Section 80C - Deductions List Under Section 80C In India | SBI Life

Section 80C: Understanding Deductions Under Section 80C

Before you file your income tax returns, your chartered accountant or CA will ask you a few questions like the following:

1. How much was your income or salary from your job?
2. Do you have any other source of income other than your employment?
3. What different investment instruments have you used?

Investments form a core part of financial planning. They also play a very important role in tax planning, as your investments can help in tax deductions.

One of the most important sections that aid in this is Section 80C of the Income Tax. So what is Section 80C in Income Tax, and which deductions are covered under it?

What is Section 80C?

Section 80C deductions allow individuals to exempt certain investments and expenditures from the tax computation and tax liability. According to the Income Tax Act, ’Deduction in respect of life insurance premium, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc.’ can be claimed under Section 80 C

Investment instruments like Unit Linked Insurance Plans, Public Provident Funds (PPF), Pension Plans like National Pension System (NPS), Term Life Insurance Plans, etc., can help in acquiring tax deductions.

One must remember that most investment plans come with a lock-in period and must remain invested until its completion to gain any tax benefit.

Explaining Section 80C with an example

In the Financial Year 2020-2021, Anirudh Dasgupta earned Rs. 20,00,000 as salary. As part of his tax saving initiative, he had invested Rs. 75,000 in PPF, Rs. 30,000 in a tax saving fixed deposit, and Rs. 45,000 in an ELSS fund.

When the time to pay his tax came around, his accountant asked him to submit all his investments for Assessment Year 2021-2022. Based on the calculations, Anirudh’s accountant told him his taxable income amount would be Rs. 18,50,000.

Anirudh’s investment of Rs. 1,50,000 in various investment schemes is a part of the Section 80C deduction list, and the limit for Section 80C is Rs. 1.5 lakhs per year.

The entire purpose of section 80C was to encourage savings among citizens while providing tax breaks as an incentive. It can be claimed by individuals and HUF only and not by companies or organisations.

While these investments are broadly classified under one section, that is, Section 80 C, they are further bifurcated as Section 80CCC, 80CCD(1), and 80CCD(2).

How to avail tax deductions under Section 80C?

To know how to avail tax deductions under 80C, you need to know a few things about where you can invest your money:

1. Money can be invested in investment instruments that have a fixed holding period like Public Provident Funds, Bank Fixed Deposits, Employee Provident Funds, National Savings Certificates (NSC), etc. After completing the holding period, you get the invested amount back.
2. Money can also be spent as an investment, where returns may or may not give monetary returns like your children’s tuition fees, home loan principal amount, etc.

Some of the investments under category one that can aid in availing a deduction under Section C are as follows:

Also included in Category 1 are some market-linked instruments:

Under Category 2, you can claim a tax deduction from the following spending activities:

Even if you have not invested in an investment product, you have the option of claiming tax deduction by showing receipts of your children’s school or tuition as well as the principal repayment amount of your home loan if it is within the mentioned limit of Rs. 1.5 lakhs.

In Anirudh’s case, he has invested his funds in various instruments and market-linked products. This helps him claim a tax deduction in the current assessment year.

The ideal time to start an investment for tax saving is at the beginning of each financial year. This gives you a chance to spread out your payments across the year, thus reducing the stress of making a single payment near the end of the year.

Keep in mind that different investment instruments have different holding periods. It means that you will need to remain invested in the chosen products till the holding period is completed to enjoy tax exemption under 80 C.

Looking at some of the products mentioned above

If one does not meet the minimum holding period, the claimed tax deduction will be reversed. They will be asked to pay the applicable tax liability during the assessment of the current financial year.

Who is eligible for an 80C deduction?

Deductions under Section 80C can be enjoyed by individuals and Hindu Undivided Families (HUF).

How much can be claimed under Section 80C?

Each income tax exemption and deduction section has a set limit. This specifies the amount that can be deducted from your taxable income. Under section 80C, individuals can claim Rs. 1,50,000/- from their investments.

What is the maximum tax exemption under Section 80C?

Rs. 1,50,000 is the maximum tax benefit under 80C that you can claim. However, you also have the option of availing an additional Rs. 50,000/- when you contribute to an investment like NPS under Section 80CCD(1B).

How much should I invest to save tax?

This primarily depends on your taxable income. Tax savings can be availed by investing in instruments categorised under Section 80C and other sections.

• To claim an 80 C deduction of Rs. 1,50,000, invest in instruments that promote saving like PPF, ELSS, life insurance, etc.
• You can also save an additional Rs. 50,000 by investing in NPS that falls under Section CCD (1B).
• Apart from this, you can get more tax benefits of Rs. 25,000 by buying medical insurance for yourself and your family. This amount increases to Rs. 50,000 if you buy medical insurance for senior citizens above the age of 60. This falls under Section 80D.
• Other than these sections, some of the sections of the Income Tax Act where you can claim tax deductions are:
  • Section 80DDB (Actual expenses incurred on medical or up to Rs. 40,000 if the individual or the family member is less than 60 years of age. Suppose the person is more than 60 years of age. In that case, the amount increases up to Rs. 1 lakh or at actuals)
  • Section 80TTA (Interest Income from the savings account of up to Rs. 10,000)
  • Section 80TTB (Interest Income from post office bank of up to Rs. 50,000. This is applicable for senior citizens only)
  • Section 80E (Interest for eight years paid on education loan)
  • Section 80EE (Interest of Rs 50,000 paid on home loan for first-time homeowners)
  • Section 80G (Donation to social causes of up to Rs 2000)

Is PF counted in 80C?

When it comes to pension funds or PF, Employee pension funds (EPF) and Personal Pension Funds (PPF) are usually considsered.

Contribution of Rs. 1.5 lakhs for a given financial year in a provident pension fund, or PPF, is allowed as a tax exemption under Section 80C.

EPF, or Employee Provident Fund, is the government's retirement savings fund. Under this scheme, a portion of your income is invested in a pension fund account every month. The employer and the employee contribute a certain percentage of the income into this account.

The employee’s contribution to the provident fund account is considered an exemption under Section 80C of the Income Tax Act. So even if you do not invest in other tax-saving instruments, you can check your PF balance at the end of each financial year to enjoy tax benefits.

Blind investment of funds can be a risky proposition. There are always chances that you may end up locking your money or being unable to claim any tax deduction. Hence, before you choose an investment instrument, check our tax saving plans.