Income tax deductions available under section 80C in India; Know all details here.
Investment instruments can save taxes thanks to the Income Tax Act of 1961. Every financial year, you could lower your taxable income by up to Rs. 1.5 lakh by taking advantage of the Section 80C deduction.
80C deduction is available for individuals and Hindu Undivided Families (HUFs), you can claim a maximum deduction of up to Rs 1.5 lakh from your total income under Section 80C.
In Union Budget 2023, Finance Minister Nirmala Sitharaman did not make any changes to Section 80C. Therefore, if you have opted for the old tax regimen, you can still benefit from deductions amounting to Rs.1.5 lakh under section 80C. However, it’s important to note that these deduction rules do not apply if you have opted for the new tax regime.
Tax saving options under Section 80C
There are several options you can choose to save tax under Section 80C of the Income Tax Act. Let’s look at these tax saving investments in detail.
National Pension System (NPS)
NPS enables its people to receive pensions after retirement. An NPS account can be opened by any Indian citizen between the ages of 18 and 70. Section 80C of the Income Tax Act allows for tax deductions on investments made up to Rs. 1.5 lakh in the scheme. On investments of Rs. 50,000, you can additionally benefit from an extra tax credit under Section 80CCD (1B). Since this is a pension plan, NPS payments for paid employees are locked in until the investor reaches 60.
ELSS funds
Equity-Linked Savings Scheme is a type of mutual fund that invests in equity and equity-related instruments. ELSS funds have a lock-in period of three years. Another category of Section 80C-covered investment plan is the ELSS, which offers income tax savings on contributions made to the fund.
Unit Linked Insurance Plan
The Unit Linked Insurance Plan provides both investment and life insurance benefits. Additionally, it offers income tax savings on investment amounts up to Rs. 1.5 lakh under Section 80C.
Public Provident Fund (PPF)
The government offers the PPF plan, and investments made in it are tax deductible under Section 80C. In a fiscal year, you can invest as little as Rs 500 and as much as Rs 1.5 lakh. Currently, PPF interest is tax-free and compounded annually, with a 15-year maturity term.
Life Insurance Premiums
The Section 80C deduction also applies to any premiums you pay for your spouse, children, or yourself on life insurance. Note that you are not able to deduct Section 80C premiums for your in-laws or your parents (father, mother, or both).
Sukanya Samriddhi Account
Section 80C allow for the deduction of any money placed into this account. This account can also be formed for a maximum of two females, and if there are twins, the third kid will also be eligible for this benefit. With this investment, there are additional requirements.
National Savings Certificate (NSC)
Under Section 80C, the amount invested in NSC is deductible from taxes. Currently, up to Rs. 1.5 lakh can be deducted under this clause in a financial year.
Five-year tax-saving Bank Fixed Deposits (FDs)
Any term deposit with a tenure of five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable.
Claim tax deduction for EPF contribution
Your employer will also contribute an equivalent amount if you contribute to the Employees Provident Fund (EPF), which receives 12% of your base pay each month. The provident fund trust of your firm or the government manages the money. Your EPF contribution may be deducted from your basic salary’s taxable income.
Infrastructure Bonds
These are issued by infrastructure companies, not the government.
NABARD Rural Bonds
NABARD, the National Bank for Agriculture and Rural Development, provides two types of bonds: Bhavishya Nirman Bonds and NABARD Rural Bonds. It’s important to note that only the NABARD Rural Bonds qualify for tax deductions under Section 80C of the Income Tax Act., and the maximum amount that you can claim as deductions is Rs.1.5 lakh.
Senior Citizen Savings Scheme
The Senior Citizen Savings Scheme stands out as an excellent long-term debt investment option for senior citizens. It offers comparatively attractive returns, and the interest is disbursed quarterly. This scheme is exclusively available for individuals aged 60 and above, providing them with a favorable investment avenue.
Five-year Post Office Time Deposit Scheme
Post office deposit schemes bear similarities to fixed deposits provided by banks. These long-term debt schemes offered by the post office can have durations ranging from one year to five years. However, it’s essential to note that only the interest earned on five-year post office time deposit schemes qualifies for tax deductions under Section 80C.
Now let us take a look at the expenses in the 80C bucket of deductions.
Expenses eligible for 80C deduction
Tution fees paid for 2 children
This deduction is exclusive to parents, and it extends to the school fees of adopted children as well. Each parent is eligible to claim a deduction of up to Rs 1.5 lakh for a maximum of two children separately. Consequently, if both parents are taxpayers, they can collectively claim deductions for a total of four children. It’s important to note that this deduction is applicable only for payments made towards the full-time education of the child. However, not all expenses fall under the category of tuition fees; exclusions include development fees, donations or charity, private coaching fees, and other miscellaneous expenses such as hostel charges, mess fees, library charges, or similar payments. The deduction applies to tuition fees paid to any university, college, school, or other educational institution located in India.
Registration Charges and Stamp Duty for a Home/Property
If you buy a home or property and incur expenses on stamp duty and registration, you have the opportunity to claim tax deductions for these amounts under Section 80C of the Income Tax Act.
Principal Repayment of Home Loans
There are two parts to the equivalent monthly installment (EMI) you pay back on your home loan: principal and interest. Section 80C allows for a deduction of the principal.
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