Income Tax Deductions Under Section 80C


Each year most of the people eagerly wait for the budget proposals to be announced for various reasons.

One of the significant reasons is to know what all instruments of investments and deductions / exemptions have been included in the Section 80C of Indian Income Tax for employees, so that they can plan their tax savings according to the same, and maximize the benefits.

As income tax is major component of the salary, the changes / additions in 80C Section has major impact on the savings and expenses of salaried employees as they have a fixed source of income. The 80C Section deductions are introduced to boost savings of employees on one side and save tax on the other side.

Actually, Section 80C replaced the earlier Section 88 which was available till 1st April 2006. The Deductions permitted in the 80 C Section of Indian Income Tax is more or less the same investment mixes that were available in Section 88. Even the section 80CCC on pension scheme contributions was merged with the above 80C. However, this new section has allowed a major change in the method of providing the tax benefit. Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall.

The most important aspect that needs to be kept in mind is that the total exemption limit under section 80c is Rs 1,00,000/- only. This benefit is available to everyone, irrespective of his or her income levels. Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1,00,000/-, you save tax of Rs. 30,000.

We will now see in detail those deductions that are permissible under section 80C in this section. The following is section 80c deductions / exemption list.

Provident Fund (PF) deduction under section 80C

Any contributions to Provident Fund, Voluntary provident Fund (VPF) or savings made in Public Provident Fund (PPF Account) are eligible for income tax deduction under section 80C of Indian Income Tax Act.

Life Insurance Premiums

Any Life Insurance premiums (for one or more insurance policies) paid by you for yourself, your spouse or your children is eligible under income tax deduction under section 80C of Indian Income Tax Act.

ELSS Equity Linked Saving Schemes

Any investment made in certain Mutual Funds called equity linked saving schemes qualifies for section 80C deduction. Please note that not all mutual fund investments are eligible for this deduction. Some examples of ELSS funds are - SBI Magnum Tax Gain, HDFC Tax Saver, HDFC Long term advantage, etc.

ULIP - Unit Linked Insurance Plan

Investments made in certain ULIPs of Unit Trust of India and LIC of India are eligible for 80C deduction.

Bank Fixed deposits or Term deposits of term greater than 5 years

According to a relatively new provision amount saved in fixed deposits of term at least five years is eligible for income tax deduction under section 80C of Indian Income Tax Act.

Principal part of EMI on Housing Loan deduction under section 80C

If you are paying EMI on a housing loan, you would be aware that the EMI (equated monthly installments) consists of two parts - principal part and interest part. The principal part of the EMI on your housing loan is eligible for income tax deduction under section 80C. The interest part is also eligible for tax deduction, however not under section 80C but section 24.

Tuition Fees deduction under section 80C

Amount paid as tuition fee for the education of two children of the employee / Tax Payer is eligible for deduction under section 80C of Indian Income Tax Act.

Other 80C deductions

Amount saved in National Saving Certificate (NSC), Infrastructure Bonds or Infra Bonds, amount paid as stamp duty and registration charges while buying a new home are eligible for income tax deductions under section 80C of Indian Income Tax Act.

These are the eight avenues, which qualify for deductions under Section 80C of Indian Income Tax.

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