Section 80C - Deduction on Investments

Roshni Bhagtani

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All You Need to Know about Section 80C - Deduction on Investments

Section 80C of the Income Tax Act of 1961 allows for a deduction on investments in various instruments. You may have heard that by investing in certain financial instruments, you can claim a tax deduction.

  • You can claim a deduction of up to 1.5 lakhs under section 80C by investing in savings instruments. This will not only help you claim a deduction under section 80C but will also help you create wealth in the long run.*

What exactly is Section 80C?

Section 80C allows an individual and a HUF (Hindu Undivided Family) to claim a deduction of up to 1.5 lakh from their annual total income. Essentially, you can lower your total taxable income by saving and investing in the instruments listed in Section 80C.

How to claim deduction under section 80C

By Investing - According to Section 80C, you park your money in a financial instrument for a certain period.

By Spending - You spend your money on the activities indicated in section 80C.

Investments in the following instruments are eligible to claim deductions:

Each of the investment avenues is unique though they have a common objective of tax savings. There is a lock-in period for each of the instruments you must lock-in according to the guidelines to avail tax deduction under section 80C.

Life Insurance

Section 80C allows you to deduct life insurance premiums paid for yourself, your spouse, or your children. The income from these savings and investment activities is tax-free according to Section 10 (10) D if the premium is at least 10% of the sum insured or the sum insured is at least ten times the premium.

Fixed Deposits

Fixed deposits at a bank are eligible for a deduction under section 80C, however, there is a 5-year lock-in term, so you cannot withdraw funds before the lock-in period.

The current prevailing interest rates are in the range of 6.8% to 7.5%. The gains on the fixed deposits are taxable.

Public Provident Fund (PPF)

Since its inception in 1968, the public provident fund, or PPF, has been one of the oldest tax-saving instruments. It is essentially a long-term saving-retirement option that serves as a tax savings plus savings medium.

The PPF has a minimum term of 15 years and can be extended for an additional 5 years. The amount contributed to the public provident fund throughout the financial year is deductible up to a ceiling of 1.5 lakhs.

The current interest rate is 7.9 percent, and there is no risk and no tax on redemption at maturity.

Employees Provident Fund (EPF)

Your contribution to EPF is tax-deductible up to Rs. 1.5 lakhs under Section 80C, and the money you accumulate in EPF earns a guaranteed interest rate that is notified at the start of the financial year.

To provide taxpayers more flexibility, they can withdraw from the account after the mandatory 5-year period. Employee provident fund gains, like those from public provident funds, are tax-free.

The current EPF interest rate is 8.65 percent.

Equity-Linked Savings Scheme (ELSS)

The ELSS is a type of equity mutual fund in which investments qualify for a tax deduction of up to Rs. 1.5 lakh every financial year.

The ELSS is a market-linked instrument with no guarantee of return. When compared to the other tax savings choices, it has the shortest lock-in duration of three years.

National Pension Scheme (NPS)

The NPS is a voluntary retirement scheme that allows you to build a retirement corpus or your old pension and is available to all Indian nationals (resident or non-resident) between the ages of 18 and 65. Tier I NPS investments are eligible for tax deductions under Section 80C up to Rs. 1.5 lakh per fiscal year.

There is an additional benefit to investing in NPS. NPS subscribers can claim an extra tax deduction of 80CCD (1B) for investments up to Rs. 50,000 in a financial year, in addition to the Rs. 1.5 lakh deduction under section 80C.

Gains from NPS investments, as well as the final corpus, are entirely tax-free.

Sukanya Samriddhi Yojana

As the name implies, this scheme is intended to provide a bright future for the girl child. Accounts for the Sukanya Samriddhi Yojana can be opened at any designated bank or post office.

The account will be opened before she reaches the age of ten. This account's interest rate is guaranteed and is currently 8.4 percent. Sukanya Samriddhi Yojana, like the PPF, earns tax-free interest.

Senior Citizens Savings Scheme (SCSS)

The government introduced the Senior Citizens Savings Scheme (SCSS) for individuals 60 years of age or older to address the tax-saving needs of senior citizens.

The deposits mature after 5 years from the date of account opening, but they can be extended once for an additional 3 years. The returns on this scheme are assured and are currently 8.6 percent.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a guaranteed income investment scheme that can be opened at any post office. The scheme's term is set at 5 years, and the interest rate is guaranteed. The current interest rate on NSC is 8%, but gains on NSC returns are taxable because they are added to your income.

Eligible payments under section 80C

Repayment of Home Loan

If you're repaying the principal element of a house loan, you'll be able to deduct that amount under section 80C. This tax exemption additionally includes payments made towards stamp duty and registration. The tax deduction is available for five years.

Payment towards Children Fees

If you are a parent, you can claim fees paid for your child's enrollment to schools, colleges, or universities in India for full-time studies only. For any financial year, the tax exemption can be claimed for up to two children.

Infrastructure Bonds

Infrastructure bonds are subject to section 80C sub-section 80CCF, which is a tax deduction provided to taxpayers who wish to invest in government-approved bonds.

The deduction limit is Rs. 20,000 per year and applies to long-term bonds with a minimum tenure of 10 years and a 5-year lock-in period.

While the interest rates on these bonds are fixed, the profits on maturity are taxable.

Let's look into the sub-sections of 80C

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Summarizing Table:

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Payments under section 80C

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Section 80C deductions apply to a wide range of investments.

We did our best to keep things as simple as possible.

If you are still confused or have any questions, reach out to our experts.

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