The Constitution of India has assigned to the Central Government the authority to levy a tax on income. However, in the zeal to provide the maximum public services, there are occasions when the tax levied is excessive and deprives individuals of disposable income to spend on personal and leisurely activities.
The lawmakers recognized this conundrum and therefore made way for a taxpayer to claim deductions (reduce taxable income) under various sections of the Income Tax Act. One of the most popular ones is Section 80C.
Here is a short guide to this section that will aid your tax planning for this financial year.
Under this section, you are eligible to claim deductions up to INR 1, 50,000 from tax-saving instruments and investments. An individual or Hindu Undivided Family (HUF) is eligible to claim deductions under this section.
The investments which qualify for deductions under 80C are listed below.
|Employee Provident Fund (EPF)||Employer and employee contribute an equal amount (12% of basic) to the fund that acts as a retirement benefits scheme.
|Public Provident Fund(PPF)||A long-term investment options offered by the Government of India.
|Health Insurance Premiums||Premiums paid towards a health insurance plan—individual or a family floater plan.|
|Equity Linked Savings Scheme (ELSS)||It is an open-ended mutual fund which invests majorly into equities for higher returns and provides tax benefits as well.|
|National Savings Certificate (NSC)||A secure savings scheme offered by the postal department.
|Life Insurance Premiums||Premiums paid for a life insurance plan in a financial year|
|Children’s Tuition Fee||Tuition fee for full education to any college/university situated in India. Permissible up to two children.
|Housing||Repayment of home loan principal as well as expenses incurred on registration and stamp duty|
|Post Office Fixed Deposit||Similar to a bank fixed deposit but only the five-year deposit qualifies for deductions.|
|Infrastructure Bonds:||These are government approved infra bonds. Issued by companies such as India Infrastructure Finance Company and Infrastructure Development Finance Company|
Due to Section 80C’s exhaustive contents, it made tax planning a bit cumbersome. Thus, it was divided into many subsections. One such being Section 80CCC. This subsection deals with tax deductions on expenses accrued for buying or continuing annuity plans/retirement plans.
Only individuals and HUF are eligible to file deductions under Section. A few points to remember here are:
- Interests or bonuses earned from this plan do not qualify for deductions.
- The amount received after the surrender of plan attracts tax.
- Pension amount received is taxable.
Another one is Section 80CCD. It deals with contributions made to two Government pension schemes: National Pension Scheme (NPS) & Atal Pension Yojana (APY). There are two parts to this section:
- Section 80CCD (1): It deals with tax deductions for employees of Central Government/Other Employer/Self-employed. Salaries employees enjoy a maximum deduction of 10% of salary. Self-employed tax-payers see a deduction of 10% of gross income.
- Section 80CCD (2): This section deals with the employer’s contribution towards NPS. An employee can claim a deduction if his or her employer makes payment to employee’s NPS account. The limit is 10% of employee’s salary.
- An additional tax-benefit of INR 50,000 is possible under Section 80CCD (1B) for investments made in the NPS. Thus, the total tax savings can go up to INR 2,00,000.
Sections 80(C), 80CCC and 80CCD are excellent avenues to save taxable income. However, it is wise to remember that the INR 1,50,000 deduction is an aggregate limit for all the three sections and exclusive to each. An income tax calculator makes for an excellent use when you are filling up Form 16 and declaring all investments you have made in the financial year.