Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF. A maximum of Rs 1, 50,000 can be claimed for the FY 2018-19, 2017-18 and FY 2016-17 each.
The categories for investment are listed below.
Life insurance premium for policy for yourself, your spouse and any dependent child. In case of HUF, on life of any member of the HUF.
Contributions made under EPF
Contribution to Public Provident Fund Account in the name of – self, spouse or any child. In case of HUF, any member of HUF.
Contribution by an employee to a recognised provident fund.
Contribution by an employee to an approved superannuation fund.
Subscription to any notified security or notified deposit scheme of the Central Government. For this purpose, Sukanya Samriddhi Account Scheme has been notified vide Notification No. 9/2015, dated 21.01.2015. Any sum deposited in Sukanya Samriddhi Account by an individual would be eligible for deduction.
Subscription to notified savings certificates [National Savings Certificates (VIII Issue)]
Contribution for participation in unit-linked Insurance Plan of UTI in the name of – self, spouse or any child. In case of HUF, any member of HUF.
Subscription to notified deposit scheme or notified pension fund set up by National Housing Bank [Home Loan Account Scheme/National Housing Banks (Tax Saving) Term Deposit Scheme, 2008].
Payment made towards notified annuity plan of LIC (New Jeevan Dhara/New Jeevan Dhara-I/New Jeevan Akshay/New Jeevan Akshay-I/New Jeevan Akshay-II/Jeewan Akshay-III plan of LIC) or other insurer.
Subscription to any units of any notified [u/s 10(23D)] Mutual Fund or the UTI (Equity Linked Saving Scheme, 2005).
Contribution by an individual to any pension fund set up by any mutual fund which is referred to in section 10(23D) or by the UTI (UTI Retirement Benefit Pension Fund).
Subscription to any units of any approved mutual fund referred to in section 10(23D), provided amount of subscription to such units is subscribed only in ‘eligible issue of capital’ referred to above.
Term deposits with a lock-in period of at least 5 years with a scheduled bank, and which is in accordance with Scheme 11.
– Subscription to notified bonds issued by the NABARD.
Deposit in an account under the Senior Citizen Savings Scheme Rules, 2004 (subject to certain conditions)
What Expenses Qualify for Tax Deductions under Section 80C?
Apart from the investments mentioned above, the Income Tax department also specifies a few expenses for which you are allowed to claim deduction under 80C.
Here is the list for the expenses.
Sum paid under a contract for a deferred annuity in the name of self, spouse or any child. In case of HUF, any member of HUF.
Expenses deducted from salary payable to government servant for securing deferred annuity or making provision for your wife/children (the qualifying amount is limited to 20% of your salary).
Amount paid as tuition fees (excluding development fees, donations to educational institutes, etc.) to any university, college, school or other educational institution situated in India, for full time education of any 2 of your children.
Payments made in for overhead cost, stamp duty and registration for the purchase or construction of residential property.
Availing notified schemes or home loan from a. public sector companies engaged in providing long-term finance for purchase/construction of houses in India for residential purposes and b. authority constituted under any law for satisfying need for housing accommodation or for planning, development or improvement of cities, towns and villages, or for both. Your principal repayment as expenses towards these schemes or your home loan is allowed for deduction under 80C.
Section 80C of Income Tax Act is a key tax shelter for most individuals. Here are a few avenues you can tap:
Life Insurance Premium
Public Provident Fund (PPF)
Employees’ Provident Fund (EPF)
Sukanya Samriddhi Yojana (SSY)
National Saving Certificate (NSC), including accrued interest
5-Year fixed deposits with banks, Post Office, HUDCO and NHB
Senior Citizens Savings Scheme (SCSS)
National Pension System (NPS)
Unit-Linked Insurance Plans (ULIPs)
Equity Linked Savings Schemes (ELSS)
Tuition fees paid for children’s education (maximum 2 children)
Principal repayment on Housing Loan
All investments and expenses put together, one can avail of deduction up to Rs 1.5 lakh per financial year.
Each one of these come with some condition. It is better to know the same before committing your hard-earned money.
Some of these conditions are as follows.
ULIPs come with a five-year lock in period and one can avail of tax benefit if the sum assured is at least 10 times the annual premium paid.
Tax saving bank fixed deposits, SCSS and NSC come with a five-year term. For NSC, the interest earned on the first four years is deemed to be reinvested and eligible for tax deduction.
Meanwhile, investments in ELSS are subject to lock-in of three years.
Then there is option of PPF which comes with a tenure of 15 years and can be extended by five years at a time. The rate payable on PPF is reviewed every quarter. Contribution to recongnised EPF by salaried employee fetches tax benefit under section 80C. Contribution by employer does not fetch tax benefit to employee.
Under Section 80CCD(1), investment in NPS up to Rs 1.5 lakh qualifies for income tax deduction. However, total amount of deduction under sections 80C, 80CCC (investment in pension plan offered by an insurer) and Section 80CCD (1) (for NPS) cannot exceed Rs 1.5 lakh.
You can invest up to Rs 50,000 in NPS which fetches deduction under Section 80CCD (1B) of the Income Tax Act, 1961. This deduction is in addition to Rs 1.5 lakh allowed under Section 80CCD (1).
Sukanya Samriddhi Yojana (SSY) is a scheme meant for a girl child and allows partial withdrawal of funds when the girl child attains the age of 18 years. Remaining money can be withdrawn when the girl child is 21 years of age.
Home loan principal repayment up to Rs 1.5 lakh is eligible for tax break under section 80C if the construction of the property is complete. The benefit is reversed if you sell the property within five years of possession.