WHICH TAX DEDUCTION ARE AVAILABLE UNDER SECTION 80C?
introduction OF SECTION 80C
Section 80C of the Income Tax Act in India provides taxpayers with a range of deductions to help reduce their taxable income. This section is one of the most popular and widely used provisions for tax-saving purposes. In this comprehensive guide, we will discuss the various tax deductions available under Section 80C, step by step, in detail.Visitofficialwebsite
Section 80C Overview:
Section 80C of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to claim deductions for specific investments and expenditures made during the financial year. The maximum deduction allowed under this section is Rs. 1.5 lakh for the financial year. It’s important to note that these deductions are available only to individuals and HUFs and not to other entities like companies or partnerships.
Applicable to Individuals and HUFs: Section 80C deductions are available to individual taxpayers and Hindu Undivided Families (HUFs). Other entities like companies and partnerships do not benefit from this provision.
Resident Status: You should be a resident of India to avail of the deductions under Section 80C. Non-resident Indians (NRIs) are not eligible for these deductions.
Step-by-Step Explanation of Section 80C Deductions:
1. Employee Provident Fund (EPF):
- EPF is a retirement savings scheme in which both employees and employers contribute a portion of the employee’s salary. The contribution made by the employee towards EPF is eligible for Section 80C deductions. This deduction includes both the employee’s and employer’s contributions.
2. Public Provident Fund (PPF):
- PPF is a popular long-term savings scheme that offers attractive interest rates and tax benefits. You can claim a deduction on the amount deposited in your PPF account within the prescribed limit, currently capped at Rs. 1.5 lakh per financial year.
3. National Savings Certificates (NSC):
- NSCs are government-backed savings certificates that offer a fixed interest rate. The investment in NSC is eligible for Section 80C deductions. Interest earned on NSCs is also considered reinvested and eligible for deduction.
4. 5-Year Fixed Deposit (FD) with Banks:
- Some banks offer special 5-year fixed deposit schemes that qualify for Section 80C deductions. These FDs have a lock-in period of 5 years.
5. Tax-Saving Fixed Deposits with Post Office:
- Like banks, the post office also offers tax-saving fixed deposit schemes, which provide a tax deduction under Section 80C.
6. Senior Citizens’ Savings Scheme (SCSS):
- SCSS is a government-backed savings scheme designed for senior citizens. It provides higher interest rates compared to other savings schemes. The amount invested in SCSS is eligible for Section 80C deductions.
7. Equity-Linked Savings Schemes (ELSS):
- ELSS is a type of mutual fund that primarily invests in equities. Investments in ELSS are eligible for Section 80C deductions. ELSS comes with a mandatory lock-in period of 3 years.
8. National Pension System (NPS):
- Contributions made to the National Pension System (NPS) are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C. Additionally, an exclusive deduction of Rs. 50,000 under Section 80CCD(1B) is available for NPS contributions.
9. Sukanya Samriddhi Yojana (SSY):
- The Sukanya Samriddhi Yojana is a government-backed savings scheme designed to promote the financial well-being of girl children. Deposits made in an SSY account are eligible for deductions under Section 80C.
10. Home Loan Principal Repayment: – The principal repayment of a home loan is also eligible for a deduction under Section 80C. However, it’s essential to note that the interest paid on a home loan is not covered under this section but can be claimed under Section 24.
11. Tuition Fees for Children’s Education: – The tuition fees paid for the education of up to two children can be claimed as a deduction under Section 80C. This deduction includes fees for any school, college, university, or educational institution in India.
12. Notified Tax-Saving Bonds: – Investments in specific bonds issued by institutions like the National Bank for Agriculture and Rural Development (NABARD) and the Rural Electrification Corporation (REC) are eligible for deductions under Section 80C.
13. Fixed Deposit (FD) for 5 Years in a Scheduled Bank: – Some scheduled banks offer 5-year fixed deposit schemes that are eligible for deductions under Section 80C. These FDs have a lock-in period of 5 years.
14. Principal Repayment of Housing Loan: – Apart from the principal repayment of a home loan, if you have taken a housing loan from certain specified entities, the principal component of the EMI is eligible for deduction under Section 80C.
15. ULIP (Unit Linked Insurance Plan): – Unit Linked Insurance Plans combine insurance with investment. The premium paid towards ULIPs is eligible for deductions under Section 80C.
16. Time Deposit with Post Office: – Time deposits made with the post office for a tenure of 5 years are eligible for deductions under Section 80C.
17. Employee’s Share of PF Contribution: – If you are contributing to your Employee Provident Fund (EPF) account, your share of the contribution can be claimed as a deduction under Section 80C.
18. Life Insurance Premium: – Premiums paid for life insurance policies, including endowment plans, whole life insurance, and term insurance, are eligible for deductions under Section 80C.
19. Stamp Duty and Registration Charges for a Home: – The expenses incurred for the purchase of a home, such as stamp duty and registration charges, can be claimed as a deduction under Section 80C. However, this deduction is available only in the year of purchase.
20. Tax Saving Fixed Deposit with a Cooperative Bank: – Fixed deposits with cooperative banks that have a minimum lock-in period of 5 years are eligible for deductions under Section 80C.
What are the best high-return tax saving investments under Section 80c in India
There are many options which come under 80C like PPF, PF, FD, ELSS Mutual Funds etc.
Let’s look at the comparison of these schemes on various factors.
As you can see ELSS Mutual Funds is the clear winner in this case.
In the last 3 years, there are many Equity Linked Saving Mutual Fund Schemes which have yield handsome returns in the range of 15 to 18%. Let’s have a look at a few of those.
These are some good funds with high returns. If you have a risk appetite to expose your investment to the stock market then you must go for ELSS schemes.
SIP can be a good option to start investing in ELSS funds or any other Equity based Mutual Fund.
Here is another article which can help you to choose a good Mutual Fund.
Hope it helps you to invest your money wisely and save tax under 80C !
What are investments under Section 80C
Section 80C of the Income Tax Act of India provides tax benefits for various investments and expenses, including:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Saving Certificate (NSC)
- Life Insurance Premiums
- Equity-Linked Saving Schemes (ELSS)
- Tuition Fees for Children’s Education
- Principal Repayment of Home Loan
- Sukanya Samriddhi Yojana
- 5-year fixed deposits with banks and post offices
- National Pension Scheme (NPS)
Note: The maximum limit for investment or expenses eligible for deduction under Section 80C is INR 1.5 Lakhs in a financial year.
What are other ways of saving tax than 80c
There are many other ways in which you can save your hard-earned money. There are literally a dozen Sections under which an Individual can save. However, 80C is the most used as investors can invest/save in High/Medium/Low-Risk options.
These are the different sections under which you can Save apart from section 80C.
- Section 80CCD- Any individual who contributes towards the National Pension Scheme (NPS) can claim an Income Tax Deductions under this section
- Section 80D- Section 80D of the Income Tax Act allows a deduction to an Individual or Hindu Undivided Family (HUF) for the amount paid towards medical insurance premium, medical expenditure, and preventive health checkup
- Section 80DD- A resident Individual/ HUF can claim Income Tax Deductions for any expenses incurred on the treatment of dependent family members. A family member includes children, spouse, parents, siblings.
- Sections 80DDB- Under Section 80DDB deductions are allowed on any expenses incurred on the treatment for Neurological Diseases with a disability of at least 40%, Malignant Cancer, AIDS, Chronic Kidney failure, Hemophilia, Thalassemia.
- Section 80U- An individual suffering from any of the following disabilities is eligible to claim deduction u/s 80U: Autism, Cerebral palsy, Blindness, Low vision, Leprosy cured, Hearing impairment, Locomotor disability, Mental retardation, Mental illness.
- Section 80E- Section 80E allows a deduction for interest paid on repayment of education loan taken for higher education.
- Section 80EE- A taxpayer can claim Income Tax Deductions under this section on interest paid on a home loan taken for the first residential house.
- Section 80G- Section 80G allows deductions for contributions made to certain relief funds and charitable institutions.
- Section 80GG- Section 80GG allows a deduction for rent paid for furnished or unfurnished accommodation.
- Section 80TTA- This deduction was introduced to encourage taxpayers to generate more savings. It is available to Individuals and HUFs other than a Senior Citizens.
How should I invest 1,20000 rupees for tax saving under 80C
I invest my 80C money in ELSS (tax Saver Mutual Funds). That is because of the following reasons:
- It has the lowest lock-in (3 years) compared to other 80C investment options. You dont want to lock-up your money for a crazy amount of time (like 15-20 years in LIC or PF).
- It gives the highest returns in the long term compared to the other options
I would suggest 5 year Tax Saver Fixed deposits ONLY if:
- You cannot handle the ups and downs of the markets in the short term, in short if you are very risk averse.
- You have no savings apart from the 1,20,000 that you are looking to invest.
This blog compares the various options pretty well – Which is the best Tax Saver investment for you?
how auriga accounting help you to explanation of section 80C deduction
Auriga Accounting, like any other accounting or financial advisory service, can assist individuals and businesses in understanding and maximizing the benefits of Section 80C deductions in the following ways:
In-Depth Knowledge: Auriga Accounting professionals have expertise in Indian tax laws and regulations. They can provide detailed insights into Section 80C deductions, including eligibility criteria, investment options, and limits.
Tailored Advice: Auriga Accounting can assess your financial situation and provide personalized advice on which Section 80C deductions are most suitable for your needs. They consider your income, financial goals, and risk tolerance to help you make informed decisions.
Tax Planning: They can help you create a tax-efficient financial plan that leverages Section 80C deductions to reduce your overall tax liability. This may involve structuring investments and expenses to maximize tax savings.
Investment Guidance: Auriga Accounting can guide you on the various investment options available under Section 80C, such as PPF, ELSS, NSC, and more. They can help you choose investments that align with your financial goals and risk tolerance.
Documentation and Compliance: They assist in proper documentation and compliance to ensure that you meet all the legal requirements for claiming Section 80C deductions. This helps you avoid tax-related issues in the future.
Filing Assistance: Auriga Accounting can help you with the preparation and filing of your income tax returns, ensuring that you claim all eligible deductions, including those under Section 80C.
Updates and Changes: Tax laws can change from year to year. Auriga Accounting stays up to date with the latest tax regulations, helping you adapt your tax strategy to any new rules or deductions.
Investment Diversification: They can advise on diversifying your investments to manage risk while optimizing tax benefits under Section 80C. This can include a combination of fixed-income, equity-linked, and long-term savings options.
Retirement Planning: Auriga Accounting can help you use Section 80C deductions to plan for your retirement. This might involve investments in instruments like the National Pension System (NPS).
Education Planning: If you have children’s education expenses to consider, they can guide you on how to utilize Section 80C deductions for tuition fees and education-related investments.
Real Estate Investments: For individuals with home loans, they can assist in understanding the principal repayment deductions allowed under Section 80C, helping you manage your home loan effectively.
Risk Management: Auriga Accounting can help you balance your portfolio between equity-based and fixed-income instruments under Section 80C to manage risk and returns effectively.
Estate Planning: They can advise on how Section 80C deductions can be used as part of estate planning to ensure the smooth transfer of assets to your heirs.
Financial Goal Alignment: Professionals at Auriga Accounting can align your tax-saving investments under Section 80C with your broader financial goals, such as buying a home, funding education, or saving for retirement.