The Income-tax Act, 1961 provides numerous avenues for taxpayers in India to save on their tax liability, and one of the most popular and substantial of these is Section 80C. This section allows individuals and Hindu Undivided Families (HUFs) to claim deductions on specific investments and expenditures, thereby reducing their taxable income. It serves a dual purpose: reducing tax liability and encouraging long-term savings.
The maximum deduction limit under Section 80C is ₹1,50,000.
To claim tax benefits under Section 80C, filing an Income Tax Return (ITR) is mandatory.
During the Union Budget 2023, Finance Minister Nirmala Sitharaman maintained the existing rules regarding Section 80C and did not introduce any changes. Consequently, if you follow the old tax regime, you can continue to avail deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act.
Section 80C is an income tax deduction that allows taxpayers to reduce their taxable income, ultimately leading to lower tax outgo. This section encompasses specified investment and payment options that reduce your taxable income by up to ₹1.5 lakhs. It is important to note that while the deduction is claimed when filing your income tax return, the investment must be made during the relevant financial year.
Example: For FY 2022-23 (Assessment Year 2023-24), you must invest in the specified options under Section 80C between 1 April 2022 and 31 March 2023. The benefit will be claimed when filing your annual income tax return.
Section 80C benefits are available to individuals and HUFs (Hindu Undivided Families). Salaried and self-employed individuals can use various investment options to reduce their taxable income.
You can make investments in the name of:
Amount of Investment: The minimum deposit limit is ₹500, and the maximum is ₹1,50,000 during a year.
Lock-in-Period: The PPF account matures after 15 years, but part of the money can be withdrawn after 7 years.
Taxability: PPF is EEE-rated, which means it is tax-exempt at the time of investment, returns, and withdrawals.
Document Required: PPF Passbook or statement showing contributions made.
Eligibility: Resident Individual parents with a girl child can invest in this scheme until age 10.
Amount of Investment: The minimum deposit limit under this account is ₹250 annually, and the maximum is ₹1,50,000.
Lock-in-Period: The amount is required to be deposited for 15 years. After 21 years, this account will mature.
Taxability: SSY is EEE-rated, which means it is tax-exempt at the time of investment, returns, and withdrawals.
Document Required: SSY account passbook or statement indicating contributions.
Amount of Investment: You can start investing from ₹500 without an upper limit.
Lock-in-Period: 3 years.
Taxability: The investment is exempt under Section 80C up to ₹1.5 lakhs, and the long-term gains on withdrawals are exempt up to ₹1 lakh. The dividends received (if any) will be taxable under “Income from other sources.”
Document Required: Statement from the mutual fund company or the statement provided by your Demat account showing the investment in ELSS funds.
Amount you can invest: The minimum deposit limit is ₹1,000.
Lock-in-Period: 5 Years. If you break the FD before the completion of the lock-in period, then the deduction taken will be added back to your income.
Taxability: The amount invested is eligible for deduction under Section 80C, but the withdrawals and interest are taxable. Senior citizens can claim tax benefits of up to ₹50,000 on the interest amount earned under section 80TTB.
Note: If you have a good amount of idle cash accumulated, making a Fixed Deposit will benefit you.
Document Required: Fixed deposit receipt or certificate from the bank or post office.
Eligibility: Only individuals can buy an NSC; HUFs are not allowed to do so.
Amount you can invest: The minimum investment amount is ₹100, and there is no cap on the highest ceiling.
Lock-in-Period: 5 Years
Tax Benefit: The investment is tax deductible under Section 80C, and the interest earned is taxable under the head “Income from other sources.” One exciting thing about NSC is that when interest is accrued, it is deemed reinvested in NSC. This gives you an extra tax benefit on the reinvested interest amount.
Document Required: NSC certificate(s) indicating the investment.
Amount you can invest: There is no minimum investment limit, but on the higher side, the investment amount shall not exceed ₹15 lakhs or the amount received on retirement (whichever is higher).
Lock-in-Period: 5 Years
Tax Benefit: Investment is tax-deductible under Section 80C. Interest income tax benefits up to ₹50,000 can be taken under section 80TTB. One of the best things about this scheme is that it can be foreclosed after 1 year.
Document Required: SCSS account passbook or certificate from the bank or post office.
You can make investments in the name of:
Amount you can invest: There is no limit for making investments in the ULIP, but the premium should not be more than 10% of the sum assured for taking the benefit of tax under Section 80C.
Lock-in-Period: Minimum 5 years
Tax Benefit:
Document Required: ULIP policy document and premium payment receipts.
Under Section 80C, the deduction is allowed regarding life insurance premiums. The premium must be for the Life insurance policy taken in the name of:
Note:The deduction percentages on the premium vary depending on when you took the insurance. Refer to the table below for more clarity.
| Policy Issue Date | Deduction Percentage |
|---|---|
| On or before 31 March, 2012 | 20% of the sum assured |
| On or before 1 April 2012 but before 1 April, 2021 | 10% of the sum assured |
| On or after 1 April, 2021 | 10% of the sum assured (15% if the insured is a senior citizen) |
You can claim a deduction for the payment of tuition fees for your children’s education. However, certain conditions need to be met:
Document Required: Receipts from the educational institution specifying the tuition fees paid.
You can claim a deduction of principal repayment of your housing loan taken for the purchase or construction of a residential house property. This deduction is available for both individuals and HUFs. However, remember that if you sell/transfer such house property before the expiry of 5 years from the end of the financial year in which possession was taken, the deduction availed in the earlier years will become taxable.
Document Required: Loan account statement from the bank or financial institution showing the principal repayment.
You can claim a deduction for your payment under a Deferred Annuity Plan. This annuity may be in your name, your spouse’s name, or the name of any of your children. To claim a deduction under this annuity plan, there should be no provision for receiving cash in place of an annuity. Moreover, suppose you are a government employee and any sum is deducted from your salary under a deferred annuity plan. In that case, the deduction is restricted to only 1/5th of your salary.
Document Required: Annuity plan policy document and receipts for premium payments.
While purchasing or constructing a new house, you must have paid stamp duty and registration charges. These charges may look small compared to the price of the house, but they do make a dent in one’s pocket. Section 80C allows you to take the deduction regarding these charges as well.
Document Required: Receipts or documents proving the payment of stamp duty and registration charges for the purchase or construction of the house property.
Section 80C also encompasses various other options for tax-saving investments and deductions:
| Investment Option | Lock-in Period | Section 80C | Estimated Interest Rate | Taxability |
|---|---|---|---|---|
| Public Provident Fund (PPF) | 15 Years | Low | 7.1%* | Interest: Exempt Withdrawl: Exempt |
| Sukanya Samriddhi Yojana (SSY) | 21 Years | Low | 8.4%* | Interest: Exempt Withdrawl: Exempt |
| Equity Linked Saving Scheme (ELSS) | 3 Years | High | 12-15% | Dividend is exempt |
| 5-Year Tax Saving Fixed Deposit | 5 Years | Low | 7-8% | Interest is taxable |
| National Saving Certificate (NSC) | 5 Years | Low | 7.7% * | Interest is taxable |
| Senior Citizen Saving Scheme | 5 Years | Low | 8.6%* | Interest is taxable |
| Unit Linked Insurance Plan | 5 Years | High | 8-10% | Returns are tax-free, subject to conditions |
| Children’s Tuition Fees | N/A | N/A | N/A | Deductions for 2 children, full-time education, paid to eligible institutions |
| Principal Repayment of Housing Loan | N/A | N/A | N/A | Deduction is available for individuals and HUF |
| Stamp Duty and Registration Charges Deduction | N/A | N/A | N/A | Deduction available for house purchase/construction |
Note:The deduction amount under Section 80C cannot exceed ₹1,50,000.
