible for deduction under Section 80C of The Income Tax Act

There are certain investments that can help you save tax as they are exempted under Section 80C. There is a lock-period and risk factor associated with every investment option. You can choose the one which suits you the best. Here’s a list of investment options for you to understand better

Investment options

Interest

Minimum lock-in period

Assured return

Associated risk

ELSS

12% to 15%

(depends on the fluctuation in the market)

3 years

No

High

NPS

8% to 10%

Till the investors are of 60 years (retirement)

No

High

SCSS

8.60%

5 years

Yes

low

PPF

7.90%

15 years

Yes

Low

NSC

7.9%

5 years

Yes

Low

ULIP

8% to 10%

(depends on the fluctuation in the market)

5 years

No

Moderate

Fixed deposit

Up to 8.40%

5 years

Yes

Low

Sukanya Samriddhi Yojana

8.50%

8 years

Yes

Low

What happened to Isha’s friend?

Most young people,  like Isha, are never interested in life insurance policies. She realized how important they are to help us in times of difficulties after learning it from a friend's example. 

After the death of her grandfather, her grandmother was able to run the family for a few years until her father became an adult due to life insurance.

Life insurance premiums

The premiums which you pay towards life insurance policies not only safeguard and cover you in unforeseen circumstances but are also eligible to receive tax benefits as per the 80C limit. 

All the policies which you invest in for yourself, your spouse, dependent children are eligible for exemption. Those under Hindu Undivided Family members can also benefit from the same exemptions. Currently, the annual premium of up to 10% of the total sum insured under the policy is exempted under Section 80C.

Annie has a question!

She is concerned about her salary deductions regarding the provident fund. She earns Rs. 35000 per month out of which Rs. 2000 goes for provident fund deduction. But what is it?

Public Provident Fund

This deduction helps you save taxes. The contribution which is made towards the Public Provident Fund can be filed for deducting tax under Section 80C. The maximum deposit limit under Public Provident is Rs.1,50,000. 

This allows you as an investor to claim the entire amount you deposit under the amount as an exemption under this Income Tax act. The voluntary contribution you make as an employee towards the provided fund also helps you in saving tax under Section 80C of the Income Tax Act.

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NABARD Rural Bonds

NABARD offers the National Bank for Agriculture and Rural Development or NABARD Rural Bonds. If you invest in Rural Bonds offered by NABARD, you will be able to save tax because Rural Bonds are eligible for tax exemption under the Income Tax Act of India. The maximum deductible amount is capped at Rs.1.5 lakh under Section 80C.

Can we solve Dinesh’s query?

Dinesh, a working professional is unable to find an investment that is long term and helps him save tax. That is when his friend working who is an investment banker suggests him to invest in ULIPs. 

Unit Linked Insurance Plans (ULIPs) 

Under Section 80C of the Income Tax Act, 1961, you can get an exemption up to Rs. 1.5 lakh on investment in ULIPs.

Can Dinesh invest in something else which is less risky?

Dinesh can also invest in National Savings Certificates if he wants to invest in something comparatively short-term.

National Savings Certificate 

One of the most popular tax-saving instruments which have the least amount of risk factor for individuals is the National Savings Certificate. What is great about investing in NSC is that the interest you earn is compounded semi-annually. Also, the maximum maturity period ranges only from 5 to 10 years.

You don’t have to follow any limitation on the total sum you invested under NSC in a financial year. Still, the amount which is subject to exemption is only a maximum of Rs.1.5 lakh under Section 80C.

Look around you!

Have you ever heard people who are older than you, talking about investing in FD? Why is it that the FD is a popular and reliable tool to save money and taxes? 

Tax Saving FD 

Tax Saving FDs are fixed deposit schemes offered by both banks and post offices that allow tax deduction under Section 80C. These FDs have a lock-in period of 5 years and offer a maximum of Rs.1.5 lakh tax exemption (on the principal amount). However, the returns of such instruments are liable for taxation and come with the least risk.

EPF

The return you earn from the Employee Provident fund (EPF), including the interest, is exempted under Section 80C of the Income Tax Act, 1961. However, EPF is only eligible for employees who have continued their service for at least 5 years. You can also make voluntary contributions to their EPF accounts, such amount is eligible for tax exemptions under Section 80C.

Infrastructure Bonds 

If you invest Rs. 20,000 more in Infrastructure bonds, you’re eligible for tax exemptions under Section 80C of the Income Tax Act. The limit of Rs.1.5 lakh stays applicable for these long-term secured bonds as well.

Equity-Linked Saving Scheme 

Another tool that falls under Section 80C’s exemption category is Equity Linked Saving Schemes or ELSS. You can save tax on the maximum limit of Rs.1.5 lakh. ELSS investment schemes come with a mandatory 3 year lock-in period.

Senior Citizens Savings Scheme

If any senior citizen invests in the Senior Citizens Saving Scheme (SCSS), they are eligible for tax exemption up to the maximum allocated 80C limit, i.e. Rs. 1.5 lakh. Anyone who is above the age of 60 and also the people who opt for voluntary retirement scheme are eligible to participate in SCSS after the age of 55 years to get the benefit from SCSS. The minimum lock-in tenure of 5 years is fixed for SCSS.

Can you save taxes when you are paying loans?

You are in luck because the answer is yes! Find out how!

Principal repayment made towards home loan 

When you repay towards the principal component of home loan EMIs, then you’re eligible for deduction under Section 80C. However, you will have to fulfill specific clauses to avail of this benefit; these are –

  1.   If the construction of the property is completed only, then the exemptions can only be claimed.
  2.   If you transfer the property within 5 years of possession, it will exclude it from the tax exemptions provided under Section 80C of the Income Tax Act, 1961.
  3. Any amount claimed as a tax deduction should be taxable in the transfer year if a handover is made after 5 years of the property’s possession. Failing to meet this clause will also render it excluded from Section 80C’s guidelines.

Stamp duty and registration charges

The two largest expenses made towards owning a property are considered the stamp duty and registration charges. Under section 80C, the Government of India allows a deduction of tax liability on the stamp duty and registration charges which are paid towards the procurement of the house. However, you will have to claim the exemptions in the year that these duties are paid; otherwise, it will not be eligible for consideration under Section 80C deduction.

Do you have a daughter?

Renu has a daughter and wants to safeguard her future. While looking for a way to save and invest for her daughter, her colleague, who also has a daughter advises her to invest in Sukanya Samriddhi Yojana.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a saving scheme. It is a device to meet the financial requirements for a girl’s education and marriage. Parents or legal guardians of a girl child who is not older than 10 years of age can open this account. The parents of 2 or more girls can also invest in this plan in the case of twin girls. The interest earned from this investment scheme is eligible for tax exemption under Section 80C.

Following are some more points you should take care of while investing and saving tax:

  • A claim is made for 80C deduction is allowed when you file income return before the end of that Assessment Year. For example, if you make investments as per the Section 80C guidelines on 30th April 2021, then you will be able to claim tax exemption on such investments in the Assessment Year 2021-2022.
  • You can buy the life insurance from a private insurance aggregator and the premiums paid will still be eligible for deduction under Section 80C.  Make sure that the insurance aggregator is recognized by IRDAI (Insurance Regulatory and Development Authority of India).
  • The donations you make to specific institutions and funds are eligible for tax exemption under this section.
  • All the investments made towards tax-saving instruments combined, you are allowed a maximum tax exemption of up to Rs.1,50,000 under Section 80C.

Wrapping up

Now that you understand Section 80C in detail, it’s only logical that we move on to the next big topic - Section 80D in detail. To discover the answer, head to the next chapter. 

A quick recap

  • There are various expenditures and investments which are exempted from Income Tax under Section 80C of the Income Tax Act of India. 
  • The maximum deduction, which is allowed to be exempted on an investor’s total taxable income is up to Rs.1.5 lakh every year. 
  • Under section 80C, you can invest in ELSS, NPS, SCSS, PPF, NSC, ULIP, Fixed deposit, and Sukanya Samriddhi Yojana to avail exemption from taxes. All these tools come with a limit to invest, risk factor, and lock-in period.
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