Section 80C Deductions

Income Tax Deductions Under Section 80C

While working hard to earn a comfortable income, we never want to slip into the grip of taxation. But when the tax season rolls around, we panic to save as much tax as possible. What if we tell you there's a way you can reclaim some of that hard-earned money? Or, if you already are a taxpayer, you can increase your investments to save on taxes payable. 

That's where Section 80C is designed to offer you the power to save on taxes while boosting your savings. But how does Section 80C help you save taxes? What are the investment options under Section 80C? This blog discusses Section 80C deductions in detail. 

What is Section 80C of the Income Tax Act 1961?

Section 80C of the Income Tax Act, 1961 highlights various expenditures and investments that an individual can make to save taxes on their total income. You can claim a maximum deduction of Rs. 1.5 Lakhs from the total taxable income while filing your annual income tax return (ITR). 

Who is Eligible to Get Tax Benefits under Section 80C?

Section 80C deductions apply only to individual taxpayers and Hindu Undivided Families (HUFs). Other businesses, corporate bodies, partnerships, and firms cannot avail of tax exemption under Section 80C. 

Let’s understand how an individual benefits from Section 80C deductions with an example. 

Assume you earn a gross total of Rs. 7,00,000 as a taxable income during 2022-23. Now, in the next assessment year, 2023-24, you will have to estimate and pay the applicable taxes on the income. If you invest Rs. 1,00,000 of this income in one or more investment instruments as listed under Section 80C of the Income Tax Act, 1961, your total taxable income becomes Rs. 6,00,000.  

What are the Subsections Under Section 80C? 

There are several subsections of Section 80C to make it easier to identify different investment plans and avail of Section 80C deductions. Let’s have a look at all these subsections and applicable deductions in the following table:

How to Avail Tax Deductions Under Section 80C?

An individual can initiate the following investments to avail of Section 80C benefits: 

• Investing money into different assets as listed under Section 80C and getting it back after a definite period of time 
• Save taxes on spending like home loans, tuition fees for children, etc 

Let’s understand the nature of the investment made and the details under different investment assets: 

* The information provided above is intended for general informational purposes only and may change without any prior update. 

** The interest rate under ULIP and ELSS depends on the market performance.

Tax-Saving Investments Under Section 80C Deduction 

An individual can choose from the following tax-saving instruments eligible for Section 80C deduction:

Life Insurance Policies

• Section 80C tax deductions are available against the life insurance policies purchased for self, spouse, dependent child, etc.  
• The premiums paid towards the life insurance policies are eligible for tax deductions of up to Rs. 1.5 Lakhs under Section 80C of the Income Tax Act, 1961. 
• Additionally, the returns or tax benefits received on a life insurance policy are tax exempted under Section 10 (10D) of the Income Tax Act. 

Public Provident Fund (PPF)

• Any deposits made towards Public Provident Funds (FDs) are eligible for tax deduction under Section 80C. 
• Under such investment, an investor can claim up to Rs. 1.5 Lakh deductions under Section 80C of the Income Tax Act, 1961. 
• Any voluntary contribution to the PPF is eligible for Section 80C tax deduction. 

Employee Provident Fund (EPF)

• The funds deposited towards EPF are eligible for tax deductions of a maximum of Rs. 1.5 Lakhs under Section 80C.
• The benefits received from the EPF, including the interest, are eligible for tax deductions 80C. 
• The employees who have continued their service for at least 5 years are eligible for tax exemption under EPF. 

Equity Linked Saving Scheme (ELSS) Funds

• The fund invested towards ELSS gets a tax deduction of up to Rs. 1.5 Lakhs under Section 80C. 
• ELSS comes with a mandatory lock-in period of 3 years, during which the investor cannot withdraw the contributions. 

National Savings Certificates (NSC)

• The government-initiated tax saving instrument, NSC, helps you save on taxes a maximum of Rs. 1.5 Lakhs every financial year under Section 80C of ITA. 
• The interest earned (calculated semi-annually) under NSC is eligible for tax deduction under 80C. 
• The maximum maturity period of NSC is 5 to 10 years. 

Sukanya Samriddhi Yojana (SSY)

• SSY is a government-initiated savings scheme specially designed to meet the financial needs of a girl child. 
• Under this scheme, the individual can avail of a maximum of Rs. 1.5 Lakhs tax deductions under Section 80C. 
• Also, the interest earned is eligible for tax exemption. 

Unit Linked Insurance Plans (ULIPs)

• Unit linked insurance plan is an insurance cum investment plan offering good long-term returns. 
• Premiums paid towards the ULIPs are tax exempted under Section 80C of the Income Tax Act, 1961. 
• Investors can avail of tax benefits of up to Rs. 1.5 Lakhs on the invested amount. 
• The returns earned under ULIPs are tax exempted under Section 10 (10D) of the Income Tax Act.

Tax Savings Fixed Deposits

• Both banks and post offices offer tax-saving fixed deposit schemes that allow tax deductions under Section 80C of the Income Tax Act.
• These FDs have a lock-in period of at least 5 years, where the individual can enjoy fixed returns. 
• The deposits made towards FDs are eligible for tax deduction under Section 80C. 
• The returns under FDs of a 5-year lock-in period are eligible for tax exemption.  

NABARD Rural Boards

• The National Bank for Agriculture and Rural Development offers Rural Bonds that are eligible for tax deductions. 
• An investor can avail of tax benefits of up to an amount of Rs. 1.5 Lakhs under Section 80C of the Income Tax Act, 1961. 

Infrastructure Bonds

• If an investment of at least Rs. 20,000 is made towards infrastructure bonds, then the investor can enjoy a tax deduction. 
• A maximum of Rs. 1.5 Lakhs tax benefits are available under Section 80C of the Income Tax Act, 1961. 

Senior Citizens Savings Scheme (SCSS)

• An individual at the age of 60 is eligible to contribute towards the Senior Citizens Savings Scheme (SCSS). Tax benefits are allowed under Section 80C for Senior Citizens. 
• The investment made towards SCSS with a minimum lock-in period of 5 years is eligible for tax benefits of up to Rs. 1.5 Lakhs under Section 80C. 

Expenses Eligible for Section 80C Tax Deduction

Other than the abovementioned investment options, some expenses made during the year can also provide tax benefits under Section 80C. 

Deduction Under Section 80C for Home Loan

The repayment made towards the home loan EMIs is eligible for deduction under Section 80C, fulfilling the following conditions:

• Tax exemptions can be claimed only after the completion of property construction. 
• The tax exemptions are not provided if the property is transferred within 5 years of purchase.

Section 80C for Registration Charges and Stamp Duty

While investing in a property, the stamp duty and registration charges are a major expense. However, the investor can claim the tax deductions under Section 80C limit. 

Rebate Under Section 80C for NRI

If the NRI invests in life insurance policies, repays children's tuition fees, principal repayment on loans, ULIP, and ELSS, etc., they can avail of the tax deduction under Section 80C. 

Deduction Under Section 80C for Tuition Fees

During a financial year, an individual paying any fee towards the education of their child can claim up to Rs. 1.5 Lakhs under Section 80C.  

How Much Deduction Allowed Under Section 80C?

The Government of India has set limits for deductions under Section 80C. From all the investment options mentioned above, an individual can claim a combined benefit of up to Rs. 1.5 Lakhs under Sections 80C, 80CCC, 80CCD (1). However, the investor can increase the total deduction amount by Rs. 50,000 under Section 80CCD. Also, the investment of up to Rs. 50,000 towards NPS could help you with the additional tax savings under Section 80CCD (1B). 

How to Claim Section 80C Deductions?

To claim tax benefits under 80C, the investor must fill in ITR-1, which contains a detailed breakup column specifying various sections of the Income Tax Act. You can claim the following common deductions under Section 80C, 80CCC, and 80CCD (1):

• Life insurance policy premium
• Repayment of principal amount of housing loan
• Investments made in PPF, EPF, and VPF
• Deposits made under ELSS of mutual funds
• Investments in schemes like Sukanya Samriddhi Yojana, NSC, SCSS, etc.

Bottom Line

Section 80C of the Income Tax Act works as a tax saviour for salaried employees in India. Not only does it provide tax-saving benefits, but also builds a sufficient corpus with long-term investments. These deductions benefit individuals and families and help economic growth and development. 

For more details on how to save on taxes under Section 80C, you can consult a professional tax advisor.

Frequently Asked Questions

Is Section 80C applicable to senior citizens?

1. Senior Citizens Savings Scheme (SCSS) is one of the most efficient options for senior citizens to invest and gain tax benefits under Section 80C. 

Is Section 80CCC a part of Section 80C?

1. Deductions made under 80CCC are a part of overall deductions under Section 80C. Combining all the exemptions under Section 80C, 80CCC, and 80CCD, an individual can save up to Rs. 1.5 Lakhs on taxes in a financial year.

How to save tax apart from Section 80C?

1. Apart from Section 80C, the investor can gain tax benefits under Section 80D, 80DD, 80DDB, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, 80TTA, and 80RRB.

How do you calculate Section 80C tax deduction?

1. To calculate the tax deduction under 80C, the investor needs to understand what investments qualify for the deduction and up to what extent. Remember, the combined benefits of multiple investments can be up to Rs. 1.5 Lakhs per year.  

What investment options fall under Section 80C?

1. Some common eligible investments and expenses under Section 80C are as follows:

• Unit Linked Insurance Plans (ULIPs)
• Provident Fund contributions
• National Pension System (NPS)
• Equity Linked Saving Schemes (ELSS)
• Tuition fee for two children
• Home loan principal repayment

Can I invest in multiple investment schemes to avail of a tax exemption of Rs. 1.5 Lakhs each?

1. No, regardless of investment made under a number of policies, an investor can only claim a maximum of Rs. 1.5 Lakhs in a financial year of combined benefit under Section 80C of the Income Tax Act, 1961. 

Are donations eligible for tax exemption under Section 80C?

1. No, donations towards specific institutions and firms are not eligible for gaining 80C benefits instead of under Section 80G.