Section 80C: Deduction for Tax-Saving Investments

Important Keyword: ELSS, EPF, Fixed Deposit, NSC, PPF, Section 80C.

Section 80C: Deduction for Tax-Saving Investments

Under the Income Tax Act, taxpayers can reduce their total tax liability by investing in certain sectors or making specific expenses. The government provides taxation benefits to encourage investments in these sectors. One such benefit is Section 80C, which allows individuals and Hindu Undivided Families (HUFs) to claim deductions for specified investments and expenses.

Investments Eligible for Section 80C Deduction

1. Sec 80CCC – This subsection covers deductions for contributions to certain pension funds.
2. Sec 80CCD – This subsection provides deductions for contributions to the National Pension System (NPS) and includes two parts:
   • Sec 80CCD(1) – Covers individual contributions to NPS.
   • Sec 80CCD(2) – Covers employer contributions to NPS.

The maximum limit for deduction under Section 80C, including 80CCC and 80CCD(1), is INR 1,50,000. However, there is an additional deduction available for NPS Tier I investments under Section 80CCD(1B), which is not subject to the INR 1,50,000 limit and allows for an extra deduction of up to INR 50,000.

Investments Eligible for Sec 80C Deduction

Here is a list of investment options eligible for claiming deduction under Section 80C, applicable only if opting for the Old Tax Regime:

1. Contribution to ELSS (Equity Linked Saving Scheme):
   • Investments in ELSS, a tax-saving mutual fund, qualify for deduction under Section 80C.
   • These funds have a lock-in period of 3 years.
   • ELSS typically offers higher returns compared to Fixed Deposits (FD), Public Provident Fund (PPF), or National Pension System (NPS).
2. Contribution to Employees Provident Fund (EPF):
   • Employees with a basic salary above INR 15,000 per month can contribute 12% of their salary to EPF.
   • These contributions are deductible under Section 80C.
   • The current EPF interest rate is 8.15% p.a.
   • Interest on contributions exceeding INR 2,50,000 per year for non-government employees and INR 5,00,000 for government employees is taxable.
   • Withdrawals before 5 years are also taxable.
3. Investment in Public Provident Fund (PPF):
   • Government-backed with a fixed interest rate of 7.1% p.a.
   • Individuals can invest between INR 500 and INR 1,50,000 per financial year.
   • The lock-in period is 15 years, extendable by 5 years.
   • Partial withdrawals are allowed after 7 years.
   • PPF falls under the EEE (Exempt, Exempt, Exempt) category, making deposits, interest, and withdrawals tax-exempt.
4. Investment in Pension Fund by UTI:
   • Investments in pension funds set up by mutual funds or UTI are deductible under Section 80C.
5. Investment in National Savings Certificate (NSC):
   • Administered by Indian Post with an interest rate of 7.7%.
   • No upper limit for investment, but the maximum deduction is INR 1.5 Lakhs.
   • The lock-in period is 5 years.
   • Interest earned is taxable.
6. Investment in Tax-Saving Fixed Deposit:
   • Banks and financial institutions offer tax-saving fixed deposits with a lock-in period of 5 years.
   • The deposited amount is deductible under Section 80C.
   • Interest earned is taxable.
7. Investment in Sukanya Samriddhi Yojana:
   • Designed for the benefit of girl children.
   • Parents or guardians can invest until the girl child turns 10.
   • The scheme offers 8.2% interest per annum.
   • Investment and interest amounts are deductible and exempt, respectively.
8. Investment in Unit Linked Insurance Plan (ULIP):
   • Combines insurance and investment.
   • Investments can be made for self, spouse, or children.
   • Deduction under Section 80C is available up to INR 1.5 Lakhs.
   • Returns depend on market performance, and withdrawals and maturity amounts are not taxable.
   • If the annual premium exceeds INR 2,50,000 in any policy year, amounts received will be taxable.
9. Senior Citizen Savings Scheme (SCSS):
   • Available to individuals aged 60 and above, or those aged 55 and retired.
   • Offers 8.2% interest per annum.
   • The deposit has a lock-in period of 5 years and is eligible for deduction under Section 80C.

Payments Eligible for Sec 80C Deduction

Here are the payments eligible for claiming deduction under Section 80C of the Income Tax Act:

1. Life Insurance Premium:
   • Taxpayers can claim deduction for life insurance premiums paid for themselves, spouse, or children.
   • Deduction is allowed up to 10% of the sum assured for policies issued after 1st April 2012.
   • For policies issued before 1st April 2012, deduction can be claimed up to 20% of the sum assured.
2. Home Loan Repayment:
   • Deduction is available for repayment of the principal amount on a home loan taken for purchase or construction of residential property.
   • Also includes deductions for stamp duty, registration expenses, and transfer expenses.
   • Taxpayers must retain ownership of the property for at least 5 years to claim the deduction. Selling before 5 years requires treating previously claimed deductions as income.
3. Children’s Tuition Fees:
   • Deduction can be claimed for tuition fees paid for up to two children.
   • Applicable to fees paid to any school, college, university, or educational institution in India for full-time courses.
   • Fees for private coaching or donations are not eligible.
4. Other Deduction Options:
   • Subscription to bonds issued by NABARD.
   • Contribution to deposit schemes or pension funds of NHB (National Housing Bank).
   • Contribution to Approved Superannuation Fund.
   • Contribution to annuity plans like Jeevan Dhara, Jeevan Akshay, etc., of LIC or other insurers approved by the government.
   • Investments in notified deposit schemes of Public Sector Housing Finance Companies and Housing Development Authorities.

Supporting Documents

No documents are required for filing an Income Tax Return (ITR). However, for salaried individuals and others, along with Form 16, the following documents need to be maintained:

• Receipts of Life Insurance Premium payments
• Receipts of Deferred Annuity payments
• Accrued Interest receipts from NSC
• Provident Fund contribution receipts
• Term Deposit receipts of 5 years or more with scheduled banks
• Public Provident Fund contribution receipts
• Senior Citizen Savings Scheme deposit receipts
• Superannuation Fund contribution receipts
• Tuition Fees receipts
• Investment receipts for debentures/shares of companies approved by CBDT, etc.

Read More: Section 80CCD: Deduction for Contribution to Pension Fund

Web Stories: Section 80CCD: Deduction for Contribution to Pension Fund

Official Income Tax Return filing website: https://incometaxindia.gov.in/