Section 80C

Section 80C of the Income Tax Act of India is a clause that points to various expenditures and investments that are exempted from Income Tax. It allows for a maximum deduction of up to Rs 1.5 lakh every year from an investor’s total taxable income.

Tax exemptions for investment under 80C are applicable only for individual taxpayers and Hindu Undivided Families. Corporate bodies, partnership firms, and other businesses are not qualified to avail of tax exemptions under Section 80C. 

What is 80C in Income Tax and its Sub-sections

Section 80C permits certain investments and expenses to be tax-exempted.

By well-planning the investments that are spread diversely across various options like NSC, ULIP, PPF, etc., an individual can claim deductions up to Rs 1,50,000. By taking tax benefits under 80c, one can avail of a reduction in tax burden.

Under the Income Tax Act of India, deductions under Section 80C of Income Tax Act are divided into certain sub-sections. These are – 

Eligibility of Sec 80C of Income Tax Act

Individuals and HUFs are both eligible for Section 80C deductions. This section also applies to both Indian residents and non-resident Indians.

Companies, partnerships, and other corporate bodies are not eligible for the deduction.

• Investments Eligible for Deduction Under Section 80C of the Income Tax Act

Here are some of the 80C tax saving options an individual can opt for-

• Life Insurance Premiums

Premiums paid towards life insurance policies are eligible to receive tax benefits as per 80C limit. These exemptions are available against policies held by self, spouse, dependent children, etc. Hindu Undivided Family members can also benefit from the same exemptions. 

Currently, an annual premium of up to 10% (of the insurance policy’s total sum assured) is tax exempted under this scheme. This clause was revised on 1st April 2012, prior to which premiums of up to 20% (of the sum assured) were liable for tax exemption under Section 80C deduction.

• Public Provident Fund

Any contribution towards the Public Provident Fund (PPF) can be filed for tax deduction under Section 80C. Public Provident Funds come with a maximum deposit limit of Rs.1,50,000, allowing an investor to claim the entire deposited amount as an exemption under this Income Tax Act. 

Any voluntary contribution made by the employee towards the provided fund is also eligible for tax deduction under Section 80C of the Income Tax Act.

• NABARD Rural Bonds 

NABARD stands for National Bank for Agriculture and Rural Development. Rural Bonds offered by NABARD are eligible for tax exemption under the Income Tax Act of India. The maximum deductible amount is capped at Rs.1.5 lakh under Section 80C. 

• Unit Linked Insurance Plans (ULIPs) 

Unit Linked Insurance Plans offer more returns in the long term when compared to conventional insurance policies. They have become especially popular in recent years thanks to the tax benefits offered under Section 80C of the Income Tax Act 1961. Investors can avail of tax exemptions up to Rs. 1.5 lakh on the invested amount u/s 80C income tax provisions.

• National Savings Certificate 

NSC, or National Savings Certificate, is one of the most popular tax-saving instruments for risk-avert individuals. Interest earned on NSC is compounded semi-annually, and the maximum maturity period ranges from 5 to 10 years.

Investors do not have to follow any limitation on the total sum invested towards NSC in a financial year; however, only a maximum of Rs.1.5 lakh will be subject to exemption every financial year under Section 80C. 

• Tax Saving FD

Tax Saving FDs are fixed deposit schemes offered by both banks and post offices that allow tax deduction under Section 80C. These FDs have a lock-in period of 5 years and offer a maximum of Rs 1.5 lakh tax exemption (on the principal amount). However, the returns of such instruments are liable for taxation. 

• EPF

The return earned from Employee Provident Fund (EPF), including the interest, is eligible for tax exemption under Section 80C of the Income Tax Act, 1961.

It is only eligible for employees who have continued his or her service for at least 5 years. If individuals make voluntary contributions to their EPF accounts, such an amount is eligible for tax exemptions under Section 80C. 

• Infrastructure Bonds

Section 80C of the Income Tax Act allows tax exemptions on infrastructure bonds, provided the investment is equal to or higher than Rs.20,000.

The 80c deduction limit of Rs.1.5 lakh stays applicable for these long-term secured bonds as well. 

• Equity-Linked Saving Scheme 

Equity Linked Saving Schemes, or ELSS, fall under Section 80C’s exemption category for up to its maximum limit (Rs.1.5 lakh). These investment schemes come with a mandatory 3-year lock-in period. 

• Senior Citizens Savings Scheme 

Any investments made towards Senior Citizens Saving Scheme (or SCSS) is eligible for tax exemption up to the maximum allocated 80C limit, i.e. Rs. 1.5 lakh.

Individuals above the age of 60 (people opting for voluntary retirement scheme are eligible to participate in SCSS after the age of 55 years) years are eligible to get benefits from SCSS, which has a minimum lock-in tenure of 5 years.

• Principal Repayment Made Towards Home Loan

Only the repayments made towards the principal component of home loan EMIs are eligible for deduction under 80C. However, the borrower has to fulfil certain clauses to avail of this benefit; these are – 

• Exemptions can only be claimed if the construction of the property is completed.
• Transference of the property within 5 years of possession will exclude it from the tax exemptions provided under Section 80C of the Income Tax Act, 1961.
• Any amount claimed as a tax deduction should be taxable in the transfer year if a handover is made after 5 years of the property’s possession. Failing to meet this clause will also render it excluded from Section 80 C's guidelines.

• Stamp Duty and Registration Charges

Stamp duty and registration charges can be considered the two largest expenses made towards taking ownership of a property. The Government of India allows a deduction of tax liability till the 80C exemption limit on the stamp duty and registration charges paid towards house procurement.

However, exemptions can only be claimed in the year that these duties are paid; otherwise, it will not be eligible for consideration under Section 80C deduction.

• Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a savings scheme specially designed to meet the financial requirements for a girl’s education and marriage. Parents or legal guardians of a girl child (not older than 10 years of age) can open this account, and parents of 2 or more (only in the case of twins) girls can also invest in this plan.

The interest earned from this investment scheme is eligible for tax exemption under Section 80C.

Latest News on Section 80C

Under the Union Budget 2023, the Finance Minister did not make any changes with respect to the exemption limit for Section 80C.

Therefore, if an individual is following the Old Tax Regime, they can gain the benefit of receiving tax exemptions up to Rs 1,50,000. Note the rules are not applicable to those who have enrolled for the new tax regime.

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