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What is Section 80C?
Section 80C of the Indian Income Tax Act, allows individuals to reduce their taxable income by up to ₹1.5 lakh annually. It is popular among taxpayers, as it offers a range of investment options to choose from to get this deduction. By choosing the right ones, you can reduce your taxable income and save on taxes every year. Under 80C, businesses and corporate entities aren’t eligible for exemptions.
Let’s say you earned a gross total income of ₹10,00,000 in FY 2023-24. If you invest ₹150,000/- in one or more eligible options specified under Section 80C, your total taxable income will then be ₹850,000/-.
By strategically planning your investments into various financial instruments like PPF, NSC, ELSS, and more, you can claim deductions of up to ₹1.5 lakh under Section 80C. This can effectively reduce your overall tax liability.
As per the Indian Income Tax Act of India, deductions covered by Section 80C are further categorized into specific sub-sections including Section 80C, Section 80CCC, Section 80CCD(1), Section 80CCD(1B), and Section 80CCD(2).
List of Options for Investments under Section 80C
| Investment Option | Minimum Lock-In Period | Rate of Interest | Associated Risk | Assured Return |
|---|---|---|---|---|
NPS | Till age 60 | 8% to 10% | High | No |
ELSS | 3 years | 12% to 15% | High | No |
PPF | 15 years | 7.1% | Low | Yes |
SCSS | 5 years | 8.2% | Low | Yes |
NSC | 5 years | 7.7% | Low | Yes |
ULIP | 5 years | 8% to 10% | Moderate | No |
Fixed Deposit | 5 years | Up to 8.40% | Low | Yes |
Sukanya Samriddhi Yojana | 21 years | 8% | Low | Yes |
National Pension System (NPS)
The National Pension System (NPS) provides two types of accounts: Tier I and Tier II. Tier I is mandatory for all NPS investors, while Tier II is optional.
Tier I investments offer NPS tax benefits under Section 80CCD (1), Section 80CCD (1B), and Section 80CCD (2) of the Income Tax Act, 1961.
- Section 80CCD (1): You can claim a tax deduction for your own contributions, up to Rs. 1.5 lakh.
- Section 80CCD (2): This benefit is for salaried individuals. Government employees can claim 14% of their salary, while private sector employees can claim 10% of their salary under this section.
- Section 80CCD (1B): You have the option to avail an extra deduction of up to Rs. 50,000 for your contributions.
On the other hand, the NPS Tier II account is entirely voluntary. You can invest and withdraw funds freely from this account without restrictions. However, it’s important to note that to open a Tier II account, you must already have a Tier I account in place.
Equity Linked Savings Scheme (ELSS)
ELSS, or Equity Linked Savings Schemes, is the only mutual fund in India that qualifies for a tax deduction.
It allows investors to claim an annual tax deduction on investments up to ₹ 1.5 lakh, under Section 80C of the Income Tax Act, with a mandatory 3-year lock-in period.
You can invest in ELSS either through a Lump Sum amount or through regular Systematic Investment Plans (SIPs). And, if your gains exceed ₹1 lakh in a financial year, you will need to pay a 10% tax on Long-Term Capital Gains (LTCG).
Public Provident Fund (PPF)
Public Provident Fund, commonly known as PPF, is a savings plan offered by the government, through banks and post offices. It is designed for long-term savings with a 15-year duration.
How PPF Works: You can start a PPF account with just ₹100, but you must deposit a minimum ₹500 and a maximum ₹1.5 lakhs each year. If you invest more than ₹1.5 lakhs in a year, you won’t earn interest on the extra amount. And, the highest deduction limit is set at ₹1,50,000.
Once you put your money in, your money is locked in for 15 years, but you have the option to make partial withdrawals starting from the 7th year. At the time of withdrawal, both the interest earned and the initial deposit are tax-free. To keep your account active, you need to make at least one deposit each year for the full 15 years.
Senior Citizens Savings Scheme (SCSS)
SCSS or Senior Citizens Savings Scheme is a retirement plan, supported by the Indian government for individuals above 60 (or those above 55 opting for voluntary retirement), with a 5-year lock-in period. Senior Citizens can invest up to ₹30 lacks with an attractive interest rate of 8.20% p.a. SCSS qualifies for tax exemption up to ₹1.5 lakh under Section 80C.
Additionally, premature withdrawal is allowed. This scheme provides both tax benefits and a steady income after retirement, making it an appealing option for senior citizens.
National Savings Certificate (NSC)
A National Savings Certificate or NSC, is a secure government-backed investment option, available at local post offices. It requires a 5-year lock-in period and offers an attractive interest rate of 7.7% annually (from April to June 2023). You can start with just ₹100, and there is no maximum limit, but only up to ₹1.5 lakh is exempted annually under Section 80C.
NSC provides premature withdrawals with some specific conditions, including cases where the certificate-holder has passed away or if the certificates have been surrendered.
Unit Linked Insurance Plans (ULIPs)
ULIP, or Unit Linked Insurance Plan, combines long-term investments with life insurance coverage. When you pay the premium, it’s divided between insurance and investments in equity, debt, or a combination of both, this makes ULIPs an excellent choice for achieving your and your family’s financial goals.
ULIPs have gained popularity, due to its dual benefits of saving money and offering tax advantages, investors can avail of tax exemptions up to ₹ 1.5 lakh on the invested amount u/s 80C income tax provisions.
Tax Saving FD
Tax Saving Fixed Deposits are a type of savings plan, offered by banks or post offices. It Allows you to save on taxes under Section 80C but comes with a 5-year lock-in period, and you can claim a maximum of ₹1.5 lakh tax exemption, the profits you earn from these deposits are subject to taxes.
Sukanya Samriddhi Yojana (SSY)
SSY or Sukanya Samriddhi Yojana is a government savings scheme, focused on meeting the financial requirements for a girl’s education and marriage. Launched in 2015 under the ‘Beti Bachao, Beti Padhao’ initiative, it encourages parents to start saving from their daughter’s birth.
Parents can open an SSY account in post offices and specific banks with a minimum investment amount of ₹250 and a maximum annual amount of ₹1.5 lakh annually. Partial withdrawals are allowed after the girl turns 18, specifically for her education expenses. This scheme provides tax exemption of up to ₹1.5 lakh per year, under Section 80C of the Income Tax Act.
Life Insurance Premiums (LIC)
Life Insurance Policy can get you a tax deduction of up to ₹1.5 lakh every year, under Section 80C of the Income Tax Act. This applies, whether you have taken out the policy for yourself, your kids, or your spouse, even if you have more than one life insurance policy from different companies, you can add up all the premiums you’ve paid and claim deductions up to ₹1.5 lakh annually.
Currently, up to 10% of the total amount assured by the policy is exempted from tax, before April 1st, 2012, you could get an exemption on premiums up to 20% of the assured sum.
This means policies issued after April 1, 2012, the premium should be under 10% of the assured sum. For policies issued before that date, the premium should not exceed 20% of the assured sum to claim this deduction.
Employee Provident Fund (EPF)
EPF or Employee Provident Fund is a government-backed retirement savings scheme, for salaried employees. It allows a tax benefit of up to ₹1.5 lakh annually under Section 80C. Withdrawals after five years of continuous service, EPF balance (including the interest) are tax-free. Voluntary contributions also qualify for tax exemptions.
It offers an attractive interest rate of 8.65% and requires a basic salary of over ₹ 15,000 per month to open an account.
Home Loan’s Principal Repayment Amount
When you’re paying the EMI for a home loan, your monthly payment goes toward repaying the actual loan amount, which can be claimed for tax deductions under Section 80C. However, it’s important to remember that the interest you pay on the loan does not qualify for this tax benefit.
Recent News on Section 80C
In the recent Union Budget 2023, Finance Minister Nirmala Sitharaman kept the rules for Section 80C unchanged. This means if you’re using the old tax regime, you can still get deductions up to ₹1.5 lakh. However, if you’ve chosen the new tax regime, these deduction rules won’t apply.
Conclusion
We can’t do anything about death, but yes, we can reduce the taxes, through smart investing. So, Start early in the financial year to lower your tax bill legally.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
