Tax deductions allow taxpayers to cut down their tax liability. Tax deductions under Section 80C of the Income Tax Act, 1961 are the most preferable among different tax-saving schemes. A tax deduction of up to INR 1,50,000 is allowed to be claimed u/s 80C by an Individual or Hindu Undivided Family for making certain investments and payments. This deduction is subtracted from the gross total income to ascertain the total taxable income and hence it brings down the tax burden of the taxpayer.
Deductions Under Section 80C
Investments and payments allowed as deductions u/s 80C of the Income Tax Act, 1961 are as follows:
Life Insurance Premium
Section 80C allows individuals to claim premiums paid against as tax benefits available u/s 80C. This deduction is claimable for the premiums paid towards life insurance policy for self, dependent children, spouse, and any member of the Hindu Undivided Family.
It should be noted that annual premium up to a maximum limit of 20% of the sum insured is allowed as a deduction, when the life insurance policy is issued on or before March 31, 2012. For insurance policies issued on or after April 1, 2012, the maximum limit of annual premium allowed as a deduction is 10% of the sum insured.
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a tax-saving scheme for the daughter. Investment in this scheme is allowed as tax deduction u/s 80C of the Income Tax Act, 1961. A parent or legal guardian of a daughter – who has not crossed the age of 10 years, are eligible to open the Sukanya Samriddhi Yojana account. This account can be opened for two daughters – one for each and also extendable to three daughters in case of twins.
Senior Citizens Savings Scheme
As the name suggests, the Senior Citizens Savings Scheme is an ideal saving option for senior citizens and investment made in such schemes is eligible for deduction u/s 80C of the Income Tax Act. The tenure period of this scheme is 5 years and the eligibility for the same is a minimum age of 60 years, however, this eligibility gets reduced to the age of 55 years in case of the citizens who opted for VRS (voluntary retirement scheme).
Public Provident Fund (PPF)
Investments made in Public Provident Fund (PPF) allowed as tax deductions u/s 80C. PPF accounts have locked-in for a period of 15 years, however, partial withdrawals are allowed after a term of 7 years. PPF has a maximum annual deposit limit of INR 1,50,000 and so the whole amount deposited in the PPF account is eligible to be claimed as deduction u/s 80C.
Equity Linked Saving Scheme
Investments made in equity-linked savings schemes are eligible to be claimed as tax deduction u/s 80C of the Income Tax Act.
Notably, the mandatory lock-in period for the equity-linked savings scheme is 3 years which is counted from the date when the investment was made. Equity saving schemes are the best schemes for long-term investors who want to invest at least for 5-7 years.
Five Year Bank Deposit
Many fixed deposits schemes offered by banking institutions are allowed to be claimed as deduction u/s 80C of the Income Tax Act, subject to the condition that it should have a locked-in period of 5 years. Such investments do not allow investors to withdraw the amount before the maturity of the scheme. Such investments can be claimed as a deduction, however, interests on such investments are taxable and deducted at source.
Stamp Duty & Registration Charges
Stamp Duty & Registration Charges are allowed as deduction u/s 80C of the Income Tax Act, 1961. These expenses were included under this section by the government with an intent to provide relief to the home buyers as an exorable amount of money is incurred on stamp duty & registration of new home. These charges are allowed as deduction only when the construction of the property is complete and the house buyer legally owns the home.
Home Loan Principal Repayment
The amount paid for the repayment of the principal amount of a home loan is allowed as deduction u/s 80C of the Income Tax Act 1961. However, this benefit can be availed only when the construction fo the property is complete. It should be noted that this benefit is not available when the property is sold out before the completion of 5 years from the year when you took the possession. Apart from that, benefits claimed in the initial years also become taxable in the year when the property is transferred.
National Savings Certificate
Investments made in National Savings Certificates are allowed as deduction u/s 80C of the Income Tax Act, 1961. These investments got allowed as a deduction under this section by the government in order to motivate the taxpayers to save their money in the National Savings Certificate scheme. While the investment is allowed as a deduction, Interest earned on such investment attracts tax. However, when such interest is reinvested, it will be allowed as deduction u/s 80C. The interest rate on the National Savings Certificate is almost the same as that of tax-saving fixed deposits, PPF and other fixed-income yielding instruments.
Besides, these tax-deductions Under Section 80 C of the Income Tax Act 1961, subsections of Section 80C allows more tax deductions which are as follows:
Tax Saving Under Section 80CCC
Section 80CCC lets taxpayers save tax by allowing payments made to the pension plans or annuity plans of insurance companies as a deduction under the Income Tax Act 1961. The maximum amount of tax deduction allowed under this sub-section is INR 1,50,000.
Tax Saving Under Section 80CCD
Investments made towards the Pension Scheme of Central Government is allowed as deduction u/s 80CCD of the Income Tax Act 1961. The maximum amount of tax deduction allowed under this sub-section is INR 1,50,000. This tax deduction is allowed to be claimed only individuals and not by Hindu Undivided Family (HUF).
Tax Saving Under Section 80CCF
Section 80CCF of the Income Tax Act, 1961 allows investments made to the long-term government-approved infrastructure bonds as a deduction. However, the maximum deduction which can be availed is limited to INR 20,000.
Tax Saving Under Section 80CCG
Investments made under a government-certified equity savings scheme are allowed as a deduction under section 80CCG of the Income Tax Act, 1961. A taxpayer or HUF can claim deduction under this section up to INR 25,000.