Section 80C of Income Tax Deductions
Section 80C of the Income Tax Act is popular for providing deductions of up to INR 1.5 lakh per annum to individuals from all across India. The Section 80C deduction can be availed by individuals who invest in several savings schemes.
Are you intrigued? Do you want to learn more about Section 80C and the deduction under Section 80C? If yes, then you are in the right place as we’ll take you through everything that you need to know about Section 80C of the Income Tax Act.
What is Section 80C?
Section 80C of the Income Tax Act came into effect on 1 April 2006. This section allows certain expenditures and investments to be exempt from tax. This means that if you plan your investments well and spread them intelligently across different investments, including PPF and NSC, then you can claim deductions up to INR 1.5 lakh. This will lower the individual’s tax liability.
Applicable Deductions on Investments Under Section 80C of the Income Tax Act
The different types of investments that can make an individual save tax under Section 80C of the income tax act are depicted in the table below.
|
Investment Options |
Minimum Lock-In Period | Rate of Interest | Risk Factor |
Applicable Returns |
|
National Pension System |
Till the individual reaches the age of 60 years | 8% to 10% | High | No |
| Equity Linked Saving Scheme | 3 years | Between 12% and 15% | High |
No |
|
Public Provident Fund |
15 years | 7.9% | Low | Yes |
| Senior Citizen | 5 years | 8.60% | Low |
Yes |
|
National Savings Certificate |
5 years | 7.9% | Low | Yes |
| Unit Linked Insurance Plan | 5 years | Between 8% and 10% | Moderate |
No |
| Fixed Deposit | 5 years | Up to 8.40% | Low | Yes |
| Sukanya Samriddhi Yojana | 8 years | 8.50% | Low |
Yes |
Let’s now look at these deductions in more detail. All the required information is mentioned in the list given below.
Provident Fund
Provident Fund is automatically subtracted from the monthly salary of an employee. It is the duty of the employee and the employer to contribute towards PF. Here, the contribution made by the employer is exempt from tax but the contribution made by the employee is eligible for deductions under Section 80C of the Income Tax Act.
One should remember that the Voluntary Provident Fund (VPF) is also eligible for tax deductions under Section 80C of the Income Tax Act.
Public Provident Fund
Public Provident Fund is a popular investment instrument as it provides assured returns. In this scheme, interest is compounded on an annual basis and the maturity period of the scheme is 15 years. The amount contributed towards PPF is eligible for tax exemption.
Life Insurance Premiums
If an individual has purchased a life insurance policy for oneself, children, or spouse, then the premiums paid towards it are eligible for deductions. This is applicable under Section 80C of the Income Tax Act.
Equity Linked Savings Scheme (ELSS)
There are some mutual fund schemes that have been designed specifically for the purpose of tax savings. Equity Linked Savings Schemes or ELSS allow investors to claim tax deductions to the extent of INR 1.5 lakh under Section 80C of the Income Tax Act.
National Savings Certificate
The National Savings Certificate or NSC is one of the most popular tax-saving instruments that are available to Indian citizens. The maturity period for this scheme is five years and ten years. The interest in this scheme is compounded semi-annually. The amount invested in this scheme is eligible for tax deductions.
Sukanya Samriddhi Scheme
One can open a Sukanya Samriddhi account for a girl child at any time from the date of her birth to the day she turns 10 years old. One can invest a minimum of INR 1,000 and a maximum of INR 1.5 lakh in a financial year. The interest acquired through this scheme is eligible for tax exemption.
Unit Linked Insurance Plans (ULIPs)
These insurance plans provide coverage to the policyholder and substantial returns in the long term. These plans have become very popular over the years as it helps investors save a lot of money. Tax benefits are also provided in these schemes.
Repayment of the Principal Amount of Home Loan
The EMI amount that goes towards the repayment of the principal amount on a home loan is also eligible for tax deductions under Section 80C of the Income Tax Act. The repayment of the home loan amount has two components, including the principal amount and the interest. One cannot claim the interesting part under deduction but the principal amount can be claimed under deduction.
Registration Charges and Stamp Duty for Home or Property
If an individual purchases a home or a property and pays for stamp duty and registration, then these amounts can be claimed as tax deductions. This is applicable under Section 80C of the Income Tax Act.
Infrastructure Bonds
As the name indicates, infrastructure bonds are issued by infrastructure companies. One can claim a tax deduction of up to INR 1.5 lakh if he or she invests in these bonds.
Senior Citizen Savings Scheme
The Senior Citizen Savings Scheme is the best possible investment scheme for senior citizens. The returns are rather lucrative in this scheme in comparison to other schemes. The interest in this scheme is paid on a quarterly basis. One has to be over the age of 60 years to invest in this scheme and claim tax benefits.
What is the Right Time to Claim Deductions Under Section 80C of the Income Tax Act?
A lot of people tend to start making investments towards the end of a financial year to just claim tax deductions. However, this is not the right strategy. According to tax experts, investments give the best yield when they are made during the start of a financial year. This will ensure that an individual is making the right informed decisions.
