Know all 80C deduction you can invest or avail for FY 2020-21 before 31st March 2021
Taxpayers can seek Deduction under Chapter VI A, which would help them reduce them taxable income. There are a lot of deductions available under various sections to help taxpayers bring down their taxable income. Each of these sections caters to a specific type of investments or expenses
Section 80C is the most important way of saving taxes. It allows taxpayers to reduce their taxable income by making investments and some expenses and thus save on taxes they pay. Currently, section 80C allows deduction from gross total income (before arriving at taxable income) of up to Rs 1.5 lakh per annum on eligible investments and specified expenses.
Eligible investments include life insurance, equity-linked savings schemes, Public Provident Fund, National Savings Certificate, five-year notified tax-saving bank deposits, five-year post office time deposits, Senior Citizens’ Savings Scheme, Sukanya Samriddhi Account and Employees’ Provident Fund. Expenses and outflows are tuition fees, principal repayment of home loan, etc. One can invest the entire amount of Rs 1.5 lakh in one investment or diversify across more than one. Let us learn more about deductions under Section 80C in this article.
Home Loan Principal Repayment
- The Indian government has always shown a great inclination to encourage citizens to invest in a house. This is why a home loan is eligible for tax deduction under section 80C.
- When assessee’s buy a house on a home loan, it comes with multiple tax benefits too that significantly reduce your tax outgo.
- The Principal portion of the EMI paid for the year on home loan is allowed as deduction under Section 80C.
- But to claim this deduction, the house property should not be sold within 5 years of possession.
- Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
- Further, any payment made to development authorities like Delhi Development Authority (DDA) in order to purchase a house (which has been allotted to you in a scheme made in this regard) also qualifies as deduction under section 80C.
Life Insurance Premium
Payment of premium on life insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. The investment in life insurance can be deducted up to Rs 1,50,000.
In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children. In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF.
Section 80C of the Income Tax Act provides deduction up to Rs 1,50,000 provided taxpayers invest according to condition given below:
- Policy Issued from 01.04.2012 – premium paid not in excess of 10% of Capital Sum Assured (as amended by Finance Act 2012).
- Policy Issued from 01.04.2003 and on or before 31.03.2012 – premium paid not in excess of 20% of Capital Sum Assured
- Policy Issued from 01.04.2013 – premium paid not in excess of 15% of Capital Sum Assured (Inserted by the Finance Act, 2013, w.e.f. 1-4-2014).
Provident Fund Investment
A provident fund is a retirement fund run by the government. They are generally compulsory, often through taxes, and are funded by both employer and employee contributions. Governments set the rules regarding withdrawals, including minimum age and withdrawal amount. If a participant dies, his or her surviving spouse and dependents may be able to continue drawing payments.
Statutory Provident Fund or General Provident Fund is maintained by Government and Semi-Government organizations. The Government employee contributes a certain amount of salary to this fund. The accumulations in this fund are paid to the Government employee at the time of retirement or superannuation.
As per Section 6 of the Provident Fund Act, if an employee so desires, he/she can make provident fund contribution in excess of the statutory rate subject to the condition that the employer shall not be under an obligation to pay any contribution over and above its contribution payable under the law. Thus, an employee can make Voluntary Provident Find (VPF) contributions at any time while he/she is a contributory member of Employees Provident Fund (EPF).
PPF is a scheme provided by the government. One can invest as low as Rs 500 and as high as Rs 150000 in a financial year. The normal maturity period is 15 years. The interest rate is assured but not fixed.
Employee’s contribution to any provident fund (apart from unrecognised provident fund) is eligible for deduction under Section 80C up to Rs 1,50,000.
Investment in Equity Linked Savings Scheme (ELSS)
- ELSS funds are equity funds that invest a major portion of their corpus into equity or equity-related instruments.
- ELSS funds are also called tax saving schemes since they offer tax exemption of up to Rs. 150,000 from your annual taxable income under Section 80C of the Income Tax Act.
- Further, these schemes have a mandatory lock-in period of 3 years.
- Therefore, on redeeming the units, investors receive long-term capital gains or LTCG. These gains are not taxable up to Rs. 1 lakh in one financial year. Any LTCG above this limit is taxed at 10% of the gains exceeding Rs. 1 lakh without indexation.
Investment in Sukanya Samriddhi Account
- Sukanya Samriddhi Yojana is one of government-backed small savings schemes under the Beti Bachao, Beti Padhao campaign, that can help parents secure the future of their girl child.
- One of the reasons why this scheme has become popular is due to its tax benefit.
- It comes with a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income-tax Act.
- Further, the interest accrued and maturity amount are exempt from tax.
- Only parents or legal guardians of the girl child can open a Sukanya Samriddhi account in the name of the girl.
- The girl child should be less than 10 years at the time of account opening. The account can be operational till the girl reaches the age of 21 years.
- A single girl child cannot have multiple Sukanya Samridhhi accounts.
- Only two Sukanya Samriddhi Yojana accounts are allowed per family i.e., one for each girl child.
- The account will have to be closed if the girl child becomes an NRI or loses her Indian citizenship.
Investment in National Savings Certificate (NSC)
- The National Savings Certificate is a fixed income investment scheme that investors can open with any post office.
- A Government of India initiative, it is a savings bond that encourages subscribers, mostly small to mid-income investors to invest while saving on income tax.
- A fixed-income instrument like Public Provident Fund and Post Office FDs, this scheme too is a secure and low-risk product.
- One can buy it from the nearest post office in their name, for a minor or with another adult as a joint account.
- The certificates earn a fixed interest and come with a fixed maturity period of five years. There is no maximum limit on the purchase of NSCs, but only investments of up to Rs.1.5 lakh can earn a tax break under Section 80C of the Income Tax Act.
Investment in Infrastructure bonds
- Popularly called Infra Bonds, these are issued by infrastructure companies, not the government. The amount invested in these bonds can also be included in Section 80C deduction.
- Infrastructure bonds are good for people who need a fixed income.
- They offer a decent rate of interest and tax benefits.
- The maturity of these bonds is often between 10 to 15 years with an option to buy-back after a lock-in of 5 years.
- These bonds are listed either on or both National Stock Exchange or Bombay Stock Exchange that provides you with an option to exit after the lock-in period.
Investment in Fixed Deposits
Any term deposit with a tenure of at least five years with a scheduled bank also qualifies for deduction under section 80C and the interest earned on it is taxable.
Investment in Senior Citizen Savings Scheme (SCSS)
- This scheme, as the name suggests, is meant only for senior citizens.
- Any individual in the 60 or above age group can open an account under this scheme.
- An individual above 55 but less than 60, and having retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme, can also open an account under this scheme, but such an account must be opened within three months of the retirement date.
- If you are retired defence personnel, then you can open this account without any age limit, provided you fulfil other specified conditions.
- Any investment in this account would be eligible as deduction under Section 80C.
- The interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest and also the interest earned is chargeable to tax. Interest on this scheme is also reset every quarter by the government for new accounts opened under the scheme.
Investment in Five-year Post Office Time Deposit (POTD) Scheme
- POTDs are similar to bank fixed deposits.
- They are available for different time durations like one, two, three and five years but only five-year POT qualifies for tax-saving under section 80C.
- The interest rates offered by them is compounded quarterly, but paid annually.
- The interest earned is entirely taxable.
Investment in NABARD Rural Bonds
The NABARD Rural Bonds issued by NABARD (National Bank for Agriculture and Rural Development) also qualify for deduction under section 80C. These bonds are tax-free and also offer decent interest rates.
Investment Unit linked Insurance Plan (ULIP)
- Unit Linked Insurance Plan (ULIP) is a mix of insurance along with investment.
- From a ULIP, the goal is to provide wealth creation along with life cover where the insurance company puts a portion of your investment towards life insurance and rest into a fund that is based on equity or debt or both and matches with the investor’s long-term goals.
- Premium paid on ULIPs is eligible for a deduction under Section 80C up to a maximum of Rs 1.5 lakhs during a year.
Payment of Tuition Fees
A parent can claim a deduction on the amount paid as tuition fees to a university, college, school or any other educational institution. Other components of fees like development fees and transport fees are not eligible for deduction under Section 80C.