The most popular income tax deduction for reducing taxes is Section 80C. The current FY 2023–24 (AY 2024–25) limit for deduction under section 80C of Income Tax Act 1961 is Rs. 150000.
The submission of an ITR is required in order to claim the tax benefit. Finance Minister Nirmala Sitharaman maintained the Section 80C limit as in the previous year and did not propose any modifications during the Union Budget 2023.
As a result, you can still take advantage of deductions under Section 80C of the Income Tax Act of up to Rs. 1.5 lakh if you opt to continue with the old regime system. Let’s study the deduction under section 80C of Income Tax Act 1961.
Table of Contents
What is Section 80C of the Income Tax Act?
The deduction Under Section 80C of Income Tax Act 1961 reduces your taxable income, which reduces your overall tax burden. It includes various payment and investment options that may reduce your taxable income by up to Rs 1.5 lakh for deduction under section 80C of Income Tax Act 1961. The investment must be made within the applicable financial year, even though the deduction is claimed at the time of filing your income tax return. By making investments in the many tax-saving options under Section 80C, individuals and HUFs can reduce their taxes.
Investments Eligible for Deductions under section 80C of Income Tax Act 1961
1. LIP (Life Insurance Premium)
The deduction for life insurance premiums is allowed for deduction Under Section 80C of Income Tax Act 1961. The premium for the life insurance policy must be paid in the name of the individual, their spouse, or any of their children in the case of an individual, or in the name of any HUF member in the case of HUF.
2. Fixed Deposit
The majority of people invest in FDR, but did you realize that you may also claim deduction Under Section 80C of Income Tax Act 1961? Yes, if you open a five-year fixed deposit account with a bank or post office, you are eligible for income tax deductions under this section. There is a requirement for a minimum deposit of Rs. 1000. The deduction will be added back to your income if you break the FD before the five-year lock-in term ends. Section 80C allows for a deduction of the invested amount; however, interest and withdrawals are subject to tax. Seniors who earn interest under Section 80TTB are eligible to get tax benefits of up to Rs 50,000.
3. PPF (Public Provident Fund)
Under Section 80C, this is the safest alternative for investing. There is a Rs. 500 minimum deposit and a Rs. 150,000 maximum deposit limit per year. A portion of the funds in the PPF account may be used after seven years, but the account matures after fifteen. It is tax-free at the time of investments, returns, and withdrawals, which means it is EEE-rated. In the case of a resident individual, you may invest in the name of yourself, your spouse, or any of their children; in the case of a HUF, you may invest in the name of any member.
4. Principal of Housing Loan
If you have taken a housing loan to build or buy a residential property, you can claim the deduction for the principal repayment. Both individuals and HUF are eligible for this deduction. However, keep in mind that any deductions taken in previous years will become taxable if you sell or transfer such house property before the expiration of five years from the end of the financial year in which possession of such property was taken.
5. Tuition Fees for Children
When paying your children’s tuition at any Indian university, college, school, or other educational institution, you are eligible to claim the deduction for this amount. However, gifts, development fees, and other similar payments would not be eligible for the deduction. If you want to be eligible for this benefit, there are a few things you should be aware of. Only two children are eligible for deductions. It should be paid for only a full-time education. It must be paid to an Indian university, college, school, or other educational institution.
6. Mutual Funds (ELSS)
ELSS may be a suitable choice for you if you enjoy taking calculated risks when investing in the stock market. You may invest in UTI units or mutual funds that are listed under Income Tax India, 1961, Section 10(23D), for deduction Under Section 80C of Income Tax Act 1961. With no upper limit, you can start investing with as little as Rs 500. The money must be deposited for a period of three years. Under Section 80C, the investment is exempt up to Rs 1.5 lakh, while long-term gains from withdrawals are exempt up to Rs 1 lakh. The dividends received will be subject to tax under the head “Income from other sources.”
7. Deferred Annuity Plan
The payment under the deferred annuity plan may be claimed as a deduction Under Section 80C of Income Tax Act 1961. You, your spouse, or any of your children’s names may be on this annuity. However, there should be no provision to receive cash in lieu of an annuity in order to claim a deduction under this annuity plan. For government employees, if any amount is deducted from their salary under this plan, the deduction under this section is limited to 20% of their salary.
Prime Minister Narendra Modi introduced Beti Padhao movement on January 22, 2015. A resident individual parents with a girl child may invest in this program until the age of ten. This bank account has an annual minimum deposit limit of Rs 250 and an annual maximum deposit limit of Rs 150000. The amount must be deposited for a period of fifteen years. This account will mature after 21 years. It is tax free at the time of investments, returns, and withdrawals which means its EEE rated.
9. NSC (National Saving Certificate)
National Savings Certificate (NSC) investments are known as extremely safe. HUFs are not allowed to purchase NSCs; only individuals are allowed to do so. There is no upper limit on the amount that can be invested; the minimum is Rs 100. The money must be deposited for a period of five years. The interest earned is taxable under the head “Income from other sources,” and the investment is allowed as deduction Under Section 80C of Income Tax Act 1961. One interesting feature of NSC is that interest is deemed to be reinvested in NSC upon accrual. You receive an additional tax benefit on the amount of reinvested interest as a result.
10. SCSS (Senior Citizen Saving Scheme)
One of the most profitable ways for old citizens in India to invest the lump sum money people get at retirement is Senior Citizen Savings Scheme (SCSS). There is no minimum investment requirement, however on the higher end, the total amount invested cannot exceed Rs 15 lakhs or the retirement pay out, whichever is greater. The money must be deposited for a period of five years. An investment is allowed as deduction Under Section 80C of Income Tax Act 1961. Under section 80TTB, tax benefits up to Rs 50,000 are available for interest income. This plan can be foreclosed after a year is one of its strongest features.
11. ULIP (Unit Linked Insurance Plan)
This is a combination of an investment and life insurance policy. A wide range of eligible investments, including stocks, bonds, and mutual funds, are available for purchase through ULIP, which also offers risk protection. With the option to choose a higher life cover, most ULIPs offer a minimum life cover equal to ten times the annual premium. Investments can be done in the names of an individual, their spouse, or any of their children in the case of an individual, or in the name of any HUF member in the case of a HUF. While there is no upper limit on ULIP investments, the premium should not exceed 10% of the amount guaranteed in order to qualify for section 80C tax benefits. The amount is required to be deposited for minimum 5 years.
12. NPS (National Pension Scheme)
There are various tax advantages for investing in NPS. For the NPS contributions, Sections 80C and 80CCD(1) together offer a tax benefit of Rs 1.5 lakh. Anyone who is between the ages of 18 and 60 may invest. The maximum amount that can be invested is unlimited, however an annual minimum deposit of Rs. 6000 must be done. It must be deposited in full till retirement. On this investment, you will receive a deduction of up to 1.5 lakh.
13. Deduction for Stamp Duty & Registration Charges
Stamp duty and registration fees is required to be paid for constructing or buying a new home. Although these fees look insignificant in comparison to the cost of the house, they definitely leave a financial impact. You are also eligible to deduct these expenditures under Section 80C.
14. Other Deduction Under Section 80C of Income Tax Act 1961
There are some other option as well where you can make investment and claim deduction under Section 80C of Income Tax Act 1961.
- Contribution to Life Insurance Company (LIC) annuity programs (Jeevan Dhara, Jeevan Akshay, etc.) or any other insurer that the Central Government has approved.
- Funding for the approved superannuation account.
- Membership in any National Housing Bank deposit plan or retirement fund (NHB)
- Investment in NABARD bonds;
- Investment in a public sector housing finance company or housing development authority of a city, town, or village’s notified deposit plan.
- Subscription to equity shares or debentures of a publicly traded corporation or any publicly traded financial institution that is a component of a board-approved eligible capital issue with revenues going toward infrastructure projects.
- Make a deposit into a Senior Citizen Savings Scheme account.
Conclusion
Deduction Under Section 80C of Income Tax Act 1961 provides a variety of deductions to taxpayers in areas such as investments, healthcare, education, and charitable donations. By lowering their taxable income, these deductions helps people as well as businesses in reducing their overall tax burdens. The total amount of deduction for all above options cannot exceed Rs. 1.5 lakh under this section.
Frequently Asked Questions (FAQ)
Certain investments and expenses are exempt from income tax under Section 80C of the Income Tax Act. By allocating your investments among various financial assets like PPF, NSC, ELSS, and so on, you can minimize your tax obligation by claiming deductions under Section 80C of up to Rs. 1.5 lakh.
PPF is a direct tax-free investment program offered by the government for retirement planning and savings. It helps those who don’t have access to a formal pension plan.
A tax-saving fixed deposit has a five-year term. In accordance with Income Tax Act of 1961 Section 80C, it provides a tax deduction. Because of its lock-in period, you are not permitted to leave before its time. Taxes apply to the interest received on the deposits.
Regarding whether or not PPF interest is taxable, the answer is no. PPF is classified as exempt, exempt, and exempt (EEE). This implies that the PPF’s principal, interest, and maturity amount are all fully tax-free.