How to save income tax under section 80C ?
Every year as the return filing date approaches, most of
us stress out thinking about how to save
taxes. Some approach their ‘gyani’ friends, while others reach out to their
colleagues and there are some who seek help from tax advisors. Whichever way
you choose, the point is, you need to be aware of the various tax saving
options available to you as per the Income Tax Act, 1961.
One of the most widely used
option to save income tax is Section 80C of the Income Tax Act. It helps
you reduce the tax burden by allowing a deduction from the total taxable income
in a financial year. Let us understand how you can benefit from Section 80C deductions.
What
is Section 80C Deduction?
As
per Section 80C, an individual or a Hindu Undivided Family (HUF) can claim a deduction
of up to Rs. 1.5 lakh from the gross total income if investments are made
or expenses are incurred in specified avenues. These avenues include contribution
to ULIP, Public Provident Fund (PPF),payment for life insurance premium,
contribution to any recognised provident fund and superannuation fund,
tax-saving fixed deposit plans, subscription to National Savings Certificate,
among others. We will see this list in detail in the next section. While the maximum limit for tax saving under
Section 80C is Rs. 1.5 lakh, there is no minimum limit.
When
you claim a deduction, you reduce your gross taxable income and thereby
the total tax payable by you in the financial year. Let us understand this with
an example.
Let’s say, in FY 2019-20, your gross total earnings are Rs 10 lakh and
you have invested Rs 1.5 lakh in the various schemes which are eligible for
deduction under section 80C. Now, you can claim the tax benefit and reduce your
income tax liability to Rs. 8.5 lakh (i.e. Rs. 10 lakh – Rs. 1.5 lakh) and pay
tax on the same.
Eligibility to Claim Section 80C
Deduction
As
mentioned earlier, an individual or a HUF can claim a deduction under this section. Note that this deduction
is not available to partnerships, companies and other corporate bodies.
Besides, you can claim a deduction only from the income of
the financial year in which you have made these
specified investments or incurred the expenditures.
What Qualifies as Eligible Investment
and Expenditure for Deduction Under Section 80C?
Some of the popular investments and payments eligible for tax deductions
under Section 80C are as follows:
1. Investment Schemes - Unit
Linked Insurance Policies (ULIPs), Equity Linked
Savings Scheme (ELSS) Mutual Funds
2. Retirement Savings Schemes -
Public Provident Fund, (PPF), Employees Provident Fund (EPF), Voluntary Provident Fund (VPF), National Pension System (NPS), Superannuation Funds
3. Fixed Income Schemes
-Sukanya Samriddhi Yojana, National Savings Certificate (NSC), Kisan Vikas Patra
(KVP), Senior Citizens Saving Scheme (SCSS), 5-year Post Office Term deposits,
5-year bank fixed deposits
4. Insurance Schemes -
Term Insurance, Annuity Plan, Endowment Insurance
5. Miscellaneous
- Home loan repayment, tuition fee payment
Taxation Rules, Lock-in Period and
Returns of Various Section 80C Investments
|
Investments
|
Taxation Rules
|
Lock-in period
|
Approximate Returns
|
|
Public
Provident Fund
|
Completely
exempt
|
15
years
|
7% to 8%
|
|
Employees’
Provident Fund
|
Completely
exempt unless withdrawn before completion of 5 years of service
|
5 years
|
8.65%
|
|
Equity
Linked Savings Schemes
|
Principal
investment is tax deductible. Returns are taxable if annual capital gains
exceed Rs. 1 lakh
|
3 years
|
15% to 18%
|
|
National
Pension Scheme
|
Amount
deposited annually is tax deductible. Pension pay-out is taxable as per slab
rate
|
Till
retirement
|
12% to 14%
|
|
Tax
saving fixed deposits
|
Investments
are tax deductible. Interest earned is taxable at pay-out.
|
5 years
|
6% to 7%
|
|
National
Savings Certificate
|
Principal
investment and reinvested interest are tax deductible. Final year’s interest
is taxable
|
5 years
|
7% to 8%
|
|
Sukanya Samriddhi Yojana
|
Investments
are tax deductible
|
21
years
|
8.5%
|
|
Senior
Citizen Savings’ Scheme
|
Investments
are tax deductible. Returns are taxable as per slab rate of senior citizens
|
5 years
|
8.7%
|
Apart from the above investment options, deductions are also
available for certain payments. Let us understand the tax rules regarding them.
Taxation Rules of Various Section 80CExpenses
/ Payments
|
Expenses
/ Payments
|
Taxation Rules
|
Home
Loans
|
Principal amount of a home loan is exempt every year, if the
house is not sold within 5 years of possession. A deduction is also available
on registration fee and stamp duty payments
|
Premium
Payment on Life Insurance Policies
|
Amount
paid annually as premium is tax deductible
|
School or
Tuition Fees paid for your Child’s Education
|
Amount
paid as tuition fees for college, school, university, etc. for the education of up
to two children is exempt
|
Tax Exemptions other
than Section 80C
Apart
from the above-mentioned deductions, there are also certain tax exemptions available
from various other sub-sections of Section 80. These include:
· Section
80D
Under
this section, you can claim an exemption on the premium payments towards health
insurance of self, parents, spouse and children. A deduction is available up to
Rs. 25,000 for self and spouse and an additional Rs. 25,000 for parents.
· Section
80G
Under
this section, you can claim an exemption of up to 50% or 100% for the donations
made towards various charities and social causes, depending on the cause of
donation.
· Section
80GGC
Under
this section, you can claim an exemption for donations
made towards any political party, provided payments are made through modes other
than cash.
Tax deductions are an excellent way through which you can do
your tax planning and reduce your overall taxable income. However, the amount
of deduction varies depending on the type of investment and claim.
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