Section 80C Deduction - Income Tax Act

Section 80C is a facility available in the Income Tax Act which provides deductions of up to Rs.1.5 lakhs for various expenditures and investments including life insurance and mutual funds. Section 80C deduction is one of the most popular income tax deductions among taxpayers in India. Tax exemptions under Section 80C can only be obtained by individual taxpayers and Hindu Undivided Families. Otherwise, Corporate bodies, partnership firms, and other businesses are not eligible. In this article, we look at some of the popular avenues of deduction available under Section 80C. Connect with IndiaFilings to file your ITR on time!! [shortcode_102]

What is Section 80C?

Section 80C of the Income Tax Act in India lets you reduce your taxable income by up to Rs. 1.5 lakh per year. This benefit applies to investments you make in things like Employee Provident Funds (EPF), Public Provident Funds (PPF), life insurance premiums, and certain mutual funds. It also covers expenses on your children's tuition fees and principal repayment of your home loan.

Eligible Deductions under Section 80C

The following types of investments, deposits, and payments are eligible for deduction under Section 80C.

PPF (Public Provident Fund)

PPF or Public Provident Fund can help the taxpayer be provided with reasonable returns and act as a tax-saving tool. PPF investments are exempted at the investment stage and also exempted at the accrual stage. Hence, the taxpayer need not pay any tax both at the time when the interest is credited and at the time when the principal amount is withdrawn. Deduction under Section 80C for PPF can be claimed for the investments in the name of a spouse or children.

EPF (Employees’ Provident Fund)

Employees' Provident Fund is a social security Scheme run by the Employees’ Provident Fund Organisation. It is largely intended for the benefit for employees who are employed in industrial establishments. Businesses registered under PF deduct PF payments from salary and contribute on the employer's part. The amount obtained on withdrawal from a Provident Fund and Voluntary Provident Fund contributions made by employers is exempt from tax. The employees' contribution can be used for tax deduction under section 80C. Voluntary Provident Fund (VPF) contributions are also eligible for deduction under Section 80C.

Five-Year Bank Deposit

The amount deposited with banks regarding the Bank Term Deposit Scheme, 2006, is admissible as a deduction from gross total income. For a deposit in a bank to be eligible for deduction, the deposit must be made for a minimum period of 5 years. Also, the deposit should not have been pledged to secure a loan or be encumbered.

National Housing Bank Term Deposit Scheme

Subscription to deposit scheme of National Housing Bank Subscription to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008 of National Housing Bank is allowed as a deduction under Section 80C from gross total income.

Deposit with HUDCO

Subscription to Housing and Urban Development Corporation Limited (HUDCO) 's deposit scheme, the Public Deposit Scheme of HUDCO, is allowed as a deduction under Section 80C from gross total income.

Bonds issued by NABARD

Subscription to NABARD Rural Bonds issued by the National Bank for Agriculture and Rural Development (NABARD) is allowed as a deduction under Section 80C of the Income Tax Act.

Post Office Tax Saving Deposits

Post Office Tax Saving Deposits with a five-year tenure qualify for an income tax deduction under Section 80C. However, the account must have been opened on or after 8 December 2007 for the deposit to be eligible for a deduction.

NSC (National Savings Certificates)

National Savings Certificates (NSC) are tax-saving bonds issued by the Indian Postal Service. They can be used as a tax-saving tool in India, as they are eligible for deduction under Section 80C. Interest accrued on NSCs is taxable. However, if the interest is reinvested, it would be eligible for Section 80C deduction.

ELSS Mutual Funds (Equity Linked Saving Schemes)

Investment under any Plan formulated by a Mutual Fund or Unit Trust of India under the 'Equity Linked Savings Scheme, 2005' is allowed as deduction while computing total income of the assessee. The amount can be invested in units in multiples of rupees five hundred. The amount invested would be locked in for a period of three years. However, in case of death of the subscriber, the nominee or legal heir can withdraw the investment after the completion of one year from the date of allotment.

Investment in Infrastructure Development

Investment in equity shares or debentures issued by a public company formed and registered in India or a public financial institution, the proceeds of which should be utilised wholly or exclusively for developing, operating or maintaining any infrastructure facility under an agreement with the Central Government, State Government or a local authority or any other statutory body is allowed as a deduction under Section 80C of the Income Tax Act.

Investment in Mutual Fund for infrastructure development

Instead of directly investing in the equity shares of debentures of a company, taxpayers can also subscribe to a mutual fund for infrastructure development for availing deduction under Section 80C. If the amount invested in the mutual fund must be exclusively used for developing, operating or maintaining any infrastructure facility under an agreement with the Central Government, State Government or a local authority or any other statutory body.

Tuition Fees of Children

Amount paid towards tuition fee for full time education of any two children of the individual shall be admissible as deduction under section 80C( 2)( xvii). Deduction would be admissible of the amount paid to any university, college, school or other educational institution in India. However, payment towards any development fees or donation or payment of a similar nature would not be admissible as a deduction. If the taxpayer has taken out an educational loan to pay the tuition fee, a deduction can also be claimed under Section 80E

SCSS (Post Office Senior Citizen Savings Scheme)

Post Office Senior Citizen Savings Scheme is available in the Section 80C deduction list. Individuals over the age of 60 years or above on the date of opening of the account or someone who attained the age of 55 years or more and who has retired under a Voluntary Resignation Scheme (VRS) is eligible for the deduction. Deposits made in Post Office Senior Citizen Savings account that were opened on or after 8th December 2007 are eligible for section 80C deduction. Senior Citizen Savings Scheme account can be closed after expiry of five years from the date of opening of the account can be extended for another three years.

Principal Repayment of Home Loan

Taxpayers repaying home loan can claim deduction under Section 80C for the amount of principal repayment. Interest paid on a home loan is also eligible for income tax deduction under Section 24.

Stamp Duty Charges

Stamp duty charges paid during the purchase of a home is tax-deductible under Section 80C. However, this deduction is applicable only during the year of purchase of a residence.

Life Insurance Premium

Life insurance premium for insurance policy purchased from any insurance company is eligible for deduction under this section. The deduction can be claimed by a taxpayer for insurance premium paid. The premium can be paid for policies taken in the name of the assessee. Alternatively, the policies can be taken in the name of the assessee's spouse and children. In either case, a deduction can be claimed under Section 80C.

Sukanya Samriddhi Account Deposit Scheme

Sukanya Samriddhi Account Deposit is a type of Post Office Saving Schemes eligible for tax deduction under this section. The parent or a legal guardian can open a Sukanya Samriddhi Account in the name of the girl child. Parents can open one account in the name of one girl child and a maximum of two accounts in the name of two different girl children. Sukanya Samriddhi Account can be opened in the name of a girl child up to the age of 10 years only commencing from the date of birth. The account can be closed after completion of 21 years. Premature closure is also allowed after the girl child completes 18 years, provided the girl is married. Currently, an interest of 8.4% per annum, calculated on a yearly basis, is provided for Sukanya Samriddhi Accounts. The minimum deposit is Rs.1000 per year and the maximum deposit is Rs.1.5 lakhs per year.

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