Section 80C Income Tax Deduction

80C Deduction

With the upcoming close of Financial Year 2018-2019, the season is hot for investments made to claim income tax deductions. Sec 80 of Income Tax Act, 1961 is one of them. It contains a list of investments, which when made can provide you exemption from income tax upto certain amount.

Investments made under section 80C allows individuals and HUFs to claim tax deduction of up to Rs. 1,50,000 from their gross total income.

Below is the eligible list of Deductions under 80C of Income Tax Act:-

  • Life Insurance Premium:
    • Annual Premium amount paid towards insuring self, spouse, dependent children and any member of Hindu Undivided Family are eligible.
    • The deduction is valid only if the premium is less than 10% of the sum assured.
    • An important point to be noted is that if the policy is issued on or prior to March 31, 2012, annual premium up to a maximum of 20% of the sum assured becomes tax deductible.
  • Sukanya Samriddhi Yojana:
    • It is a scheme of Govt. of India aimed at betterment of girl child in the country.
    • Eligibility: Account of any girl child, who has not yet attained the age of 10 can be opened by parent or legal guardian
    • Coverage: Two girl children (one account per girl child) and can be extended to a third if twins are involved
    • Withdrawal: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years
    • Return: 8.5% annually
    • Maximum Limit: 1,50,000
    • Taxability: Tax free completely from investment, withdrawal and maturity
  • Fixed Deposit
    • They are regular FD with minimal lock-in of 5 years
    • Premature Withdrawal: Not Allowed
    • Taxability: Interest earned is taxable and TDS is deducted
    • Eligibility: Can be opened by Resident Indian Individual
    • Return: 5.5%-7.75%
    • Minimum investment: Rs 1,000
  • Public Provident Fund
    • They are backed by Govt. of India, hence most secured
    • Eligibility: Resident Indian Individuals, salaried-non salaried. HUF not eligible
    • Limitation: Lock in of 15 years, further eligible for extension of 5 years
    • Premature Withdrawal: Partial withdrawals are allowed after 7 years
    • Return: 8.00% p.a.
    • Investment: Minimum – Rs 500 and Maximum – Rs 1,50,000
    • Taxability: Interest earned is tax free
  • Employee Provident Fund
    • Refers to retirement benefit scheme available to salaried employees. Employee contributes 12% of Basic Salary + Dearness Allowance which is monthly deducted by employer and deposited with EPF department or EPF trust.
    • Eligibility: If basic salary is greater than Rs 15,000 per month, employee is eligible
    • Withdrawal: Can be withdrawn after 2 months of leaving job and if not employed again
    • Return: Current interest rate is 8.55%
    • Limit: Employer and Employee each contributes 12% of Basic+DA
    • Taxability: Everything (Principal+Interest) is tax free, if withdrawn after 5 years of continuous service
  • Equity Linked Saving Scheme
    • ELSS are tax saving mutual funds eligible for 80c deduction
    • Withdrawal: Minimum lock-in of 3 years
    • Investment: Minimum of Rs 500
    • Frequency: Monthly, Quarterly, Half-yearly, Yearly
    • Return: Approx 12% in case of long term
    • Taxability: Interest earned is tax free
  • ULIP (Unit Linked Insurance Plans)
    • Offers benefits of Insurance + Investment
    • Eligible: Self, Spouse or child
    • Liquidity: Linked to market returns, so variable
    • Returns: 12%-14%
    • Investment: No maximum limit
    • Taxability: Investment at source, withdrawal & maturity is tax free
  • Stamp Duty and Registration Charges
    • Once you have the possession of the house, expenses incurred in the form of stamp duty and registration charges can be claimed under 80C
  • National Savings Certificate
    • They are issued by Govt. of India and can be bought from Post Offices
    • Lock-in: Minimum 5 years
    • Return: 8.0%
    • Taxability: Interest earned is taxable subject to reinvestment (reinvested interest is eligible for deduction under 80C)
  • Home Loan Repayment
    • If residential property is bought or constructed and any loan amount is repaid, its principal is eligible as deduction
  • Children’s Tuition Fees
    • Tuition fee paid for education of two children is eligible for deduction
    • Coverage: Across all school, colleges, university or educational institution in India
    • Limitation: Applicable on full-time course only

However, important to note that all these investments should be focused based on your financial needs, goals, liquidity and risk. For further details on above topics, we will keep you posted!!

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Author: AK

Ankit is a part-time blogger with full-time employment in an investment bank. He is a CA with interest in personal finance topics.

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