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80C Deduction – Understand income deduction under 80C

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Deductions under Section 80 C in India
February 28, 2024

Table of Content

 

No matter how much one earns, income tax payment continues to be the yearly fear factor for salaried individuals and Hindu Undivided Families in India (HUF). This is where the 80C deduction helps. Allowing exemptions and deductions for certain financial activities throughout the year, this section of the Income Tax Act, 1961, eases the burden by a substantial amount, much to the relief of taxpayers. 

What is section 80C?

Section 80C of the Income Tax Act is a clause under which deductions are available for investments and expenditures made in the year towards specified financial instruments and causes. The upper limit for deductions under 80C is Rs 1.5 lakh every financial year from the total taxable income of the investor.

How to avail of tax deductions under section 80C?

Any individual or HUF can avail of tax deductions under section 80C by carrying out investment and spending activities throughout the year. The following table illustrates the avenues through which claiming deductions is possible.  

Type

Investment and Nature





Fixed income instruments

  • - Provident Fund (EPF/VPF) – Retirement

  • - Public Provident Fund (PPF) – Long-term fixed income and retirement fund

  • - National savings scheme (NSC) – Long-term Fixed Income

  • - Senior Citizen Savings Scheme – Long-term debt

  • - Tax saving 5-year Fixed Deposit at bank – Long-term Debt

  • - 5-year time deposit at post office – Long-term debt 



Market-linked instruments

  • - Life insurance Premiums – Life cover + investment

  • - Unit Linked insurance plan (ULIP) – Life insurance + investment

  • - New Pension Scheme (NPS) under Atal Pension Yojana – Retirement Plan

  • - Pension plan from insurance companies – Retirement annuity plan

  • - Equity Linked Savings Scheme (ELSS) – Equity Mutual Fund


Expenditures

  • - Tuition fee of 2 children wherein Educational Institution is situated within India– Full Time education cost 

  • - Home Loan principal payment – Purchase of house

  • - Stamp duty, registration fee and other expenses of house – At time of purchase of the property

Eligibility Criteria of Section 80C of the Income Tax Act

A crucial point that needs to be noted is that deductions under section 80C have a set of specified eligibility criteria. They are as follows:

  • 80C deductions and exemptions are available only to Individual taxpayers and HUFs. 

  • Both Indian residents and non-resident Indians are entitled to the provisions of this section.  

  • Partnership firms, corporate bodies and other businesses are not eligible for 80C deductions and exemptions. 

Section 80C deductions list

Section 80C provisions can be applied to a specified set of investments and expenditures. These investments not only act as tax-saving instruments but also fetch returns across the policy period. However, deductions can be claimed up to a maximum limit of Rs 1.5 lakh for investments made in the financial year. Following is the list of investments, for which deductions and exemptions are available under section 80C of the Income Tax Act. 

  • Life Insurance premium

  • Unit Linked Insurance Plan (ULIP) premium

  • Employee Provident Fund (EPF)

  • Public Provident Fund (PPF)

  • Equity linked Savings Scheme (ELSS)

  • Tax Saving Fixed Deposits

  • National Pension Scheme (NPS)

  • Senior Citizen Savings Scheme

  • Sukanya Samriddhi Yojana

  • National Savings Certificate (NSC)

  • Home Loan principal payment

How to increase tax savings under section 80C?

Section 80C of the Income Tax Act, 1961 offers you tax savings and exemptions with an upper limit of Rs 1.5 lakh a year for investments in different financial plans. This amount can be claimed for a single investment or a cumulative investment in various eligible instruments. There is no one-size-fits-all-all formula to claim 80C deductions and increase tax savings under it. It is better to pick tax-saving investments that match your needs, financial goals and affordability. However, if you exhaust the total limit of Rs 1.5 lakh, an additional deduction of Rs 50,000 can be claimed for investment in a Government-backed pension plan. Pension plans like NPS therefore provide a way to increase your tax savings. 

How much can be claimed under section 80C?

Under the provisions of section 80C, one can claim deductions for tax-saving investments made throughout the year. Section 80C along with its subsections 80CCC and 80CCD (1) allow for a total claim of Rs 1.5 lakh per annum. Alongside, one can get an additional deduction of Rs 50,000 under section 80CCD (1B). This applies to investments in Government-backed pension plans like the National Pension Scheme only. 

How does HDFC Life help you save tax?

In its kitty, HDFC Life has different insurance plans that cater to the provisions of section 80C of the Income Tax Act, 1961. Payment of premiums for these plans can thus help you reduce your taxable income through deductions up to Rs 1.5 lakh a year. Subsequently, the maturity benefit can also be tax-free subject to the conditions specified under section 10(10D). 

Choose the right instruments under section 80C

Investment is always a critical decision as it is needed to match your needs and affordability and provide you with the best possible gain. Here, the gain comprises of not only the fulfilment of your goals and financial security, but also the tax benefits the investment offers. Under section 80C of the Income Tax Act, 1961, a total of Rs 1.5 lakh a year can be claimed as a deduction from your taxable income. Hence, it’s extremely crucial to choose the right instruments to avail of 80C tax benefits, that will also best fit your investment needs. For instance, with growing uncertainties in life, it is always a wise pick to include life insurance in your investment portfolio that reduces your tax liability subject to section 80C. 

How long should you stay invested?

While you choose to invest in a tax-saving instrument under the provisions of section 80C, there’s another important point that needs to be kept in mind. Different investments have different time limits, which need to be followed to avail of the tax benefits. The following table illustrates how long you should stay invested in different financial instruments to enjoy the 80C deductions. Here’s a gist:

Investment

Minimum holding period

Unit Linked Insurance Plan (ULIP)

5 years

Term Insurance

2 years

Repayment of Home Loan Principal/Cost of buying or construction of house

5 years

Time Deposit in Post office/ Term Deposit with a Scheduled Bank

5 years

Equity Linked Savings Scheme (ELSS)

3 years

NPS

Up to retirement

Other 80C deduction options

While most taxpayers choose common tax-saving instruments to reap the benefits of section 80C, a few other investment options can get you deductions under the same section. Here’s a list:

  • Subscription to National Housing Bank pension fund/deposit scheme

  • Contribution by Employee to Approved Superannuation Fund

  • Contribution to annuity plans by LIC or other Govt. approved insurers

  • Subscription to National Bank for Agriculture and Rural Development (NABARD) bonds

  • Subscription to notified deposit scheme of Public Sector Housing Finance 

  • Subscription to equity shares or debentures of a public company or public financial institution that constitutes any eligible issue of capital approved by the board where proceeds are used for an infrastructure company

Conclusion

Understanding Section 80C investments can help you save money on taxes while still achieving your financial goals. An income tax calculator can help you understand how different investments affect your tax burden. By carefully selecting tax-saving options that align with your needs, you can maximize your benefits under Section 80C and make smarter financial decisions.

FAQs on Section 80C Deduction

Q. What deductions are allowed in 80C?

Under section 80C, eligible investments can fetch you a total deduction of Rs 1.5 lakh per year. The list of popular investments with 80C benefits includes life insurance, ULIP plans, EPF, PPF, NSC, Senior Citizen Savings Scheme, Sukanya Samriddhi Yojana, Tax saving FDs, Home loan repayment, stamp duty, registration costs towards purchase of a house etc.

Q. Can I claim 1.5 lakh in 80C?

Yes, you can claim a total deduction of Rs 1.5 lakh under section 80C of the Income-tax Act, 1961. 

Q. Are 80C and 80CCC the same?

No. Section 80C offers you a total deduction of Rs 1.5 lakh per year on different kinds of investments. Whereas, Section 80CCC entitles you with a deduction of Rs 1.5 lakh a year against investment towards specific pension plans only. 

Q. What is the maximum tax exemption under Section 80C?

The maximum tax exemption under Section 80C is Rs 1.5 lakh against one or more eligible investments every year. This amount gets deducted from the taxable income for the year.

Q. Are donations eligible for tax exemptions under Section 80C?

No, donations are not eligible for tax exemptions under 80C. Instead, you can claim a deduction for donations made under section 80G of the Income Tax Act, 1961. 

Q. Who can claim deductions under Section 80C of the Income Tax Act, 1961?

Individuals and Hindu Undivided Families can claim deductions under section 80C of the Income Tax Act, 1961. Both resident and non-resident Indians fall into this category. 

Q. Is term insurance premium included under the 80C deduction?

Yes, term insurance premium is included under 80C deduction up to Rs 1.5 lakh a year. 

Q. Can deduction under sec 80C be claimed under New Tax Regime?

No, deduction under Sec 80C is not available under New Tax Regime.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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