Deductions Under Section 80C of Income Tax in India
The Income Tax Department, with the focus on stimulating saving and investment among the taxpayers, has furnished various income tax deductions for the taxpayers. These deductions allow the taxpayer to minimise their tax liability, with section 80C being the most popular. Find below a detailed explanation of the sections and sub-sections that can be lucrative for taxpayers to limit their taxable income.
What is Section 80C
Section 80C of the Income Tax Act in India is a section that allows for deductions from an individual's taxable income. The deductions can be claimed for investments and expenses made in specified avenues such as Public Provident Fund, National Savings Certificate, and life insurance premium payments. The maximum amount claimed as a deduction under Section 80C is Rs 1.5 Lakhs in a financial year. This can help in reducing the overall tax liability of an individual.
Type of Deduction Under Section 80C
Several types of deductions can be claimed under Section 80C of the Income Tax Act in India. Some of the most common ones include:
- Contributions to Public Provident Fund (PPF),
- Premium payments for life insurance policies
- Contributions to Employee Provident Fund (EPF),
- Tuition fees for children's education
- Investments in National Savings Certificate (NSC),
- Equity-linked savings schemes (ELSS)
- Principal repayment on home loan
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Certain types of savings schemes offered by banks.
It's worth noting that the deductions available under 80C are subject to change with the budget each year, and not all options may be available each year.
Deductions on Investments under Section 80C of the Income Tax Act
The below table comprises the list of investments one can make to save tax under Section 80C of the Income Tax Act:
|Options for Investment||Minimum lock-in period||Interest Rate||Risk factor||Returns|
|National Pension System||Up to the individual’s age of 60 years||8% - 10%||High||No|
|Public Provident Fund||15 years||7.1%||Low||Yes|
|Equity Linked Saving Scheme||3 years||From 12% to 15% (depending on the fluctuations in the market)||High||No|
|Senior Citizen Savings Scheme||5 years||7.40%||Low||Yes|
|National Savings Certificate||5 years||6.8%||Low||Yes|
|Fixed Deposit||5 years||Up to 8.40%||Low||Yes|
|Unit Linked Insurance Plan||5 years||From 8% to 10% (depending on the fluctuations in the market)||Moderate||No|
|Sukanya Samriddhi Yojana||21 years||7.6%||Low||Yes|
Provident Fund (PF) is a retirement savings scheme in India where employees and employers make contributions towards an employee's retirement savings. An employer's contribution is usually a fixed percentage of the employee's salary, and the employee also contributes a percentage of their salary. Under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, organisations with more than 20 employees must register for EPF. The contributions made to the PF are eligible for deductions under Section 80C of the Income Tax Act up to a maximum limit of 1.5 Lakhs. The interest earned on the contributions, as well as the maturity amount, are tax-free.
Public Provident Fund
Public Provident Fund (PPF) is a savings scheme offered by the Government of India designed to encourage long-term savings for individuals. The Ministry of Finance administers the scheme through various banks and post offices across the country.
The main features of the PPF include
- A minimum investment of Rs. 500 per year and a maximum of Rs. 1.5 Lakhs per year.
- The investment earns a fixed interest rate, which the government determines every quarter.
- The investment has a maturity period of 15 years, after which the deposit and the interest earned can be withdrawn.
- The investment and interest earned are tax-free.
- The PPF account can be extended for one or more blocks of 5 years.
PPF is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 Lakhs per financial year. It is a popular long-term investment option in India because of its tax benefits, safety and reasonable rate of return.
Premium Payments Towards Life Insurance
Premium payments towards life insurance policies are eligible for deductions under Section 80C of the Income Tax Act in India. The deductions apply to both individual and group life insurance policies as long as the policy is taken in the name of the taxpayer or the taxpayer's spouse or children. The maximum amount that can be claimed as a deduction under Section 80C for premium payments towards life insurance policies is Rs. 1.5 Lakhs.
It is important to note that the premium payment must be made in the same financial year as the assessment year to qualify for a tax deduction.
Additionally, the policy should be in force during the relevant financial year. If a policy is surrendered or lapses during the financial year, the premium paid in that year will not be eligible for a tax deduction.
Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme (ELSS) is a mutual fund in India that invests primarily in equity shares of companies listed on stock exchanges. ELSS funds are also tax-saving mutual funds as the investments made in these funds are eligible for deductions under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 Lakhs per financial year. ELSS funds have a lock-in period of 3 years, which means that the invested amount cannot be withdrawn before the completion of 3 years. This lock-in period is in place to encourage long-term investments.
National Savings Certificate
National Savings Certificate (NSC) is a fixed-income investment option offered by the Government of India through post offices. The certificate has a maturity period of 5 or 10 years, and the government determines the interest rate quarterly. The main features of the National Savings Certificate include
- Minimum investment of Rs. 100 and no maximum limit
- Interest is compounded annually but is payable only on maturity
- The investment is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 Lakhs per financial year.
Sukanya Samriddhi Scheme
The Sukanya Samriddhi Scheme, is a savings scheme launched by the Government of India specifically for the girl child. The scheme aims to promote the welfare of girl children by encouraging parents to save for their future education and marriage expenses. The main features of the Sukanya Samriddhi Scheme include
- A minimum deposit of Rs. 250 and a maximum deposit of Rs. 1.5 Lakhs per year.
- The scheme offers a fixed rate of interest, which the government determines quarterly.
- The scheme has a maturity period of 21 years from the date of opening the account or the marriage of the girl child, whichever is earlier.
- The scheme is eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 Lakhs per financial year.
Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans (ULIPs) are a type of insurance product that combines insurance coverage with investment opportunities. The premium paid towards a ULIP is invested in various investment options such as equity, debt, or a combination of both. The main features of Unit Linked Insurance Plans include the following:
- A minimum premium payment is required to start the policy, and it can be made regularly, such as monthly or annually.
- ULIPs offer insurance coverage for the policyholder, and the death benefit paid to the nominee is the higher of the sum assured or the fund value.
- ULIPs also offer tax benefits, The premium paid towards a ULIP is eligible for deductions under Section 80C of the Income Tax Act, subject to a maximum limit of Rs. 1.5 Lakhs per financial year. The maturity amount is also tax-free.
Repayment of Home Loan Principal Amount
When you take out a home loan, you borrow a large sum of money from a lender to purchase a house. The lender will require you to make regular payments to repay the loan, including the principal amount (the original amount borrowed) and the interest charged on loan. With these payments, you can claim tax benefits of up to 1.5 Lakhs under section 80C deductions.
Registration Charges And Stamp Duty For A Home/Property
When you purchase a new house or any property, you must pay off registration charges and stamp duty on your property purchase. The stamp duty charges vary as per the state where you buy the property. However, with these payments, you can claim tax benefits of up to 1.5 Lakhs under section 80C deductions.
Infrastructure bonds are debt securities issued by government entities or government-owned companies to raise funds for infrastructure projects. These projects include building and maintaining roads, bridges, airports, ports, and public transportation systems.
Investors who purchase infrastructure bonds lend money to the issuing entity and, in return, receive regular interest payments and the return of the principal amount at maturity. These bonds are also considered tax-saving as the interest income from these bonds is tax-free.
NABARD Rural Bonds
NABARD (National Bank for Agriculture and Rural Development) rural bonds are debt securities issued by NABARD to raise funds for rural development projects in India. These bonds are typically considered low-risk investments and are rated by credit rating agencies. The interest income earned from NABARD rural bonds is tax-exempt in India as per the Indian Income Tax Act. However, the capital gains tax will apply to these bonds' sales. If held for less than three years, they will be considered short-term capital gains, added to the investor's income, and taxed as per the applicable slab rate. If these bonds are held for more than three years, the capital gains will be considered long-term capital gains and taxed at 20% with an indexation benefit.
Senior Citizen Savings Scheme
The Senior Citizen Savings Scheme (SCSS) is a savings scheme for Indian citizens who are 60 years of age or above. The scheme offers a fixed interest rate and is backed by the Government of India. The minimum investment in the scheme is Rs. 1,000, and the maximum investment is Rs. 15 lakh. The scheme has a five-year maturity period, which can be extended for another three years. The interest is paid out quarterly, and the deposits are eligible for tax benefits under Section 80C of the Income Tax Act.
Five-year Post Office Time Deposit Scheme
The Five-year Post Office Time Deposit Scheme (POTD) is a fixed deposit scheme offered by the Indian Post Office. The scheme offers a fixed interest rate and is backed by the Government of India. The minimum investment in the scheme is Rs. 200, and there is no maximum limit. The scheme has a five-year maturity period, and the interest is paid annually. The deposits are eligible for tax benefits under Section 80C of the Income Tax Act. The interest rate is usually reviewed every quarter and is subject to change. The interest earned on POTD is fully taxable.
Subsections of Section 80C
Section 80C of the Income Tax Act in India provide tax deductions on specific investments and expenses. The deductions under this section are available to an individual or a Hindu Undivided Family (HUF). The following are the various sub-sections under Section 80C:
- 80C(1): This sub-section pertains to investments in specific specified instruments such as Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-linked Saving Scheme (ELSS) etc.
- 80C(2): This sub-section pertains to the payments made towards the purchase or construction of a house property.
- 80C(3): This sub-section pertains to the payment of tuition fees for children's education.
- 80C(4): This sub-section pertains to the payment of life insurance premiums.
- 80C(5): This sub-section pertains to the payment of contribution to a provident fund, superannuation fund, or an approved gratuity fund.
- 80C(6): This sub-section pertains to the payment of contribution to the National Pension System (NPS)
- 80C(7): This sub-section pertains to the payment of subscription to notified bonds under the Sukanya Samriddhi Account Scheme
- 80C(8): This sub-section pertains to the payment of subscription to notified bonds under the National Savings Scheme
- 80C(9): This sub-section pertains to the payment of deposit under the Senior Citizen Savings Scheme
- 80C(10): This sub-section pertains to the payment of deposit under the Time Deposit Scheme of Post Office
These are the most common sections of 80C, and the list may vary depending on the amendment in the Income Tax Act.
How to Avail Of Tax Deductions Under Section 80C?
To avail of the tax deductions under Section 80C, the below-mentioned pointers must be adhered to.
- Gather all the necessary documents: To claim tax deductions under Section 80C, you must have your PAN card, salary slips, and investment proofs.
- Determine the eligible investments: You can claim deductions under Section 80C for investments made in various schemes such as Public Provident Fund (PPF), Equity-linked Savings Scheme (ELSS), National Savings Certificate (NSC), and more.
- Calculate the total amount of deductions: The maximum limit for deductions under Section 80C is Rs 1.5 lakhs. You need to calculate the total amount of investments made in eligible schemes to ensure you do not exceed the limit.
- File your Income Tax Return: You can claim deductions under Section 80C by filing your Income Tax Return (ITR) online or offline. You need to fill in the relevant details of your investments in the ITR form and submit it along with the required documents.
- Verify and submit the ITR: Once you have filled in the details and uploaded the necessary documents, verify the ITR form and submit it.
- Wait for the tax credit: Once your ITR is processed, the tax department will credit the deductions under Section 80C to your account.
How Much Can be Claimed Under Section 80C?
Under Section 80C Govt. provides deductions on various investments up to ₹ 1.5 lakh per year from your taxable income.
Section 80C – Tax Deduction on Investment Scheme and Expenses
The table below shows the minimum and maximum deductions claimable under the respective investment schemes and expenses.
|Investment Schemes / Expenses||Minimum Amount||Maximum Amount|
|Public Provident Fund (PPF)||INR 500||INR 1.5 Lakhs|
|Equity-linked Savings Scheme (ELSS):||INR 500||INR 1.5 Lakhs|
|National Savings Certificate (NSC)||INR 100||INR 1.5 Lakhs|
|Sukanya Samriddhi Yojana||-||INR 1.5 Lakhs|
|National Pension System (NPS)||INR 500||INR 1.5 Lakhs|
|Life Insurance Premiums||-||INR 1.5 Lakhs|
|Principal Repayment of Home Loan||-||INR 1.5 Lakhs|
|Tuition Fees for Children's Education||-||INR 1.5 Lakhs|
|Senior Citizen Savings Scheme (SCSS)||-||INR 1.5 Lakhs|
|Unit-Linked Insurance Plan (ULIP)||INR 500||INR 1.5 Lakhs|
How to Calculate Deduction Limit Under Section 80C of Income Tax Act?
To calculate the deduction limit under Section 80C of the Income Tax Act, you need to follow these steps:
- Collect all the documents related to your investments and expenses that are eligible for deductions under Section 80C.
- Make a list of all the eligible investments and expenses you have made during the financial year.
- Add up the total investments and expenses you have made during the financial year.
- Compare the total investments and expenses with the maximum limit of Rs 1.5 lakhs.
- If the total amount of investments and expenses are less than or equal to Rs 1.5 lakhs, then you can claim the full amount as deductions. If it exceeds the maximum limit, you can claim only up to Rs 1.5 lakhs as deductions.
When should I Invest to Claim Deductions under Section 80C of the Income Tax Act?
It has been observed that most people make investments towards the end of a financial year to claim tax deductions. According to experts, the best time for investment is starting a financial year since it would be an informed decision and would also ensure that you will get the interest for the entire year (from April to March).
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Who is eligible to claim deductions under Section 80C of the Income Tax Act?
Only individuals and Hindu Undivided Families (HUFs) are eligible to claim tax deductions under Section 80C of the Income Tax Act.
Any individual or Hindu Undivided Family can claim deductions under Section 80C of the Income Tax Act?
Yes, any individual who has invested in investment instruments covered under Section 80C of the Income Tax Act.
What is the maximum amount of deduction I can claim under Section 80C of the Income Tax Act?
The maximum amount a taxpayer can claim under section 80C is Rs 1.5 Lakhs.
Can I claim a deduction on my children's school fees under Section 80C of the Income Tax Act?
Yes, a taxpayer can claim income tax deductions on the expenses they incurred for their child’s education.
What are the four most common tax deductions?
The most popular kind of tax deductions that a taxpayer can claim is:
- Contributions made to a retirement scheme
- Donations made to a charity
- Public Provident Fund
- Tax-saving fixed deposit