Section 80C: Deduction under Section 80C

Section 80C of the Income Tax Act is a section that includes various expenditures and investments to be exempted from Income Tax. Section 80C allows a maximum deduction up to ₹1.5 lakhs per year from an investor’s total taxable income.

Section 80C of the Income Tax Act 1961, along with sections 80CCC and 80CCD, lists a number of financial activities which can reduce your taxable income. Popularly known as 80C deductions these investment and spending actions help you save tax on your annual income. These deductions are very helpful in tax saving and ensuring long-term investments.

For instance, if you invested ₹1 lakh in 80C eligible investments and spent ₹50,000 in the eligible deductions under Section 80C, your taxable income will reduce by ₹1.5 lakhs. That is, if your total taxable income for the P.Y. was ₹10 lakhs, now you will only need to pay tax on ₹8.5 lakhs. So, if you follow the old tax regime, you saved about ₹30,000 in tax outflow.

What is Section 80C?

Section 80C allows deductions on certain investments up to ₹1.5 lakhs per annum from your total taxable income. This section is especially popular among taxpayers as it allows for deductions from gross total income. You can invest your savings in the Section 80C eligible options or spend money on eligible expenses to avail of the deductions. The deduction under Section 80C will reduce your gross total income or taxable income. Thus, you can save tax every year based on the investments and expenses in this section.

Section 80C also includes Sections 80CCC, 80CCD (1), 80CCD (1B) and 80CCD (2). Total deduction you can claim under this section is ₹1.5 lakhs, plus an additional ₹50,000 under section 80CCD (1B).

Union Budget 2022 Update for Section 80C

Union Budget 2022 did not announce any changes to Section 80C rules or limits. Thus, you can claim up to Rs 1.5 lakhs under section 80C, if you have eligible investments and expenses in the previous year.

You should note that deductions under section 80 are only available if you follow the old tax regime. If you do not have any investments or expenses eligible for deduction under section 80, (section 80C, 80D, 80DD, etc.) you can follow the new tax regime.

Deductions on Investment under Section 80C List

Under Section 80C, here are a few tax-saving instruments one can opt for to reduce their income tax liability:

1. Investment in ELSS

Equity Linked Savings Schemes are mutual funds that can be filed for tax deduction under Section 80C. They come with a lock-in period of 3 years. They are equity-linked and hence have chances of higher returns (along with higher risk). There is no limit on the amount that can be invested in ELSS. Returns above the ₹1 lakh threshold are subject to a 10% LTCG (Long-Term Capital Gains) tax.

2. Employee Provident Fund

Section 80C offers deductions for an employee’s contribution to the Employee Provident Fund. EPF is a retirement benefit scheme for salaried employees. The interest on EPF is a high rate of 8.65%. An EPF account can be opened by anyone with a basic salary of more than Rs. 15,000 per month.

3. Deposit in Senior Citizens Saving Scheme

Investments made in Senior Citizens Saving Scheme (SCSS) are eligible for tax deduction under Section 80C for maximum limit up to ₹1.5 lakhs per year. An individual aged more than 60, or more than 55 and retired under Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme can open an SCSS account. The current quarterly interest rate is 8.6%.

4. Investment in National Savings Certificate (NSC)

National Savings Certificate (NSC) is one of the most famous tax saving investments and has a maturity period of five years and an interest rate of 8%. The yearly interest is compounded i.e reinvested in the account. The investment amount can be as low as ₹100 with no upper limit. There is no restriction on investments made in a financial year, but you are eligible to receive tax exemption only up to ₹1.5 lakhs per year under Section 80C.

5. Investment in ULIPs

Unit Linked Insurance Plans (ULIPs) offer two-pronged benefits of both insurance and investment. While part of one’s premium is invested in insurance, the other portion is invested in market-linked funds. Premiums paid toward ULIPs taken in the name of self, spouse, or child are eligible for deduction as per Section 80C of the Income Tax Act.

6. Amount invested in Sukanya Samriddhi Yojana (SSY)

Investments made towards the Sukanya Samriddhi Yojana are eligible for deductions under Section 80C of the Income Tax Act. The Sukanya Samriddhi Yojana is a savings account scheme which can be opened in the name of a girl child till she reaches the age of 10. An account can be opened for no more than two girls (three in case the first two are twins). With the SSY, one can avail high interest rates of up to 8.5%.

7. Fixed Deposit - 5-year Scheme

Any fixed deposit or term deposit held with a scheduled bank for a period of 5 years, or a Five Year Post Office Time Deposit is deductible as per Section 80C of the Income Tax Act.

8. Premium Paid for Life Insurance Policy

Premium paid for life insurance policy for self, spouse, or children are eligible for Section 80C deductions. The policy can be from any life insurer registered under the IRDAI. The deduction is valid only if the premium is less than 10% of the sum assured.

9. Home Loan Principal Repayment

A home loan is often a necessity if you want to own your desired house property. If you have an ongoing home loan and you are repaying the principal amount along with the interest, you are eligible for deduction under section 80C.

The home loan principal, up to Rs 1.5 lakhs, repaid in the previous year will qualify for tax deduction under 80C. The limit for senior citizens is Rs 2 lakhs.

10. Stamp Duty & Registration Cost for House

Stamp duty and registration charges paid for a new house property also qualify for deduction under section 80C. The maximum limit is Rs 1.5 lakhs.

11. Tuition Fees for Children

Children’s education is an essential expense if you are a parent. Section 80C of the Income Tax Act 1961, allows for the deduction of these fees from your taxable income. The deduction is available on the fees paid for up to two children.

Thus, if you end up paying Rs 1 lakh in school fees for your two children in the previous year, you can claim this amount under section 80C.

12. NHB Deposit Scheme

NHB or National Housing Bank is the apex financial body supporting home mortgage and financing in the country. NHB launches deposit schemes to collect money from the public for its investment affairs. These saving schemes can collect from Rs 5000 to Rs 1 lakh per depositor.

13. Infrastructure Bonds

Section 80C of the Income Tax Act provides tax deduction on infrastructure bonds, given the investment made is greater than or equal to ₹20,000. The maximum limit of ₹1.5 lakh deduction remains applicable for these infrastructure bonds.

While the NHB deposit scheme offers a fixed rate of return you can also claim the invested amount as a deduction under section 80C.

How much can be Claimed under Section 80C?

The majority of investments and expenses under section 80C allow you to invest large sums. However, the deduction for the most part is limited to Rs 1.5 lakhs. The limit may be revised in future Union Budgets.

You can claim a higher deduction under this section under the following conditions:

a) You are a senior citizen and repaying a home loan
b) You are investing in NPS

a) Home Loan Deduction Example

Assume that you have paid Rs 2.17 lakhs as your home loan principal in the previous financial year. Now your tax deduction under section 80C will be as follows:

• Rs 1.5 lakhs only if you are below 60 years of age
• Rs 2 lakhs if you have attained 60 years of age before the previous year

b) NPS Deduction Example

NPS is a retirement savings scheme which allows you to invest a part of your income or salary. If you are salaried, even your employer can contribute to your retirement without increasing your tax burden. Here’s what the contribution limits look like:

i) Deduction of up to Rs 1.5 Lakhs [80CCD(1)]

• Employee Self-Contribution: 10% of Basic + DA
• Self-Employed: 20% of gross annual income

ii) Deduction of Additional Rs 50,000 [80CCD(1B)]

• Employee Self-Contribution: Additional contribution over (10% of Basic + DA)
• Self-Employed: Additional contribution over (20% of gross annual income)

iii) Employer’s tax-exempt contribution to employees NPS [80CCD(2)]: 10% of Basic +DA (matching employee up to this limit only)

Thus, if you are investing in NPS, securing your retirement with additional savings will increase your tax savings too.

When should you Invest to Claim a Deduction under Section 80C of the Income Tax Act?

In India, the income tax regime works on the basis of financial years. The financial year begins on the 1st of every April and ends on the 30th of March. You will file your income tax return for your accrued income within this period of one financial year (FY) in the immediately following FY.

The financial year in which you file the ITR is called Assessment Year (AY) and the FY for which you are filing the ITR is called Previous Year (PY).

For example, you have earned Rs 10 lakhs and invested up to Rs 3 lakhs in FY 2021-22. You will report your income and investments for FY 2021-22 while filing your ITR in FY 2022-23. Thus, FY 2021-22 becomes your PY, and FY 2022-23 becomes your AY.

Thus, to claim 80C deductions in AY while filing ITR, you need to invest in eligible options in the PY. So, in the above example, if you have invested Rs 1 lakh out of the total Rs 3 lakhs in eligible instruments, you can claim Rs 1 lakh as a deduction under 80C.

Deductions under Sub-sections of Section 80C

1. Section 80CCC

An amount paid towards an annuity plan to a life insurance company is tax-deductible. However, the fund has to be mentioned in Section 10(23AAB).

2. Section 80CCD

a. Section 80CCD(1)- Employee Contribution

Tax can be deducted on the amount deposited in the account under your pension scheme. The maximum deduction would be the lesser of 10% of the salary (for salaried employees) or 20% of the gross total income (for self-employed individuals) or Rs. 1.5 lakh.

b. Section 80CCD(1B) - Self Contribution

This section provides an added deduction of upto Rs.50,000 on a deposit in the NPS (National Pension Scheme) or Atal Pension Yojana account.

c. Section 80CCD(2) - Employer’s Contribution

An additional deduction can be claimed on employer’s contribution to the pension account for upto 10% of the salary. There is no deduction limit.