[ecis2016.org] Here is everything you need to know about the most popular section of the Income Tax Act, under which taxpayers typically claim tax deductions on various investment activities
Section 80C is the most commonly used provision of the Income-Tax Act. Nearly all taxpayers in India claim 80C deduction on their taxable income against multiple investment activities. This makes it quite important for all of us to know about 80C.
You are reading: 80C deduction: All about deductions under 80C, 80CCC and 80CCD
What is Section 80C?
Section 80C of the Income Tax Act allows specific expenditures and investments to be exempted from tax. You can lower your overall tax liability by up to Rs 2 lakhs if you plan diligently and claim deductions under 80C.
80C of the Income Tax Act
80C has been inserted in the income tax law to prompt taxpayers to save and invest, something that not only helps an individual but also the economy. Note that 80C has subsections 80CCC, 80CCD (1), 80CCD (1b), and 80CCD (2). The maximum deduction limit under all these sections has been kept at Rs 2 lakhs per year (Rs 1.5 lakhs plus an additional Rs 50,000, which we shall explain later in the article).
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An important clause of this section is that Section 80C deductions can be claimed only by taxpayers who are categorised as individuals and Hindu Undivided Families.
80C deduction list
| Income tax section | Deduction available |
| 80C | 80C deductions can be claimed if you have invested in life insurance policies, public provident fund (PPF), employee provident fund (EPF), equity-linked saving schemes, Sukanya Samriddhi Yojana (SSY), national saving certificate (NSC), senior citizen savings scheme (SCSS), Unit Linked Insurance Plans (ULIP), tax-saving fixed deposits for 5 years, and NABARD rural bonds and infrastructure bonds. 80C deductions can also be claimed against home loan principal amount, stamp duty charges, and registration charges for property purchase. |
| 80CCC | 80CCC grants deduction for life insurance annuity plans. Deduction under 80CCC is allowed against payment of premiums for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving a pension. |
| 80CCD (1) | 80CCD (1) allows deductions against employees’ contributions to the National Pension Scheme (NPS).
The maximum deduction under 80CCD (1) can be either of the below two, whichever is lesser: * 10% of salary (for employees) or 20% of gross total income (for self-employed taxpayers) * Rs 1.5 lakhs. |
| 80CCD (1b) | 80CCD (1b) allows additional deductions against the contribution to the NPS. One can save deductions of up to Rs 2 lakhs per year for investing in NPS. Subscribers of the Atal Pension Yojana can also claim the 80CCD (1b) deduction. |
| 80CCD (2) | 80CCD (2) allows deductions against the employer’s contribution to the NPS. 80CCD (2) deduction is restricted to 10% of basic salary and dearness allowance of salaried individuals. 80CCD (2) deduction is not available for self-employed taxpayers. |
Maximum deduction under 80C
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The maximum deduction under Section 80C is Rs 1.50 lakhs per annum. This is the cumulative saving under sections 80C, 80CCC and 80CCD (1). An additional deduction of Rs 50,000 is allowed under Section 80CCD (1b) for contributions made towards the NPS.
80C investment
Section 80C deductions involve spending your income on broadly two types of activities:
- Investment activities
- Spending activities
Investment under 80C
| Life Insurance Premium | Insurance + investment |
| Unit Linked Insurance Plan (ULIP) | Insurance + investment |
| PPF | Retirement |
| EPF | Retirement |
| Pension plans of insurance companies | Retirement |
| NPS, Atal Pension Yojana | Retirement |
| National Saving Certificate | Long-term fixed income |
| 5-year FD | Fixed income |
| 5-year Post Office Time Deposit | Fixed income |
| SCSS | Fixed income |
| NHB deposit scheme | Fixed income |
| Equity Linked Savings Scheme (ELSS) | Equity mutual fund |
| Tuition fee for 2 children | Spending |
| Home loan interest payment | Property investment |
| Stamp duty and registration charge for property purchase | Property investment |
Payments eligible for deduction under Section 80C
- Payments towards children’s tuition fees: You can claim 80C deductions for admission fees paid for schools, colleges or universities in India. In one financial year, you can claim the deduction against expenses made towards the education of two children.
- Fixed deposits: Mid-term fixed deposits (with at least a 5-year tenure) are also eligible for deduction under Section 80C. The interest earned in fixed deposits is taxable.
- Life Insurance, ULIP: You can claim tax deductions under Section 80C against premiums paid for life insurance policies of self, spouse and children. The same is true for premiums paid against ULIPs.
- PPF: You can invest up to Rs 1.50 lakhs in your PPF every year. Your PPF account has a lock-in period of 15 years. The returns after maturity of the PPF amount are also exempt from taxes. Your PPF account could be in your name yourself, or the name of your spouse or children.
- Employees’ Provident Fund (EPF): Your EPF account, where a fixed amount from your income gets accumulated in the form of a pension fund and which you can check using using your UAN login, also gets you Section 80C tax benefits. Also find out how to check your Member Passbook online.
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- Equity-Linked Savings Scheme: ELSS is an equity mutual fund with a lock-in period of 3 years. ELSS mutual funds’ asset allocation is mostly towards equity (more than 65% of your amount would be invested in equity), and equity-linked securities. They also have some exposure to fixed-income securities.
- National Savings Certificate (NSC): Payments against the NSC can be claimed as deductions under Section 80C. While the interest earned on NSC is taxable, you can claim deductions under Section 80C if it is reinvested.
- Senior Citizens Savings Scheme (SCSS): Meant for senior citizens aged 60 and above, the SCSS helps you claim 80C deductions. Those opting for voluntary retirement can opt for the SCSS after the age of 55.
- Sukanya Samriddhi Yojana: A parent of a girl child can claim a deduction for premium paid against the Sukanya Samriddhi Yojana. Available for two girl children, the scheme can be extended to a third child in the case of twins.
- National Pension Scheme (NPS): The NPS is meant for employees with no pension and is open for anyone aged between 18 and 60.
- Repayment of home loan: Those repaying a home loan can claim deductions of up to Rs 1.50 lakhs per annum against home loan principal repayment. Section 80C deduction does not apply to home loan interest payment. The lock-in period to get this benefit is 5 years. If you sell the property within 5 years from the date of possession, all the deductions previously claimed will be added back to his income in the year of sale.
- Stamp duty and registration charges on property: Those who pay stamp duty and registration charges during property purchase can claim an 80C deduction within the overall limit of Rs 1.50 lakhs. This deduction can only be claimed in the year the actual payment is made towards these expenses. Both, an individual and a HUF, can claim this deduction in their income tax return.
- Deposits with National Housing Bank: Any contribution made towards any deposit scheme or pension funds set up by the state-run National Housing Bank are also eligible for 80C deduction.
- NABARD bonds: 80C deductions are available on the purchase of NABARD (National Bank for Agriculture and Rural Development) bonds.
- Subscription to notified annuity plan: HUFs and individuals who have subscribed to any notified annuity plans of LIC or any other insurer can claim Section 80C deductions. Listed below are the notified annuity plans eligible for 80C deductions:
-
- New Jeevan Dhara
- New Jeevan Dhara-I
- New Jeevan Akshay
- New Jeevan Akshay-I
- New Jeevan Akshay-II
-
80C investment holding period
If you do not invest for a certain holding period, deductions under Section 80C could be reversed. Provided below is the minimum time-limited for which you have to continue investing to claim Section 80C deductions.
80C investment lock-in period
| NPS | Till retirement |
| PPF | 15 years |
| ULIP | 5 years |
| Home loan principal repayment or purchase or construction for residential house | 5 years |
| Contributions in SCSS | 5 years |
| Fixed deposits in banks & post office | 5 years |
| Equity-linked saving scheme | 3 years |
| Term life insurance plan | 2 years |
80C FAQs
What is 80C?
80C, under the Income Tax Act, 1961, lists the investments and expenses against which you can claim tax deductions.
When did Section 80 come into effect?
Section 80 became effective on April 1, 2006.
What tax benefits can be claimed on life insurance?
Against life insurance premium payments, you can claim deductions of up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961.
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What is the maximum deduction under Section 80C?
You can claim Rs 1.50 lakhs in a year as deductions in Section 80C, and its various sub-sections. Additionally, you can also claim Rs 50,000 deductions for investing in the NPS under Section 80CCD (1b).
Who is eligible for an 80C deduction?
Only individual taxpayers and taxpayers from Hindu Undivided families are eligible to claim deductions under Section 80C.
How much should I invest to save tax under Section 80C?
You can save up to Rs 2 lakhs under various tax saving instruments by claiming deductions under Section 80C.
When should I invest to claim 80C deductions?
Make your investment towards the start of any financial year to start tax saving under Section 80C of the income tax act. This way, you earn the interest on your investment for the entire financial year – from April 1 to March 31.
Can I invest Rs 1.5 lakh each under different saving instruments, and claim benefits under Section 80C for each investment?
No, the overall limit under Section 80C is Rs 1.5 lakhs, even if you have invested Rs 10 lakhs in various tax saving instruments that fall under Section 80C and its sub-sections.
Can I claim deductions under Section 80C if I have invested in both EPF and PPF?
Those contributing towards EPF and PPF can claim 80C deduction for both investments up to the overall limit of Rs 1.50 lakhs.
Is the interest earned through tax-saving instruments eligible for 80C deductions?
No, the interest earned through tax saving instruments is taxable. However, this is not true for NSC. Interest generated through NSC is eligible for Section 80C deduction for the year in which the interest is reinvested.
Can I claim a Section 80C deduction for my children’s school fees?
Yes, you can claim Section 80C deduction for your children’s school fees, as long as they are enrolled in full-time courses.
Can I claim Section 80C deduction for home loan interest payment?
No, you cannot claim Section 80C deduction for home loan interest payment. 80C deduction is only for repayment of home loan principal.
Can I claim Section 80C deduction if I take a loan for stamp duty payment for my property?
No, you cannot claim Section 80C deduction if you take a loan for stamp duty payment for your property. Section 80C deduction for stamp duty and registration charge on the property is available only if you use your funds to make the payments.
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