Tax Exemption under Section 80C

People do not wish to pay any tax that is levied on their income. People who fall under lower income tax bracket need not worry about their tax liability. But, it is a different case for those who fall into high tax bracket; they would want to save taxes. And the question asked often is how to save tax? The solution to the worries is Section 80C. Section 80C of income Tax Act is one of the most prominent sections providing a wide range of tax saving investment options and help save income tax in India.

Maximum limit of deduction under Section 80C

For Financial Year 2014-15, the maximum deduction under Section 80C is 1.5 Lakh Rupees per annum.

Who are eligible to claim tax benefit under Section 80C?

Deductions under Section 80C are allowed to the following from the Gross Total Income :

  1. An individual
  2. A Hindu Undivided Family (HUF)

Few deductions u/s 80C are available only to Individual assesses, and some deductions like Life Insurance Premium, Investments in ELSS etc are for the benefit of Individual and HUF assesses both. Lets study them separately

A. Tax Saving Investments under Section 80C for Individuals and HUF

Tax benefits under 80C are available to an Individual as well as a Hindu Undivided Family. Income Tax Saving schemes under Section 80C are :

  1. Life Insurance Premium
  2. Life Insurance Corporation and other private organizations offer various kinds of Insurance policies. If an Individual avails a Life Insurance Policy for Self or Spouse or Children, then the amount of premium paid by the Individual is eligible for deduction to the extent of 10% of the sum assured under Section 80C. In case of a Hindu Undivided Family, the policy can be in the name of any member of the family. However, if Life Insurance premium is paid for a person with severe disability as defined u/s 80U or for a person suffering from disease as defined u/s 80DDB, the amount of deduction allowed is 15% of the amount of sum assured or premium paid, whichever is lower.

  3. Equity Linked Savings Scheme
  4. ELSS or Equity Linked Savings Scheme is one of the best tax saving investment schemes. It is a tax saving scheme offered by Mutual Funds in which the sum is invested in various diversified equity schemes. It earns a high rate of return for the investor in the long run apart from capital appreciation. It has a lock in period of 3 years unlike other schemes that have long lock in periods. Any amount invested by an Individual or a HUF in an ELSS is eligible for deduction under the Section 80C.

  5. Employee Provident Fund
  6. Employee Provident Fund is a kind of Provident Fund that is maintained by the Organizations for the welfare of their Employees. Basically, it is for the salaried persons. A specified percentage of Basic Salary and Dearness Allowance is deducted monthly and deposited into the account. The Employer makes an equal contribution to it. During retirement, if all the conditions related to it are fulfilled, the Employee gets the amount deposited over the years with interest. Employee’s contribution to such a fund is allowed as a deduction from the Gross Total Income. But, the Employer’s contribution is taxable.

  7. Public Provident Fund
  8. Public Provident Fund is a kind of provident fund in which both salaried as well as non-salaried persons can invest. A person can open a PPF account in any bank or post office. There is no criterion of Employer’s contribution for Public Provident Fund. Any contribution to Public Provident Fund is eligible for deduction under Section 80C. PPF contribution is one of the best options to save tax as contribution to it is eligible for deduction and the interest earned is also tax free. A person can also open an account on behalf of a minor child.

  9. Repayment of Loan for a House Property
  10. If an individual or a HUF makes re-payment for housing loan availed for purchase of house property either by way of installment or in lump sum, such amount shall qualify as deduction under Section 80C of Income Tax act. Please note that an EMI consists of Principal portion and Interest portion both, but only the principal portion of EMI repaid is eligible for deduction. Such payment can be made to any authority or bank or public company whose primary business is to provide long term finance for housing or to a co-operative society in case there is an allotment of house by the co-operative society. An important point to consider is that the house property must be a residential house property.

  11. Payment Of Expenses For A House Property
  12. If an Individual or a HUF makes payment of expenses such as stamp duty, registration fees, and other expenses in relation to a house property for the purpose of its transfer, such amount shall be eligible as deduction under Section 80C.

  13. Tax Saving FDRs
  14. Tax Saving Fixed Deposits are the special fixed deposits opened with the banks with the aim to save Tax. They have a lock in period of 5 years. Any amount invested by an Individual or a HUF in these FDRs is eligible for deduction under Section 80C. However, the interest received on such tax saving FDRs is taxable.

  15. Unit Linked Insurance Plan
  16. ULIP or Unit Linked Insurance Plan is a type of insurance plan offered by Insurance Companies. The investor gets an insurance cover against the loss of return in addition to capital appreciation. It is also one of the various options for availing the tax benefit. If an Individual or HUF invests in a ULIP, the amount of investment made is eligible for deduction under Section 80C.

  17. Other Tax Saving Investments under 80C
  18. Amount invested by an Individual or a Hindu Undivided Family in various investment schemes such as bonds issued by NABARD, deposits with various scheduled banks for not less than 5 years, deposits with the Senior Citizen Savings Scheme and deposits in the post-office for a period of 5 years also qualify as a deduction under Section 80C.

B. Tax Benefits under 80C that are available to an Individual only

Section 80C offers the following tax benefits only to Individuals and therefore the following deductions are not available to HUFs

  1. Contribution to Statutory Provident Fund
  2. SPF or Statutory Provident Fund is meant only for Government or Semi Government Employees, University, Educational Institution affiliated to a University established under the statute or other specified Institutions. They are also known as Government Provident Funds. They are managed and administered under the Provident Funds Act, 1925. Any contribution by an Individual to a SPF is fully exempt from taxation.

  3. Contribution to Superannuation Fund
  4. Superannuation fund is reserved by the organization to pay pension to the Employees after the retirement. Any contribution by the Employee to such a fund is eligible for deduction under Section 80C. However, the Employer’s contribution does not qualify for deduction.

  5. National Savings Certificate
  6. National Savings Certificate is one of the most promising options to invest. Its primary aim is to induce savings habit among people. It is issued by the Post Office. It normally offers interest of 8.5% per annum. If a person invest in an NSC then the amount invested shall be eligible for deduction under Section 80C. The peculiar feature of this option is that the interest received on such investment is also eligible for deduction as it is considered as a re-investment in NSC.

  7. Tuition Fees
  8. A tuition fee is one of the various components, like term fee, examination fee, dearness charges, etc of total fee charged by an Institution. However, only tuition fee is eligible for deduction under Section 80C. Only the tuition fee paid for a maximum of two children to the School or Institution or University for full time education in India is eligible for deduction u/s 80C. The amount so paid as tuition fee is allowed as deduction from the Gross Total Income. Note that the expenditure on education of Self or Spouse is not eligible for deduction.

  9. Sukanya Dhan Samriddhi Scheme
  10. Prime Minister Mr. Narendra Modi launched Sukanya Dhan Samriddhi Scheme in Budget 2015 to promote welfare of a girl child. A parent or a guardian can open the account for the time being, of the girl child in any of the banks or post offices in India. The account can be opened for a girl immediately from her birth till she attains the age of 10 years and such account can be operated for 21 years or till her marriage. For the Financial year 2014-15 and 2015-16, the Government has notified interest of 9.1% and 9.2% on this account respectively. Any amount deposited by an Individual in Sukanya Dhan Samriddhi Scheme is eligible for deduction under Section 80C. However, an Individual can claim this deduction for two girl child only. As far as the taxability of interest income from deposit in Sukanya Samriddhi Scheme is considered, this scheme works on Exempt-Exempt-Exempt basis i.e. not only the deposit amount is allowed as a deduction but also the interest received on such account and the maturity amount is exempt from tax.

    Mytaxcafe.com helps you to calculate deductions u/s 80C accurately which in turn optimizes your tax savings during efiling of Income Tax Returns.

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