Section 80C of Income Tax Act

Section 80C of the Income Tax Act provides exemptions on specific expenditures and investments from income tax. By planning investments in various financial assets like PPF, NSC, ELSS, etc., you can claim deductions up to Rs. 1.5 lakh under Section 80C, effectively reducing your taxable income.

If you on the lookout for smart strategies to cut down on your taxable income this year? Look no further than Section 80C of the Income Tax Act.

This section offers a treasure trove of tax-saving opportunities through various investments and allowable expenses. By tapping into tax saving investments under 80C, taxpayers can significantly reduce their tax burdens.

In this article, we will explore the meaning of Section 80C, the deductions available under this section, the exemptions it offers, and the associated tax benefits. Additionally, we will cover who is eligible for an 80C deduction, how to maximize these benefits, and more.

What is Section 80C of the Income Tax Act?

Section 80C of the Income Tax Act offers a valuable opportunity to reduce your taxable income. By strategically investing in eligible financial instruments, you can claim 80C deductions of up to Rs. 1.5 lakh.

Popular options include Public Provident Fund (PPF), National Savings Certificates (NSC), and Equity Linked Savings Schemes (ELSS). Diversifying your investments across these assets not only helps mitigate risk but also ensures you make the most of Section 80C benefits.

Consider consulting with a financial advisor to create a personalised tax-saving plan that aligns with your financial goals and risk tolerance.

Budget 2024: Will the government raise the section 80C deduction limit?

From the Union Budget 2024, taxpayers hope for lower tax rates and higher exemption limits. A key expectation is increasing the Section 80C tax deduction benefits, which currently allow up to Rs. 1.5 lakh in tax-deductible investments or expenses. Let’s understand these expectations in detail:

Preferred tax-saving option

Section 80C of the Income-Tax Act, 1961, is a favoured choice among taxpayers for reducing their tax burden. It includes a wide range of savings and investment options such as Life Insurance Corporation (LIC) premiums, Public Provident Fund (PPF) contributions, and Equity-Linked Savings Schemes (ELSS).

For the fiscal year 2024-25, individuals following the old tax regime can claim up to Rs. 1.5 lakh in deductions under Section 80C. However, the new tax regime does not allow for these deductions. This makes Section 80C particularly valuable to those opting for the traditional tax system.

Current limitations and expectations

Many taxpayers believe the current Rs. 1.5 lakh limit under Section 80C restricts their ability to invest in various tax-saving instruments like fixed deposits, ELSS, and the principal repayment of housing loans. With the rising cost of living and increased salaries, taxpayers quickly exhaust this limit, leaving little room for additional tax-saving investments.

Hence, there is a growing demand for the government to increase the deduction limit to Rs. 2 lakh in the upcoming Union Budget 2024. Such an increase would align the tax benefits with current economic conditions and provide taxpayers with greater flexibility and relief.

Impact on taxable income

It is worth mentioning that revising the Section 80C deduction cap would directly affect an individual's taxable income and tax liability. With rising living costs and salaries, the current Rs. 1.5 lakh limit is often insufficient and causes many taxpayers to hit the cap quickly. By increasing this limit, the government can reduce the taxable income for a larger number of taxpayers and lower their overall tax liability.

Additionally, this change would also encourage more investments in tax-saving instruments. By addressing these expectations in the Union Budget 2024, the government could provide significant relief and promote broader participation in Section 80C schemes.

Deductions list on investments under Section 80C

The following table provides an overview of various investment options available under Section 80C of the Income Tax Act, along with their key features:

Investment Option	Minimum Lock-in Period	Rate of Interest	Associated Risk
National Pension Scheme (NPS)	Till the age of 60	8% to 10%	High
Equity Linked Savings Scheme (ELSS)	3 years	Ranging between 12% and 15%	High
Public Provident Fund (PPF)	15 years	7.1%	Low
Senior Citizen Savings Scheme (SCSS)	5 years	8.2%	Low
National Savings Certificate (NSC)	5 years	7.7%	Low
Unit Linked Insurance Plan (ULIP)	5 years	Ranging between 8% and 10%	Moderate
Fixed Deposit	5 years	Up to 8.40%	Low
Sukanya Samriddhi Yojana	21 years	8.00%	Low

What are the exemptions under 80C?

Section 80C and Section 80CCC of the Income-Tax Act offers several tax benefits to lower the overall income tax liability. Section 80C allows a deduction of up to Rs. 1.5 lakh per year for investments in specified financial instruments such as Life Insurance premiums, Public Provident Fund (PPF), National Savings Certificates (NSC), and Equity-Linked Savings Schemes (ELSS).

On the other hand, Section 80CCC provides a similar deduction of up to Rs. 1.5 lakh for contributions made to specified pension funds designed to provide retirement benefits.

Eligibility criteria for Section 80C deductions

To claim deductions under Section 80C of the Income Tax Act, 1961, you must meet the following eligibility criteria:

• Eligible taxpayers

  • You are either an individual taxpayer or a Hindu Undivided Family (HUF).

• Maximum deduction

  • The maximum deduction you can claim is up to Rs. 1.5 lakh per financial year.

• Eligible investments

  • Life insurance premiums

  • Unit Linked Insurance Plans (ULIPs)

  • Provident Fund contributions

  • National Savings Certificates (NSCs)

  • Equity-Linked Savings Schemes (ELSS)

  • Sukanya Samriddhi Yojana (SSY)

  • Tax-saving Fixed Deposits (FDs)

• Other eligible expenses

  • Tuition fees for your children's education.

  • Repayment of the principal amount on a home loan.

• Lock-in period

  • Certain investments have a mandatory lock-in period, such as:

    • ELSS (3 years)

    • Public Provident Fund (PPF) (15 years), and

    • ULIPs (5 years).

• Premature withdrawal

  • If you withdraw from these investments before the lock-in period ends, you will lose the tax deduction benefits under Section 80C.

  • The amount previously exempt would become taxable in the year of premature withdrawal.

• Financial year applicability

  • Deductions apply to the financial year in which you make the investment.

Features of income tax deduction u/s 80

Section 80C allows you to claim a tax deduction of up to Rs. 1.5 lakh for investments in certain financial instruments. These deductions reduce your taxable income and, ultimately, your income tax liability. Below is a list of all the eligible deductions (investments/ expenses) you can claim under Section 80C:

Investments

• Life insurance premiums: You can deduct premiums paid on life insurance policies for yourself, your spouse, or your children (both minor and major). For Hindu Undivided Families (HUFs), premiums for any member can be deducted. However, premiums paid for parents are not eligible.

  • Sukanya Samriddhi Scheme: Investments in this scheme for your daughter or any girl child under your guardianship are deductible.

  • Fixed Deposits (FDs): Investments in five-year FDs of Scheduled Banks or Post Offices are eligible.

• Contributions to various funds:

  • Public Provident Fund (PPF)

  • Approved superannuation fund

  • Unit-linked Insurance Plan (ULIP), 1971

  •  Unit-linked Insurance Plan of LIC Mutual Fund

  • Approved annuity plan of LIC

  • Pension funds set up by mutual funds or administrators

  • National Housing Bank Term Deposit Scheme, 2008

  • Additional accounts under the National Pension System (NPS)

  • Senior Citizens Savings Scheme

• Subscriptions:

  • National Savings Certificates (NSC) (VIII issue)

  • Units of any mutual fund or administrator-specified company

  • Notified deposit schemes of public sector companies providing long-term finance for housing

  •  Specified equity shares, debentures, or units of mutual funds

  • Notified bonds issued by the National Bank for Agriculture and Rural Development (NABARD)

• Payments towards the principal amount of a housing loan, including stamp duty, registration fees, and other related expenses, can be deducted.

• Tuition fees paid to any school, college, university, or any other educational institution within India for the full-time education of up to two children can be claimed as a deduction.

Sub-sections under Section 80C of the Income Tax Act

Below is a table summarising the sections and subsections under Section 80C of the Income Tax Act, detailing the various investment options and expenditures eligible for tax deductions:

Section	Investments eligible for deductions under section 80C	Maximum deduction
80C	ULIP, ELSS, Provident Fund contributions, SCSS, Life Insurance premiums, SSY, Principal of home loan, and NSC	Rs. 1,50,000
80CCC	Contributions made to specified pension funds	Rs. 1,50,000
80CCD(1)	Contributions to Atal Pension Yojana (APY) or other government-sponsored pension schemes	Employed: 10% of Basic Salary + DA Self-Employed: 20% of Total Income
80CCE	Overall deduction limit for Section 80C, 80CCC, and 80CCD(1)	Rs. 1,50,000
80CCD(1B)	Additional contributions to NPS (over and above the deductions under Section 80CCE)	Rs. 50,000
80CCD(2)	Employer’s contribution to NPS (outside the Rs. 1.5 lakhs limit under Section 80CCE)	Central Government Employer: 14% of Basic Salary + DA Other Employers: 10% of Basic Salary + DA

 

How to calculate the Section 80C deduction?

To calculate the total amount eligible for deduction under Section 80C you must add all your investments and expenses made during the financial year and subtract them from your gross total income. To understand better, let’s study a hypothetical example:

Consider an individual taxpayer with gross taxable income for FY 2023-24 as Rs. 7,50,000. During the relevant financial year, the assessee made an investment of Rs. 1,20,000 in an ELSS fund. Also, they benefit from the standard deduction of Rs. 50,000 per year under Section 16 (iia) (available under the salary head).

Now, let’s consider two different scenarios: one in which Section 80C deductions are claimed and one in which they are not claimed.

Scenario I: Without Section 80C deduction

Particulars	Amount
Gross Taxable Income	Rs 7,50,000
Less: Standard deduction	Rs 50,000
Taxable income	Rs. 7,00,000

Based on taxable income of Rs. 7,00,000, we can calculate the tax liability after applying the latest income tax slabs as follows:

Tax on First Rs 2,50,000: No tax

Tax on Rs 2,50,001 to Rs 5,00,000: 5% of (Rs. 5,00,000 - Rs 2,50,000) = 5% of Rs 2,50,000 = Rs 12,500

Tax on Rs 5,00,001 to Rs 7,00,000: 20% of (Rs. 7,00,000 - Rs 5,00,000) = 20% of Rs 2,00,000 = Rs 40,000

Hence, total tax liability without Section 80C Deduction (ignoring rebate available under section 87A) is Rs. 52,500 (Rs. 12,500 + Rs. 40,000)

Scenario II: With Section 80C deduction:

Particulars	Amount
Gross Taxable Income	Rs. 7,50,000
Less: Standard deduction	Rs. 50,000
Less: Section 80C deduction (contribution to ELSS fund)	Rs. 1,20,000
Taxable income	Rs. 5,80,000

Based on taxable income of Rs. 5,80,000, we can calculate the tax liability after applying the latest income tax slabs as follows:

Tax on first Rs. 2,50,000: No tax

Tax on Rs. 2,50,001 to Rs. 5,00,000: 5% of (Rs. 5,00,000 - Rs 2,50,000) = 5% of Rs. 2,50,000 = Rs. 12,500

Tax on Rs. 5,00,001 to Rs. 5,80,000: 20% of (Rs. 5,80,000 – Rs. 5,00,000) = 20% of Rs. 80,000 = Rs. 16,000

Hence, total tax liability without Section 80C Deduction (ignoring rebate available under section 87A) is Rs. 28,500 (Rs. 12,500 + Rs. 16,000)

From the above example, we can clearly observe that additional tax savings due to Section 80C deductions are Rs. 24,000 (Rs. 52,500 – Rs. 28,500 = Rs. 24,000).

Income tax deduction limits under Section 80C, 80CCC, 80CCD(1), and 80CCD(2)

Under Chapter VI-A of the Income Tax Act, you can claim income tax deduction under different sections, such as 80C, 80CCC, 80CCD, and more. For an easier understanding, let’s check out the various available deductions below:

Section	Explanation	Maximum deduction limit
80C	Various investments like Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), National Savings Certificate (NSC), etc.	Rs. 1,50,000 per year
80CCC	Contributions to specific pension funds (e.g., LIC pension funds)	Within the Rs. 1,50,000 limit of Section 80C
80CCCD(1)	Employee contributions to National Pension Scheme (NPS) or Atal Pension Yojana (APY)	Up to Rs. 1,50,000 or 10% of salary + Dearness Allowance (DA), whichever is lower
80CCD(2)	Employer contributions to NPS or APY	Up to 10% of basic salary + DA (not part of Rs. 1,50,000 limit under Section 80C)
80CCD(1B)	Additional self-contributions to NPS or APY beyond the Rs. 1,50,000 limit of Section 80CCD(1)	Up to Rs. 50,000, which is over and above the limits of Sections 80C, 80CCC, and 80CCD(1)

 

Tax saving investment options under section 80C

Tax-saving investment options under Section 80C of the Income Tax Act offer a variety of avenues through which individuals can reduce their taxable income by investing in approved financial instruments.

Investment options under Section 80C include Public Provident Fund (PPF), Employee Provident Fund (EPF), Equity Linked Saving Schemes (ELSS), Tax Saving Fixed Deposits, National Pension System (NPS), and Unit Linked Insurance Plans (ULIPs), among others.

1. Equity linked saving scheme (ELSS)

ELSS funds are mutual funds that invest in equities and are eligible for tax deductions under Section 80C. This 80C investment has a lock-in period of three years and offers the potential for higher returns compared to other 80C investments.

2.. Investments in tax saving FDs

Investments in Tax Saving Fixed Deposits (FDs) are a type of fixed-income 80C investment offered by banks in India that help individuals save on taxes.

Lock-in period: 5 years
Interest rate: Varies, generally higher than regular savings
Tax benefit: Deduction under Section 80C
Safety: High, as FDs are less risky than market-linked investments

3. Investments in PPF (Public Provident Fund)

Investments in the Public Provident Fund (PPF) are a government-backed savings vehicle in India. These investments under 80c offer tax-free interest and returns.

Duration: 15 years, extendable in 5-year blocks
Interest rate: Compounded annually, set by the government
Tax benefit: Contributions, interest, and maturity are all tax-free under Section 80C
Eligibility: All Indian citizens

4. Investments in EPF (Employee Provident Fund)

Investments in the Employee Provident Fund (EPF) are mandatory retirement savings for salaried employees in India, where both employer and employee contributions are tax-deductible under Section 80C.

Contributions: This 80C investment is mandatory for salaried employees
Rate of interest: Annually decided by the government
Tax benefits: Contributions are tax-deductible; interest earned is tax-free
Withdrawal: Partial withdrawals are allowed for specific expenses

5. Investments in NPS (National Pension System)

Investments in the National Pension System (NPS) are voluntary retirement savings plans that provide flexible investment options in equities and fixed income. This 80C investment allows partial withdrawals upon reaching retirement age.

Structure: Tier-1 (mandatory, pension account) and Tier-2 (voluntary, savings account)
Tax benefits: Deduction under Section 80C; additional deduction for investment up to Rs. 50,000 under Section 80CCD(1B)
Withdrawals: Limited before retirement
Returns: Market-linked, depending on the fund chosen

6. Investments in ULIP (Unit Linked Insurance Plans)

The Unit Linked Insurance Plans (ULIPs) is an investment under 80c that combines life insurance with investment options. This allows policyholders to invest in a variety of market-linked assets while enjoying tax benefits on premiums paid and maturity proceeds.

Components: Investment and insurance
Flexibility: Choice of funds
Tax Benefits: Premiums and benefits are tax-free under Section 80C and Section 10(10D)
Lock-in Period: Minimum 5 years

7. Investments in Sukanya Samriddhi Yojana

Investments in Sukanya Samriddhi Yojana (SSY) are a government-backed savings scheme aimed at financial empowerment of the girl child in India, offering high-interest rates and tax benefits under Section 80C.

Purpose: To benefit the girl child
Rate of Interest: Higher than many debt-oriented investments, tax-free
Tax Benefit: Eligible under Section 80C
Account Operation: Till the girl reaches age 21 or upon her marriage after turning 18

Minimum Holding Period for Investments under Sections 80C, 80CCC, and 80CCD

To avail tax deductions under Sections 80C, 80CCC, and 80CCD of the Income Tax Act, specific investments must be held for a minimum period. This ensures that tax benefits are applied to long-term investments aimed at promoting savings and financial security. These sections cover investments in insurance policies, pension plans, and other savings instruments. Failing to meet the minimum holding period can result in the reversal of tax deductions and possible penalties.

Section	Investment Type	Minimum Holding Period
80C	ELSS (Equity Linked Savings Scheme)	3 years
80C	PPF (Public Provident Fund)	15 years
80CCC	Pension Plans	2 years
80CCD	NPS (National Pension Scheme)	Till retirement or 60 years

These durations are critical to ensuring eligibility for tax deductions while encouraging long-term wealth creation.

Expenses that qualify for tax deductions under Section 80C

Apart from eligible investments, several expenses are also allowed as a deduction under Section 80C. Let’s check them out:

• Premium payments made towards life insurance policies.
• Contributions made to Employees’ Provident Fund (EPF). For those unaware, these are monthly savings deducted from an employee's salary and contributed to a retirement savings scheme.
• Public Provident Fund (PPF) investments
• National Savings Certificate (NSC) investments
• Equity-Linked Savings Scheme (ELSS) investments
• Sukanya Samriddhi Yojana (SSY) investments
• 5-Year Fixed Deposit with Banks
• Senior Citizens Savings Scheme (SCSS) investments
• Payments made towards the educational expenses related to “tuition fees” of up to two children.
• The portion of home loan payments that go towards repaying the principal amount of a loan.
• Payments made in respect of stamp duty and registration charges for a home.

How to get tax deduction under section 80C?

To avail of tax deductions under Section 80C, follow these steps:

1. Invest wisely: Choose from various options like PPF, ELSS, NSC, life insurance, etc., and invest up to Rs. 1,50,000 annually.
2. Keep documentation: Retain all receipts and documents related to your investments as proof.
3. Submit proofs: Provide these documents to your employer or include them in your tax return.
4. Understand limits: The maximum deduction claimable is Rs. 1,50,000 across all investments under Section 80C.
5. Plan early: Invest early in the financial year to maximise the benefits of accruals and compound interest.
   

How much can be claimed under Section 80C?

There are limitations on the amounts that can be claimed for different activities and the total amount that can be claimed under these activities.

The combined maximum claim under Sections 80C, 80CCC, and 80CCD(1) is Rs. 150,000/-.

An additional deduction of Rs. 50,000/- is available under Section 80CCD, increasing the total deduction.

Section 80CCD(1) and 80CCD(2) apply to contributions made by employees and employers, respectively:

1. 80CCD(1) and 80CCD(1B)

• Deductible in the year of contribution, up to 10% of the salary
• Additional Deduction of Rs. 50,000/- over and above the Rs. 150,000/- limit under 80C

2. Deductions on contribution to NPS schemes

Please note that the Rs. 50,000/- deduction is available for NPS contributions in addition to the Rs. 150,000/- deduction available under Sections 80C, 80CCC, and 80CCD(1).

Who is eligible for deductions under section 80C of the income tax act?

All individual taxpayers and Hindu Undivided Families (HUFs) are eligible for deductions under Section 80C of the Income Tax Act for various investments and expenses incurred during the fiscal year. This includes salaried employees, self-employed persons, and freelancers.

How to maximise tax saving under section 80C?

• Diversify your investments by allocating your Rs. 1,50,000 limit across various instruments like ELSS, PPF, NSC, and tax-saving FDs. This strategy helps manage risks while enhancing potential returns.
• Begin your investments at the start of the financial year to take full advantage of compound interest and secure all eligible tax deductions.
• Aim to exhaust the Rs. 1,50,000 deduction cap completely. Utilising this limit fully can significantly decrease your taxable income.
• Also, consider investing on behalf of family members, such as paying for children's tuition or purchasing life insurance, to fully leverage available deductions.

When should you invest to claim a deduction under Section 80C of the Income Tax Act?

In India, the income tax system operates on a financial year basis. A financial year (FY) commences on April 1st and concludes on March 31st. Income tax returns (ITRs) for earnings accrued within a financial year are filed in the subsequent financial year.

The financial year in which the ITR is filed is termed the Assessment Year (AY), and the financial year for which the ITR is being filed is referred to as the Previous Year (PY).

For instance, if an individual earned Rs. 10 lakhs and made investments of Rs. 3 lakhs in the financial year 2021-22, they would report this income and investments while filing their ITR in the financial year 2022-23. In this scenario, the financial year 2021-22 would be the Previous Year, and the financial year 2022-23 would be the Assessment Year.

To claim deductions under Section 80C of the Income Tax Act, such as for investments in eligible instruments, the investments must be made during the Previous Year. Continuing the example, if the individual invested Rs. 1 lakh in eligible instruments out of the total Rs. 3 lakhs, they could claim a deduction of Rs. 1 lakh under Section 80C in the Assessment Year 2022-23.

Key consideration: Old Tax Regime vs New Tax Regime

It's essential to remember that in order to claim deductions under Section 80C of the Income Tax Act, taxpayers must opt for the old tax regime.

The new tax regime offers lower income tax slab rates but does not allow most deductions under Section 80C.

The decision between the two regimes is up to the taxpayer. Based on individual savings and investments, taxpayers can select the regime that best suits their financial situation to maximize benefits.

When to invest for Section 80C deductions?

It is advantageous to make investments for Section 80C deductions before the financial year ends on 31^st March. This approach allows you to claim the deduction and reduce your taxable income.

It’s also wise to spread your investments throughout the year, helping you avoid the last-minute rush and any potential issues that may arise in the final quarter of the financial year.

 

Other deduction options under Section 80C

• Contributions to an approved Superannuation Fund
• Subscription to any deposit scheme or pension fund of the National Housing Bank (NHB)
• Investment in bonds issued by the National Bank for Agriculture and Rural Development (NABARD)
• Deposits in the Senior Citizen Savings Scheme
• Subscription to a notified deposit scheme of a Public Sector Housing Finance Company
• Investment in bonds issued by the Housing Development Authority of cities, towns, and villages
• Contributions to annuity plans offered by LIC, such as Jeevan Dhara, Jeevan Akshay, or any other insurer approved by the Central Government
• Subscription to equity shares or debentures of a public company or public financial institution as part of an eligible capital issue approved by the Board, with proceeds utilized for an infrastructure company

Note: The total amount of deduction under Section 80C cannot exceed Rs. 1,50,000.

Conclusion

Utilising Section 80C for tax savings is a strategic approach that benefits various financial goals, including retirement planning, education funding, and wealth accumulation.

By understanding and making the best use of the provisions under this section, individuals depending on their income tax slab can significantly reduce their tax liability while securing their financial future.

Once you have maximised your tax benefit under 80C, you might consider exploring further investment opportunities.

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