Income Tax Deductions Under Section 80C

You can save a lot of tax by intelligently using provisions in the Income Tax Act that provide exemptions and rebates on specific investments and expenses.

Most of the exemptions are provided under Section 80C of the IT Act and are designed to encourage investments in specific schemes as well as provide relief for important big-ticket expenses.

What is Section 80C?

Section 80C of the Income-tax Act is the go-to option for many investors seeking tax benefits on their investments. Besides investments, Section 80c also covers deductions for some important expenses such as your child’s tuition fees, principal repayment of your home loan, insurance premia and investment in the future of girl children!

Only individuals and Hindu Undivided Families (HUFs) can claim deduction u/s 80C. You can claim exemptions of up to Rs. 1,50,000 from your income in a financial year. In other words, Section 80C deductions can help you reduce your taxable income by Rs.1,50,000.

Until FY1415, the total deduction allowed under Section 80C was Rs.1,00,000, when the limit was hiked.

Do remember that Rs 1,50,000 is a combined limit across investments. You can choose to invest this amount across multiple avenues or all of it in one asset.

What are the eligible deductions u/s 80c?

Section 80C offers exemptions on many investments and expenses. These include:

• Stamp Duty and Registration Charges for House
• Life Insurance
• Health Insurance
• Tax saving Five-Year Fixed Deposits
• Tax-saving Mutual Funds or ELSS
• Public Provident Fund (PPF)
• Employee Provident Fund (EPF)
• National Savings Certificates (NSC)
• Sukanya Samriddhi Account
• Infrastructure Bonds
• Post Office Time Deposit?
• Education expenses or tuition fees
• Pension Funds
• Senior Citizens Savings Scheme

• Deduction on home loan principal

  If you are a home loan borrower, then you can claim a deduction of up to Rs.1,50,000 on your principal amount in a financial year. This is within the overall limit of Rs.1,50,000.

  • You can also claim the amount you paid for subscribing to National Housing Bank’s Home Loan Account Scheme.
  • Contributions to NHB’s deposit schemes or pension funds are also eligible for deductions under Section 80C.

  But there are a few conditions you should meet to claim this deduction-

  • The home loan must be for purchase or construction of a new house property.
  • You can only avail the tax benefit after the construction of the house is complete.
  • You cannot sell the property, on which you have claimed the deduction, within five years of buying it. Doing so, would lead to the withdrawal of the deduction amount and the amount would be added as your income in the year of sale.
• Stamp Duty and Registration Charges for House

  Even if you don’t have a loan, you can still claim a deduction under Section 80C on the stamp duty and registration charges you pay while buying a house. This deduction is also within the ceiling of Rs.1,50,000 under Section 80C. This deduction can only be claimed in the year you pay the stamp duty and registration fee. If the property is jointly owned, each partner can claim the deduction in their respective IT returns depending on their share in the property.

• Life Insurance

  Any life insurance premium you pay up to Rs.1,50,000, for your own insurance or that of your dependents, can be claimed as deduction under Section 80C. This includes unit linked insurance plans too.

• Health Insurance

  When you take a health insurance policy, be it an individual or a family floater policy, the annual premium you pay for the policy is eligible for tax benefits under this section.

• Tax saving Five-Year Fixed Deposits

  Banks offer special tax-saving fixed deposits for this specific purpose. Investments up to Rs.1,50,000 in these tax saving FDs are eligible for deductions under Section 80C. But here are a few things you must know about these tax saving FDs. These FDs come with a lock-in period of five years.

• Tax-saving Mutual Funds or ELSS

  Investments up to Rs.1,50,000 in equity linked savings schemes are eligible for deductions under Section 80C. These mutual funds come with a lock in period of three years, which means you cannot liquidate these investments before three years from the date you bought the fund units.

• Public Provident Fund (PPF)

  If you are looking for a long-term saving option with stable returns and great tax benefits, you can open a Public Provident Fund account. PPF is the only saving instrument that offers ‘exempt, exempt, exempt’ tax benefits – which means your initial investment is exempt from tax, the interest you earn is exempt from tax and the maturity amount you get is also exempt from tax. In addition, PPF is highly secure because it is backed by sovereign guarantee. Some points to remember:

  • PPF can only be opened by resident Indian individuals.
  • It comes with a lock-in period of 15 years, extendable for 5 years.
  • You can make partial withdrawals after 7 years.
  • Minimum amount you can invest is Rs.500 and maximum amount investible is Rs.1,50,000 in a year.
  • The rate of interest is reset every quarter.
• Employee Provident Fund (EPF)

  Employers deduct a certain sum (12% of basic salary + dearness allowance) from your salary to contribute towards Employee Provident Fund. This deduction is matched by a contribution from your employer. Your own contribution to EPF is eligible for tax deduction under Section 80C but not your employer’s.

  • Deduction for EPF is mandatory for any employee earning more than Rs.15,000 a month as basic salary.
  • You can withdraw PF balance if you have left the job and are without a job for two months.
  • For PF withdrawal made before five years, the amount received is taxed in the financial year of withdrawal.
  • You can transfer the PF balance when you switch a job

  Investments in the good-old NSC or National Savings Certificate from the Indian Post Office is also covered under section 80C. NSCs are long-term investments maturing in 5 to 10 years. An investment of up to Rs.1,50,000 in NSCs is eligible for tax deductions under Section 80C. You can purchase NSCs from any post office.

  • The interest rate on NSC is 8.1% for 5-year deposits and 8.8% for 10-year deposits. The interest on NSCs is compounded annually
  • There is not maximum deposit limit under NSC. However, only Rs 1,50,000 can be claimed as deduction.
  • The interest earned every year on NSC qualifies for tax deduction. However, the maturity amount is fully taxable.
• Sukanya Samriddhi Account

  Apart from securing the future of your girl child, you can also invest up to Rs.1,50,000 in Sukanya Samridhi Account and save taxes. Few things to know about the Sukanya Samriddhi Account:

  • Interest on your deposits in these accounts is compounded annually
  • This interest is tax exempt
  • Minimum deposit amount is Rs. 1,000
  • Amount received on maturity is also tax free
  • The interest rate is compounded annually
  • You can open this account for up to 2 children
• Infrastructure Bonds

  Infrastructure companies like IDFC (Infrastructure Development Finance Company) and IIFC (India Infrastructure Finance Company) among others issue tax-saving bonds and debentures from time to time. Investments made in these bonds are eligible for deductions under Section 80C. You can claim benefits for investments up to Rs 20,000.

• Post Office Time Deposit

  If you have invested in the five-year post office term deposits, you can claim savings for tax deduction under Section 80C. 

• Education expenses or tuition fees

  Expenses made towards paying tuition fees in a school, college or university in India for two children can be claimed as deduction under Section 80c.

• Pension Funds

  Your investments in pension funds or notified annuity plans are eligible for tax deductions under Section 80C.

• Senior Citizen Saving Scheme

  Senior citizens (those above 60 years of age) can invest in these special savings schemes aimed at providing financial security and a regular source of income for them. The interest is paid out quarterly. You can invest up to Rs. 15,00,000 jointly with your spouse. But you can claim only Rs.1,50,000 for tax exemption.

Exemptions for NRIs under Section 80C

NRIs do not enjoy all the deductions made available to Indian residents under Section 80C. Like Indian citizens, though, they can claim a maximum deduction of up to Rs 1,50,000 under the section.

Options for NRIs under section 80C include:

• Payment of life insurance premium for self, spouse or children
• Tuition fees for full-time education of two children in India, including play school, pre-primary, school, college or university education.
• Repayment of principal of home loan for purchase of new property
• Investments in unit-linked policies (ULIPs)
• Investment in equity-linked savings schemes (ELSS)

Frequently asked questions (FAQs) about section 80C

• What does the limit of Rs. 1,50,000 mean? It is applicable for each investment?

  No. Rs. 1,50,000 is the overall limit available to a tax payer. You can claim the entire sum from one investment or from separate ones allowed under this section. For example, you could claim Rs 75,000 in ELSS and Rs 75,000 in PPF or you could put the entire amount of Rs. 1,50,000 in either of them.

• What is the eligibility and age criteria for Senior Citizens Saving Schemes?

  To invest in SCSS,

  • You should be above the age of 60.
  • Or should have taken voluntary retirement between 50 and 60 years of age and should invest in the scheme within a month of retirement
• Is the employer’s contribution to EPF also eligible for deduction?

  No. You can only claim your contribution as deduction under Section 80C. The employer’s contribution is taxable.

• Is the interest earned from investments under 80C tax free?

  Only in some cases. Interest earned and the maturity corpus from EPF, PPF and Sukanya Samriddhi scheme are tax-free. In the case of NSC, interest earned every year is tax free, but the maturity amount is fully taxable. In most of the other investments, interest income is taxable.

• Is a loan taken for repair of a house eligible for deduction under section 80C?

  No. To claim a tax deduction under Section 80C, the home loan should be taken towards purchase or construction of a new house.