The volume of information available on the internet it infinite. Similarly, the various sections and their respective sub-sections with numerous clauses of the Income Tax Act are also endless. However, certainties exist among the never-ending and intricate, such as section 80C of the Income Tax Act. The various investments and deductions available u/s 80C can be used by nearly all taxpayers. This guide examines sec 80c, which is the most widely used section of the Income Tax Act and the deductions available to lower one’s tax bracket.
Section 80C comprises of various investments and expenses that are eligible for tax deductions. A taxpayer can claim maximum tax deductions of Rs 1.5 lakh for a particular financial year (FY) from his/her taxable income through investments made by him/her under section 80C of the Income Tax Act, 1961.
An individual or a Hindu Undivided Family (HUF) is eligible for claiming tax deduction u/s 80C.
The below mentioned investments are eligible for deductions u/s 80C. An investor can choose to either invest in all the available tax-saving instruments or in some of them.
EPF is a retirement benefit scheme that is available to all salaried employees. Employer and employee both have to contribute equally (12% of basic salary) to the provident fund account of an employee. An employee can contribute a higher sum of money through voluntary contributions (VPF). Employee’s own contribution to provident fund qualifies for 80C deductions.
[ Read more: How to Check PF Balance ]
PPF scheme is a long term investment option backed by Government of India.
[ Read more: Public Provident Fund Scheme ]
ELSS is an open-ended Equity Mutual Fund that helps save tax, and also provides an opportunity to grow money at a comparatively faster rate. ELSS provides inflation-adjusted growth in the long-term.
[ Read more: ELSS Funds ]
NSC is a postal department’s saving scheme ranked as ‘highly secured’ in the class of Investments.
[ Read more: Guide on National Savings Certificate ]
Sukanya Samriddhi Scheme is one of the best investment options available today.
[ Read more: Sukanya Samriddhi Scheme ]
As the name suggests, this scheme is for senior citizens.
[ Read more: Senior Citizen Savings Scheme ]
5 year fixed deposits can be opened with any branch of Indian Post Office.
As the name suggests, it is a type of fixed deposit investment.
Unit Linked Insurance Plan is a life insurance product that is a combination of investment and insurance. That means a portion of the money invested in ULIPs will be used to provide risk cover and the balance amount will be invested in the stock market.
|Investments u/s 80C||Rate of Interest||Lock-in Period||Guaranteed Returns||Risk-Profile|
|NSC||7.9% for 5 year||5 yrs||Yes||Non-risky|
|FD||Varies from time to time (7% SBI)||5 yrs||Yes||Non-risky|
|Sukanya Samriddhi Scheme||8.4%||21 yrs||Yes||Non-risky|
If an individual has exhausted the above mentioned tax-saving instruments and still, has not reached the Rs 1.5 lakh limit, then that individual can invest his/her money in the below mentioned tax-saving schemes:
Infrastructure companies such as Infrastructure Development Finance Company and India Infrastructure Finance Company issue infrastructure bonds, also popularly called infra bonds that are approved by the government. The amount invested in these bonds can be claimed as a deduction.
NABARD (National Bank for Agriculture and Rural Development) issues two types of bonds. One is NABARD Rural Bonds and the other one is Bhavishya Nirman Bonds. Investments made in NABARD Rural Bonds are eligible for tax deductions.
In general, you cannot withdraw the PF balance as long as you continue to work.
[ Read more: Top 5 Tax Saving Insurance Policies ]
Tuition fee of full-time education of children is eligible for deduction. Conditions for eligibility:
[ Read more: Tax Deduction on Tuition Fees ]
The principal repayment of a home loan either to buy a home or to build a residential property qualifies for tax deduction.
Apart from the principal repayment of home loan, expenses incurred on stamp duty and registration charges for purchase of house property also qualify for tax deduction.
Does the limit of Rs 1.5 lakh imply that I can invest Rs 1.5 lakh in more than one tax-saving instrument for tax benefits?
Though you can invest in different schemes maximum tax benefit that can be claimed is restricted to Rs 1.5 lakh on all the above mentioned tax-saving investments taken together.
Does investment made in National Pension System (NPS) qualify for deduction u/s 80C?
NPS is a scheme initiated by the Government of India. Investments to the tune of Rs 1.5 lakh will be eligible for deduction u/s 80C. An additional amount of Rs 50,000 can be invested in NPS for tax deduction u/s 80CCD (1B). Returns obtained from NPS is partially taxable. NPS has no guaranteed return.
When investing in provident funds, can I claim tax deductions on investments made in both EPF and PPF?
If you are investing in EPF as well as in PPF simultaneously, then you can claim tax deductions on both the investments u/s 80C subject to overall limit of Rs 1.5 lakh.
Can NRIs claim tax-saving deduction u/s 80C?
Just like Indian residents, non-resident Indians (NRIs) can also avail equal tax benefits on premiums paid on life insurance, pension schemes, etc.
When to make investments u/s 80C?
There are many investors, who start to make investments just near the end of a financial year. This is a wrong decision on the part of the investor. It has two implications:
Therefore, the investor should evaluate different investment option carefully before taking investments decision and should start investing right from the beginning of a financial year i.e. from the month of April. This will have two implications:
The money you earn is not infinite and whatever measures that can be taken should be applied to ensure your income stays in your pockets. To avail of the best tax savings schemes available to you u/s 80c, consult the income tax experts at H&R Block India and keep more of your money with you, where it belongs.