Deductions under Section 80C & its allied sections

Deduction under Section 80C & its allied sections

The investments mentioned under Section 80C are the most popular and preferred way of saving taxes opted by the taxpayers deductions under Section 80C and its allied sections allow a maximum deduction of up to Rs. 1.5 lacs every year from the taxpayer’s total income and an additional deduction amount of Rs. 50,000 can be claimed under Section 80CCD(1b).

Note:
The allied sections of Section 80C are Section 80CCC, Section 80CCD(1), Section 80CCD(1b) and Section 80CCD(1b)

Who can avail the deductions under Section 80C?

The deduction under Section 80C can be claimed only by Individuals (Resident or Non-Resident) and HUFs. In addition to this, the companies, partnership firms, corporate bodies and others are not eligible to avail the deduction under these sections.

Bifurcation Of Deductions And Its Allied Sections

Also Read: A Quick Look at Deductions under Section 80C to 80U

TAXABILITY OF VARIOUS INVESTMENTS UNDER SECTION 80C

Options to save taxes under Section 80C

1.Five Year Tax Saving Fixed Deposits
The 5 Year Tax Saving Fixed Deposits, as the number suggests have a lock-in period of 5 years to be eligible for claiming the deductions. These fixed deposits can be opened either at banks or post offices. The interest amount on such deposits is fully taxable. Further, it is to be noted that not all 5-year tenure FDs are tax-saving FDs. Moreover, the 5 Year Tax Saving FDs are the separate types of FDs offered by the banks or post offices. There are guaranteed returns on these FDs, and the risk profile is low.

2.Equity Linked Savings Scheme (ELSS)
ELSS is a type of mutual fund scheme wherein, 65% of the portfolio is invested in equity and equity-linked securities such as listed shares. Furthermore, this scheme has a lock-in period of 3 years, the returns are dependent on the market and the risk profile is high. Further, the Long Term Capital Gains on ELSS are tax-exempted up to Rs. 1 lac and the dividend earned is tax-free in the hands of the investor.

Also Read: 10 Ways To Save Your Taxes!

3.Employees Provident Fund (EPF)
Employees Provident Fund Scheme is a welfare scheme for the better future of the employees in an organisation. Under this scheme, both employer and employee have to contribute to the EPF. To claim this deduction, the employee cannot withdraw the amount in EPF until he’s 5 years of services are completed. Moreover, the interest earned on EPF contribution by the employee is taxable and the risk factor of returns is low.

Some other Options To Save Taxes Under Section 80C

Also Read: How to claim deductions under Section 80CCD(1b)?

4.Public Provident Fund (PPF)
Public Provident Fund or PPF is a savings cum tax savings investment scheme, the corpus of which can be used at the time of retirement. The interest earned and the returns on this PPF scheme are not taxable and the PPF account can be opened either at a nationalised bank or post office. The lock-in period of PPF is 15 years and it can be further extended in blocks of 5 years.

5.Life Insurance Corporation Premium (LIC Premium)
The LIC premium can be bought either for the individual himself or his family members. In addition to this, the amount that can be claimed as a deduction on Life Insurance Premiums is as follows:

Time Period

Deduction available

Before 1st April, 2003

Full premium amount

Between 1st April, 2003 and 31st March, 2012

20% of sum assured

On or after 1st April, 2012

10% of sum assured

The lock-in period for Life Insurance premiums is 5 years and the returns on life insurance policies. In addition to it is where the insurance cover is at least 10 times the annual premium, are exempted from tax under Section 10(10D) of the Income Tax Act.


6. National Savings Certificate (NSC)
NSC is a fixed investment plan scheme that can be opened at any post office in India. The current rate of interest on NSC is 6.8% p.a. The lock-in period is 5 years. The returns on this investment are ensured, as it is backed by the government and the risk profile is low. Furthermore, the interest on the amount invested in NSC is taxable.

Important Options To Save Taxes Under Section 80C

Also Read: Do I Need To File Income Tax Returns?

7. Principal Amount Payment towards Home Loan
The home buyers can claim a deduction of up to Rs. 1.5 lacs under Section 80C through buying of house propertyThe deduction on a home loan is available where the buyer the purchased the property by way of home loan. Furthermore, under this scheme, per se there is no lock-in period to avail of the deduction, however, the property should not be sold within 5 years of its possession.

Also Read: Tax Benefits on Home Loan: Know Everything at TaxHelpdesk

8. Senior Citizens Savings Scheme (SCSS)
The Senior Citizens Savings Scheme, as the name suggests is a scheme meant for senior citizens aged above 60 years or individuals aged between 55-60 years, who have opted for the Voluntary Retirement Scheme or retired defence personnel of age above 50 years and below 60 years. In addition to this, the SCSS account can also be opened either at post offices or any authorized bank. The current rate of interest for investing in SCSS is 7.4% p.a. with a lock-in period of 5 years and the risk profile is low. The Interest on SCSS is taxable as per the tax slab applicable to the person. In case the interest amount earned is more than Rs. 50,000 for a fiscal, Tax Deducted at Source (TDS) applies to the interest earned.

Even More Options To Save Taxes Under Section 80C

Also Read: Deductions on interests earned by Senior Citizens

9. Suukanya Sammridhi Yojana
The Sukanya Samriddhi Account is designed to provide a bright future for the girl child. The account can be opened in the name of the girl child till she attains the age of 10 years. It offers a high-interest rate of 7.6% along with the deductions under Section 80C. Moreover, the account shall mature on completion of 21 years from the date of opening of the account, provided that where the marriage of the account holder takes place before completion of such period of 21 years. Furthermore, the minimum lock-in period of this scheme is 8 years, the returns are tax-free and the risk is low.

10. Tax-Free Bonds
Tax-Free Bonds are issued by the government to raise funds for a specific purpose. These bonds are offered by various Government Public Sector Companies like NHAI, NTPC, REC, REl, HUDCO and others. These tax-free bonds offer a fixed rate of interest and the risk profile is low. Moreover, they have a lock-in period of 10 to 20 years and can be bought through NSE or BSE. 

Taxability Of Various Investments Under Section 80C
TAXABILITY OF VARIOUS INVESTMENTS UNDER SECTION 80C
Conclusion:

The deduction of only up to Rs. 1.5 lacs (collectively) is allowed under Section 80C of the Income Tax Act. Furthermore, the taxpayer cannot claim the whole amount invested or spent as deduction under this section.

Also Read: Can I Claim HRA Even If I’m Staying With My Parents?

Note: The above list is only inclusive and not exhaustive.

The analysis and rate of returns for investments under Section 80C are as follows:

Particulars

Interest

Lock-in-period(in years)

Guaranteed Returns

Risk Factor

5 Year Tax Saving Fixed Deposits

5.30-7.00%

3

Yes

Low

Equity Linked Savings Scheme

12-13%

3

No

High

Employees Provident Fund

8.5%

5

Yes

Low

Public Provident Fund

7.10%

15

Yes

Low

LIC Premiums

Varies from premium to premium

5

Yes

Low

National Savings Certificate

6-8%

5

Yes

Low

Senior Citizens Savings Scheme

7.4%

5

Yes

Low

Suukanya Sammridhi Yojana

7.6%

8

Yes

Low

Tax free bonds

5-6%

10-20

Yes

Low

Unit Linked Insurance Plan

8-10%

5

No

Moderate

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