Income Tax Deduction Under Section 80C

All about Deduction under Section 80C

As per the Constitution of India, the Government of India can levy tax on any income (barring agricultural income) generated in India, in accordance with the regulations under the Income Tax Act, 1961.

This tax is imposed on the income earned by individuals, Hindu Undivided Families, firms, companies, LLPs, body of individuals, an association of persons or other artificial juridical person.

To reduce these taxation liabilities, the Income Tax Act also puts forth certain tax exemption clauses, which can aid individuals to save a substantial amount on their income tax payments.

Section 80C of the Income Tax Act, 1961

Under Section 80C, you will find various instruments through which you can avail a cumulative tax saving of a sizeable quantum. With the deductions under Section 80C, you will be able to save up to (₹1,50,000 + ₹50,000) from various schemes.

The tax deductions under Section 80C can, however, only be availed by individuals or members of the Hindu Undivided Family. They are not available to companies, partnerships, or any other corporate bodies.

Following is an elaboration of the various income tax deductions under Section 80C and its allied sections like 80CCC and 80CCD of the ITA that can help you reduce your tax liabilities effectively.

Income Tax Deductions under Section 80C

Investments	Lock-in period	Returns
Public Provident Fund (PPF)	15 years	7%-8%
Equity Linked Savings Schemes	3 years	estimated 15% - 18%
Employees’ Provident Fund	5 years	8.65% (currently)
National Pension Scheme	Till retirement	12% - 14%
Tax saving fixed deposits	5 years	6%-7%
National Savings Certificate	5 years	7%-8%
Sukanya Samriddhi Yojana	21 years	8.5% (currently)
Senior Citizen Savings’ Scheme	5 years	8.7% (in 2018)

Following is a list of deductions available under this section of the ITA, explained in detail:

Tax Saving Investments Under 80C

1. Public Provident Fund (PPF)

Public Provident Fund or PPF is one of the government savings schemes that produce assured returns. A PPF matures after 15 years.

The returns generated from PPF are exempted from taxation under Section 80C. However, you will have to declare the returns generated from PPF while filing your income tax returns each year.

2. Investments in Tax Saving Mutual Funds (ELSS)

These tax-saving mutual funds, known as Equity Linked Savings Scheme, have a lock-in period of 3 years and are so named because they invest 80% of the total corpus in equities.

The returns from ELSS are tax-free up to a limit of ₹1 Lakh. For returns exceeding the limit, you will be subject to long term capital gains tax at a 10% rate.

3. Employees’ Provident Fund (EPF)

The portion constituted of an employees’ contribution to an Employees’ Provident Fund is included in the list of deductions under Section 80C. The employers’ contribution to the fund is also tax-free, even though it is not included under Section 80C.

The EPF interest rate is also tax-free. But it becomes taxable under the following circumstances:

If you leave your service at an EPF registered company.
If you withdraw from the EPF before completing 5 years at any EPF registered company.

4. National Pension Scheme (NPS)

Under Section 80C, both an employee and the employers’ contributions are exempt from taxation. But it is important to remember that, in this case, the employers’ contributions cannot be higher than 10% of the employee’s basic salary + dearness allowance.

Further, a self-employed person can also claim this tax deduction under Section 80C for contributions that amount up to 20% of their gross income.

Again, voluntary contributions made towards the National Pension Scheme are also exempt for up to ₹50,000 over the available exemption limit of up to ₹1,50,000. Thus, individuals making voluntary contributions towards NPS can avail an exemption of up to ₹2 Lakh under this Section.

You should, however, remember that the returns from NPS are exempt from taxation only until maturity. After the scheme matures, 60% of the accumulated amount becomes taxable.

5. Tax Saving Fixed Deposits

The tax-saving fixed deposits with a 5-year tenure, which you can open through banks and post offices, are eligible for income tax exemption under 80C. However, the interest accumulated in these FDs is fully taxable.

6. National Savings Certificate (NSC)

These are government-backed savings schemes with 5-year tenure. The interest accumulated under the National Savings Certificate is eligible for tax exemption under 80C.

7. Sukanya Samriddhi Yojana

This is one of the savings schemes introduced by the Government of India to financially support the education of a girl child and later, her marriage.

This account can be opened by the parents of a girl child below the age of 10 years; the account matures after 21 years and the returns availed under the Sukanya Samriddhi Yojana scheme is tax-free.

8. Senior Citizens’ Savings Scheme (SCSS)

These are government-backed savings schemes with 5-year tenure. You can further opt to extend the tenure by a period of 3 years;

The investments made under this scheme are exempt from taxation under Section 80C. However, the returns accumulated from this scheme are fully taxable as per your income tax slab.

Apart from these investment options, deductions under Section 80C are also available on:

9. Home Loans

This exemption is available on the principal amount of a home loan, every year, for both self-occupied and rented-out properties. However, to claim the deduction, you cannot sell the house within 5 years of possessing it.

Further, Section 80C also allows you to claim deduction on registration fee and stamp duty paid for your property.

10. Premium Payment on Life Insurance Policies

This exemption can be availed on life insurance premium payment for self or family members. In case of single premium policy, you cannot terminate the insurance policy within 2 years of its commencement. For multiple premium policies, you have to pay at least 2 years’ premium to avail the tax exemption.

If you do not follow the above-mentioned rules, your tax deductions under this section will be reversed.

The premium paid in Unit Linked Life Insurance Policies (ULIPs) is also eligible for tax exemption under Section 80C.

11. School or Tuition Fees paid for your Child’s Education

This section also offers exemption on tuition fees paid to any college, school, university, etc. for the education of up to two children.

Tax deductions are ways through which you can reduce your taxable income. However, you must remember that your amount of deduction varies according to the type of tax deductions you claim.

Tax Exemptions other than Section 80C

Apart from Section 80C, you can also avail tax exemption from various other sub-sections of Section 80. For example:

Section 80D – You can avail tax exemptions on the premium paid towards health insurance policies for self, spouse, children and parents. You can claim a deduction of up to ₹25,000 under this section for self and spouse and an additional ₹25,000 for your parents. The exemption under this section can go up to ₹1 Lakh.
Section 80G – This section includes donations towards various charities and social causes. These donations are eligible for up to 50% or 100% exemptions, without restrictions, depending on the cause you are donating towards.
Section 80GGC – This section includes donations made towards any political party. These exemptions are available only if the payment is made through modes other than cash.

Thus, with such deductions and more, the tax liability on taxpayers can be reduced to quite an extent. So, before filing your income tax returns, make sure that you check all the provisions under Section 80C and other sub-sections of Section 80 to ensure that you avail the maximum tax deductions.

FAQs about Tax Saving Investments under Section 80C

✓ Can deductions under Section 80C be claimed while filing income tax returns even if the proof has not been submitted to the employer?

The proof of your investments has to be submitted before the end of a financial year. This allows your employer to take them into account while determining the tax deductions and taxable income.

But, even if you forget to submit the proof, you can make claims for these investments before filing your income tax returns, as long as the investments have been made before the relevant financial year.

✓ If I have made investments eligible for tax benefit under Section 80C on 15th April 2019, when can I claim my tax deductions?

In this case, you will be able to claim deductions under this investment in the Financial Year 2019-20.

✓ Is Section 80C applicable for Hindu Undivided Family?

Yes, individuals or HUFs can enjoy the tax benefits available under Section 80C of the Income Tax Act.