Section 80C has been inserted with effect from assessment year 2006 – 07 onwards to provide income tax deduction in respect of specified qualifying amounts paid and deposited by the tax payer during the financial year (previous year).
Who is eligible for Income Deduction under section 80C
IT Deduction under section 80C is available to;
- An individual or
- a Hindu Undivided Family (HUF)
Income tax Deduction under section 80C is available only from gross total income of the taxpayer on the basis of specified qualifying investments / contributions /deposits/ payments made by the taxpayer during the previous year. Many of use know the popular investment options such as life insurance policies, PPF, NSC. All these investments are eligible for IT deduction under section 80C.
Maximum Amount allowed as income tax deduction under section 80C
The maximum income tax deduction under section 80C is Rs. 1, 00,00 however the aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) can not exceed Rs. 100000. If amount invested is less than the specified amount of Rs. 1, 00,000 then such lesser amount will be allowed as income tax deduction under these sections together.
Budget 2014 has increased the ceiling limit of Rs. 100000 to Rs. 150000 by which the earlier limit will be changed for the financial year 2014-2015. For the assessment year 2015-2016 an individual tax payer and HUF can claim higher tax deduction under section 80 up to Rs. 150000 by investing more in eligible investments or by spending more on eligible expenses.
Eligible Investments – Deduction under Section 80C
- Life Insurance premium paid by the taxpayer to effect or keep in force insurance on life of;(a) self, spouse and any child in case of individual and (b) any member, in case of HUF is eligible for a deduction under section 80C. Insurance premium paid or deposited should not exceed 10% of the actual capital sum assured. Insurance policy should be in the name of his own life, life of spouse or any child. In the case of Hindu undivided family, the policy can be in the name of any family members.
- Payment made to non commutable deferred annuity is eligible for IT deduction under section 80C if it’s taken in the name of the individual, his wife/her husband or any child of such individual.
- Income tax Deduction from salary payable by or on behalf of the Government to any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children is an eligible investment under section 80C. The sum so deducted does not exceed 20% of the salary.
- Contribution (not being repayment of loan) by an individual to Statutory Provident Fund; i.e., any provident fund to which the Provident Funds Act, 1925, applies is eligible investment to get tax deduction under section 80C of IT act
- Investment in Public Provident Fund scheme, 1968, in the name of self, spouse and any child (in case of individual and any member in case of HUF) is one of the best investment options to get tax benefit under section 80C.
- Contribution by an employee to a recognized provident fund or contribution by an employee to an approved superannuation fund is also eligible for IT deduction under section 80C.
- Sum deposited in a 10 year or 15 year account under the Post Office Savings Bank (CTD) Rules, 1959, in the name of self and as a guardian of minor in case of individual and in the name of any member in case of HUF is eligible for income tax deduction under section 80C.
- Subscription to the NSC (VIII issue) is a eligible income tax deduction under section 80C but interest accrued on such NSC will be taxable as your income.
- As a contribution to Unit-linked Insurance Plan (ULIP) of UTI or LIC Mutual Fund (Dhanraksha plan) in the name of self, spouse and child (in case of individual) and any member (in case of HUF) is eligible for income tax deduction under section 80C.
- To effect or to keep in force a contract for such annuity plan of the LIC (i.e., Jeevan Dhara, Jeevan Akshay and their upgradations) or any other insurer as referred to in by the Central Government is eligible for IT deduction under section 80C.
- As subscription to any units of notifies Mutual Fund referred u/s. 10(23D) (Equity Linked Saving Schemes) is eligible for Income tax deduction under section 80C.
- As a contribution by an individual to any pension fund set up by any Mutual Fund referred u/s 10(23D) eligible for income tax deduction under section 80C.
- As subscription to any such deposit scheme of National Housing Bank (NHB), or as a contribution to any such pension fund set up by NHB as notified by Central Government is eligible for IT deduction under section 80C.
- As subscription to notified deposit schemes of (a) Public sector company providing long-term finance for purchase/construction of residential houses in India or (b) Any authority constituted in India for the purposes of housing or planning, development or improvement of cities, towns and villages.
- As tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), to any university, college, school or other educational institution situated within India for the purpose of full-time education of any two children of individual can be claimed as income tax deduction under section 80C.
- Towards the cost of purchase or construction of a residential house property (including the repayment of loans taken from Government, bank, LIC, NHB, specified assessee’s employer etc., and also the stamp duty, registration fees and other expenses for transfer of such house property to the tax payer) is eligible IT deduction under section 80C. The income from such house property should be chargeable to tax under the head “Income from house property”.
- As subscription to equity shares or debentures forming part of any eligible issue of capital of public company or any public financial institution approved by Board can be claimed as an income tax deduction under section 80C.
- As Term Deposit (Fixed Deposit) for 5 years or more with Scheduled Bank in accordance with a scheme framed and notified by the Central Government is eligible for IT deduction under section 80C.
- As subscription to any notified bonds of National Bank for Agriculture and Rural Development (NABARD) is eligible for income tax deduction under section 80C.
- In an account under the Senior Citizen Savings Schemes Rules, 2004.
- As five year term deposit in an account under the Post Office Time deposit Rules, 1981.
Calculation – Deduction under Section 80C?
Add all your investments that you have invested in any of the investment listed above i.e. listed in under section 80C of IT act. If the above amount is lesser than Rs. 150000 then such lesser amount will be allowed as income tax deduction under section 80C. If the amount crossed Rs. 150000 then IT deduction amount under section 80C will be restricted to Rs. 150000.
While adding up the investments for Rs. 150000 thresholds the investment made in pension fund and in pension scheme notified by central government has to be taken into account.
Other Relevant Points Related to Section 80C
- Any amount received at the end of maturity of LIC and PPF is not taxable under IT act. Most of the peoples in India chose these investment options to take advantage of tax benefits under section 80C of IT act.
- monthly installments paid for your home loan has two components i.e. principle and interest. The principle portion will be eligible for IT deduction under section 80C and interest portion can be claimed as income tax deduction from your rental income or you can claim loss from house property if your house has not been on rent.
- Please remember you can claim stamp duty and registration charges incurred on transfer of house to you as IT deduction under section 80C.
As a salaried person you should not miss section 80C of IT act to get benefit of income tax deduction from your taxable income. Section 80C has provided two best investment options to get future benefit i.e. PPF and LIC. Apart from this there is another investment called investment in recognized provident fund which your employer should have been doing on your behalf, that amount is also eligible for IT deduction under section 80C of IT act. You can check your pay slip to get the total figure or you may ask your employer to give your complete EPF details for the year to claim income tax deduction under section 80C.