The Income Tax Act 1961 provides tax-saving benefits on investment instruments such as Saving plans, Life insurance premiums, Public Provident Fund (PPF) and much more under section 80C as well as its various sub-sections. Section 80C enables you to reduce your tax liabilities by lowering your taxable income by up to Rs 1.5 lakh every financial year. Only Individuals and HUF are eligible for deductions under section 80C, Corporations, Partnerships firms, LLPs or other entities do not qualify for deduction under section 80C.
Deductions under section 80C
Under section 80C there are multiple instruments that not only save tax but also grow money over time. Total deductions under section 80C are Rs 1.5 lakh per financial year.
Following are the deduction options available under section 80C of the Income Tax Act 1961.
Equity Linked Saving Scheme - ELSS are an open-ended mutual scheme which comes with the lowest lock-in of 3 years from the date of unit allotment. This scheme invests in equity and equity-related instruments. After the lock-in is over units in the investment are to be redeemed or switched.
Life Insurance Premiums - Any premium paid towards buying life insurance policies for self, spouse or children is eligible for deduction under section 80 of the Income Tax Act 1961.
Public Provident Fund (PPF) - PPF is a long-term equity scheme offered by the government that allows you to invest as low as Rs 500 to Rs 150,000 per financial year. Under section 80C your taxable income will reduce up to the amount invested in PPF. The interest earned in PPF is also tax-free. It has a lock period of 15 years.
Employee Provident Fund (EPF) Under section 80C of the Income Tax Act 1961 self contribution made towards Employee Provident Fund is also eligible for deduction under section 80C whereas the contribution from employer remains free from tax but is not eligible for deduction under section 80C.
Unit Linked Insurance Plan (ULIP) ULIP provides two benefits, first, it provides life insurance and second it provides investment benefits. Also, the premium paid towards ULIP is eligible for deduction under section 80C up to Rs 1.5 lakh per financial year. You can avail of deductions of 10% of the sum assured or the annual premium whichever is lower.
Tax Saver Fixed Deposits - To get benefits of tax deduction under section 80C one can save money in Tax Saver Fixed Deposits available at any banks or NBFCs. Any money deposited in Tax Saver Fixed Deposits are locked in for 5 years and interest earned on these fixed deposits are also taxable.
National Pension System ( NPS) - Contributions made towards the NPS are eligible for deduction under section 80CCD which is a subset of Section 80C. However, the combined deduction under sections 80C and 80CCD(1) should not be more than Rs 1.5 lakh per financial year. In case you contribute an additional Rs 50,000 in NPS under section 80CCD(1B) you are eligible for an additional deduction of Rs 50,000 over and above the deduction limit of Rs 1.5 lakh of section 80C. So, you can claim a deduction of Rs 150,000 and Rs 50,000 under sections 80C and 80CCD(1B) respectively.
Home Loan Principal Repayment - If you have availed home loan from any bank or financial institution, you can avail 80C deduction of up to Rs 1.5 lakh on the home loan principal repayment.
Sukanya Samriddhi Yojana ( SSY ) - SSY is a savings scheme for girl children and is eligible for deduction under section 80C of the Income Tax Act 1961. This account is for a girl child less than 10 years of age. This account can be opened for a maximum 2 girl children and can claim a deduction under section 80C of the Income Tax Act 1961
Senior Citizen Savings Scheme ( SCSS ) SCSS is for senior citizens above 60 years of age. Also, senior citizens who have opted for a Voluntary Retirement Scheme (VRS) can opt for it after 55 years of age. Any Investment made under this scheme is eligible for deduction under section 80C of the Income Tax Act 1961 up to Rs 1.5 lakh per financial year.
National Saving Certificate ( NSC ) - Any investments made in NSC are eligible for deduction under section 80C of the I.T. Act 1961. Not only the investment amount but also the interest earned in the first 4 years are eligible for deduction under section 80C.
Above are all the eligible savings and investment options available for deduction under section 80C of the I.T. Act 1961. These options not only help you to save tax but also to grow your money. A tabular chart is prepared below to understand these investment options better.
Investment Options | Average Interest | Lock in period | Risk factor |
|---|---|---|---|
ELSS | 12-15% | 3 yrs | High |
NPS | 8-10% | Till age 60 yrs | High |
ULIP | 8-10% | 5 yrs | Medium |
Tax Saver Fixed Deposits | 6-7% | 5 yrs | Low |
PPF | 7.1% | 15yrs | Low |
SSY | 8.2% | Till the girl reaches the age 21 | Low |
SCSS | 8.2% | 5 yrs | Low |
NSC | 7.9% | 5 yrs | Low |
If you are a salaried employee you will have to declare all your investments that you have made in the particular financial year and also provide receipts to your employer so that no extra tax is deducted. If you fail to do so, you can file the Income Tax and claim the extra tax deducted. For small businesses and Self-employed professionals, you will have to claim these deductions by filing income tax returns.
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