Guide on section 80C deductions

Section 80C of the Income Tax Act allows you to save taxes by making investment in several options listed below. Under section 80C, you can claim maximum tax deduction up to Rs. 1,50,000.

Some popular investment avenues are mentioned below:

Provident Fund:

Employees' Provident Fund (EPF) is a retirement benefit scheme that's available to all salaried employees. This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO. Alternatively, company can manage the Employees' Provident Fund balances through its own trust formed for this purpose.

Eligibility:

  • If the employer has 20 or more employees, it is mandatory for the organization to join the Employees' Provident Fund scheme.

  • If the employee’s basic salary exceeds Rs. 15,000/- per month, he has an option to join the scheme.

Liquidity:

  • In general, you cannot withdraw the PF balance till you continue to work.

  • In case, you quit the job and do not take up employment within two months with an employer covered by PF Act, then you can withdraw the entire balance.

  • Partial withdrawals from PF accounts are allowed in some exceptional cases like serious ailment or marriage (self/ sibling’s/ children’s) or purchase/construction of dwelling house, etc.

ROI:

Current rate of interest is 8.1% p.a. to be realigned on quarterly basis.

Investment limit:

  • Both employer and employee has to contribute minimum 12% of Basic Pay + D.A.

  • Employee can voluntarily increase his own contribution up to 100% of Basic Pay + D.A.

Tax treatment:

  • Your own contribution to PF is eligible for tax deduction u/s 80C.

  • Employer’s contribution to PF account up to 12% of salary is tax exempt.

  • Both interest income and maturity amount are exempt from tax.

Public Provident Fund:

Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate and returns that are fully exempted from tax.

Eligibility:

A Public Provident Fund (PPF) account can be opened by Resident Indian individuals either in their own name or in the name of minor child. It can be opened by both salaried and non-salaried individuals.

Liquidity:

  • Maturity period of a PPF account is 15 years but can be further extended by 5 years.

  • Partial withdrawals allowed after 7 years.

  • PPF account cannot be closed any time before completion of 15 years term except in case of death of the account holder.

  • Customers can avail of the loan facility between third Financial Year to sixth financial year.

ROI:

  • Current rate of interest is 8.1% p.a. to be realigned on quarterly basis.

Investment limit:

  • Minimum investment limit is Rs. 500.

  • Maximum investment limit is Rs. 1,50,000.

  • There is a penalty of Rs. 50 for failing to deposit the minimum investment amount.

Tax treatment:

  • While your investments are eligible for tax deduction u/s 80C.

  • Both interest income and maturity amount are exempt from tax.

Sukanya Samriddhi Scheme:

Sukanya Samriddhi Scheme is one of the best investment options available today which offers tax deduction to investors u/s 80C. It can be opened by parents/ guardians of a girl child.

Eligibility:

  • Parents/guardians can open account in the name of a girl child till she attains the age of 10 years.

  • Maximum of two accounts can be opened by natural or legal guardian for 2 different girl children only.

  • There is a penalty of Rs. 50 for failing to depIn case of 2nd birth being twin girls, or in case of triplets in first birth itself, the guardians are allowed to open 3 accounts.

  • Account can be opened at public sector banks and post offices.

ROI:

Rate of interest currently being offered is 8.6%.

Investment limit:

  • Minimum & maximum investment limit is Rs. 1,000 & Rs. 1,50,000 p.a. respectively.

  • There is a penalty of Rs. 50 for failing to deposit the minimum investment amount.

Liquidity:

  • Deposit should be made every year till the end of 14 years from the year of opening the account.

  • Maturity period is 21 years.

  • Once the girl child attains the age of 18 years, partial amount can be withdrawn prematurely.

  • Premature withdrawals will be allowed in case exceptional medical emergency.

Tax treatment:

  • Your investments are eligible for tax deduction u/s 80C

  • Interest income earned is tax free.

  • Maturity amount received is also exempt from tax.

Equity Linked Savings Scheme:

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that doesn't just help you save tax, but also gives you an opportunity to grow your money at comparatively faster rate. It also qualifies for tax exemptions under section (u/s) 80C of the Income Tax Act.

Eligibility:

Anyone with a Demat account can invest in ELSS through online mode alternatively you can invest through manual mode by filling up a KYC form.

Liquidity:

  • Minimum lock-in period for this scheme is 3 years.

  • You can opt for dividend payout option if you need regular income.

ROI:

  • As the return on investment is directly linked to stock market performance, in the long run ELSS has wide potential to provide you the best return on your investments.

  • It is more suitable for the person with appetite to take a bit more risk due to market factors.

Investment limit:

  • The minimum investment limit is Rs. 500.

  • There is no upper limit for investment in this scheme.

  • Investment can be in lump-sum or through Systematic (SIP) mode.

Tax treatment:

  • Investment made in ELSS qualifies for deduction u/s 80C.

  • Dividends and long-term capital gains are tax free.

National Savings Certificate:

National Savings Certificate is a postal department’s saving scheme and ranked as ‘highly secured’ in the class of Investments. It is a ‘fixed duration’ saving scheme. The investment in NSC qualifies for deduction under section 80C.

Eligibility:

Non-residents cannot invest in this scheme.

Liquidity:

Currently NSC comes with a lock-in period is 5 years.

You can avail the loan against the security of NSC.

ROI:

Interest rate is 8.1% compounded six monthly.

Investment limit:

  • Minimum investment limit is Rs. 100.

  • There is no maximum investment limit.

  • Certificates are issued in the denomination of Rs. 100, 500, 1,000, 5,000 & 10,000.

Tax treatment:

Interest accrued on the amount invested in NSC is taxable. But it is considered as fresh investment in NSC and will be eligible for tax deduction u/s 80C.

Senior Citizens Savings Scheme:

This investment scheme is offered by the government to senior citizens & offers lucrative returns. It is one of the safest investment options available today.

Eligibility:

  • An individual aged 60 years or more is allowed to open the account.

  • An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS is also permitted to open account if it satisfies 2 conditions. First, the account is opened within one month of receipt of retirement benefits. Second, investment amount should not exceed the amount of retirement benefits.

Liquidity:

  • Maturity period is 5 years.

  • The account can be extended for three more years after maturity.

  • Premature withdrawal after 1 year is allowed on deduction of an amount equal to 1.5% of the deposit and after 2 years by deducting 1% of the deposit.

ROI:

Interest rate offered is 8.6% which is paid on quarterly basis.

Investment limit:

  • Minimum investment limit is Rs. 1,000.

  • Maximum investment limit is Rs. 15 lakh.

Tax treatment:

  • Interest income is taxable and taxes will be deducted at source if it is more than Rs. 10,000 p.a.

  • Maturity amount is exempt from tax.

5 year post office time deposit account:

Five year fixed deposits can be opened with any branch of Indian Post Office. These deposit accounts work like any other fixed deposit account except that they have a lock-in period of five years and offer the double benefit of return on investment and tax deduction.

Eligibility:

Account may be opened by individual.

Liquidity:

Maturity period is 5 years.

ROI:

Rate of interest is 7.9%.

Investment limit:

  • Minimum investment limit is Rs. 200.

  • There is no upper limit to investment.

Tax treatment:

  • Investment qualifies for 80C deduction.

  • Interest earned under this scheme is fully taxable.

  • Maturity amount is exempt from tax.

5 year tax saving bank fixed deposits:

Tax saving fixed deposit is a type of fixed deposit investment in which can get you tax deduction under section 80C of the Indian Income Tax Act.

Eligibility:

  • All resident individuals can open account.

  • Senior citizens above the age of 60 years are also eligible to open a tax saver fixed deposit account.

Liquidity:

Maturity period is 5 years.

ROI:

The interest rates vary from time to time. You can check the latest interest rates with the respective bank where you intend to invest.

Investment limit:

  • Minimum investment limit is Rs. 1000.

  • No upper limit for investment.

Tax treatment:

  • Investment is eligible for deduction u/s 80C.

  • Interest income is taxable.

  • Maturity amount is exempt from tax.

Life insurance premium:

A taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim deduction under section 80C in respect of premium paid by him on any life insurance policy during the year.

Conditions:

  • In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children.

  • In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF.

  • Premium paid on insurance policy should not exceed 10% of the actual capital sum assured if policy is taken on or after 1st April 2012.

  • Premium paid should not exceed 20% of capital sum assured if policy is issued from 01st April 2003 and on or before 31st March 2012.

  • Premium paid on insurance policy should not exceed 15% of the actual capital sum assured where the policy, issued on or after the 1st day of April, 2013 and is for life insurance of any person, who satisfies the given conditions:

  1. a person with disability/severe disability u/s 80U, or

  2. a person suffering from specified disease or ailment u/s 80DDB.

Eligibility:

All individuals and HUF can invest in insurance policy on the life of the specified persons.

Liquidity:

If you are invested for minimum 2 years then the withdrawals will be exempt from tax u/s 10 but generally you will have to pay the premium for minimum 3 years before you can surrender it.

ROI:

Average return on the life insurance policies ranges between 5-6%.

Investment limit:

  • Minimum investment amount depends on your entry age and life cover.

  • No upper limit for investment.

Tax treatment:

  • Investment is eligible for deduction u/s 80C.

  • Maturity amount is exempt from tax u/s. 10 (10D).

Children’s education expenses:

Any individual (not HUF) can claim expenses incurred on his children’s education u/s 80C.

  • Deduction can be claimed for max 2 children.

  • Deduction is available for full-time courses and the institute where the child studied must be located in India.

  • Fees paid for private tuition or coaching classes cannot be claimed for deduction.

  • Deduction is available only for the tuition fees paid during the year and other fees like Development Fees; Term Fees; Hostel Fees; Library Fees, etc. are not eligible for deduction under this section.

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Stamp duty & registration charges:

If you have purchased a house property, you can get tax deduction on Stamp Duty and Registration Charges under section 80C up to maximum of Rs. 1.5 lakh. These can be claimed for the F.Y. in which the property was booked.

  • This deduction can only be claimed in the year in which stamp duty is actually paid.

  • Individual and a HUF both can claim this deduction.

  • If the property is acquired by the joint owners both can claim the deduction in the ratio.

Home loan principal repayment:

The amount paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is allowed as tax deduction under Section 80C of the Income Tax Act.

This tax deduction under section 80C is available on payment basis irrespective of the year for which the payment has been made. In case of joint ownership, all the joint owners can claim the deduction in the ratio of their ownership (subject to the fact that the other joint owner also contribute in the housing loan repayment).

To claim the deduction under this section, loan should be taken either from employer or a bank or other financial institution. Repayment of principal of a loan taken from friend or family will not be eligible for deduction under this section.

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