Section 80C, 80CCC & 80CCD Tax Deductions Explained

Aug 20, 2018 | 1 year ago | Read Time: 4 minutes | By iKnowledge Team

Section 80 Deductions

Under Section 80C, 80CCC & 80CCD, you can reduce your taxable income. Each financial year, we look for ways to save our taxes when filing them. But first, understand what are the tax deductions under sections 80C, 80CCC & 80CCD you can claim as a taxpayer.

As a taxpayer in India, we all look for various ways to save our taxes and reduce our tax deductions. The advantage of claiming tax deductions under section 80C, 80CCC and 80CCD is it will reduce your taxable income and tax outgo. Most of us have a common idea on how to save taxes, however we struggle when it comes to saving these taxes.

As taxpayers, the most widely known tax-saving option is under section 80C of the Income Tax Act. 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. However, the Central Government has made provision for more than one of these sections for commoners to benefit from.

Here is a short guide to types of taxes in India that will aid your tax planning for this financial year according to Income Tax India.

Tax Sections 80C, 80CCC & 80CCD Explained

1. Section 80C Tax Deduction

Under section 80C of the income tax, you are eligible to claim deductions up to Rs. 1, 50,000 on your taxable income 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:

Investment

Description

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

2. Section 80CCC Tax Deduction

Section 80CCC income tax deduction is with respect to the contributions made towards pension plans by an individual. Section 80C in India was designed to offer exhaustive contents, as a result it made tax planning a bit cumbersome. That’s how, Section 80C was divided into many subsections, one such being Section 80CCC. Under Section 80CCC tax benefits on expenses accrued for buying or continuing annuity plans/retirement plans are well-defined, allowing eligible investors to gain more benefits.

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.

3. Section 80CCD Tax Deductions

Section 80CCD 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.
  • Section 80CCD (1B): An additional tax-benefit of Rs. 50,000 is possible under Section 80CCD (1B) for investments made in the NPS. Thus, the total tax savings can go up to Rs. 2,00,000.

Moreover, taxpayers can ask their employers to contribute to your NPS account as per section 80CCD (2). The employer’s contribution cannot exceed 10% of the employee’s salary. However, there is no upper limit in monetary terms on the amount of employer’s contribution that would be exempt from tax, as per the Income Tax Act. Salary for calculating this 10% is defined as salary includes dearness allowance, if the terms of employment so provide, but excludes.

Let us see how to calculate tax using an example:

Nikhil is an IT employee, and earns a salary of Rs. 10.5 lakhs per year.

During the year, his income from a savings account is Rs. 15,000. He has a fixed deposit (FD) that gives him an annual interest income of Rs. 13,000. He has also invested Rs. 50,000 in Public Provident Fund (PPF) and Rs. 20,000 in tax-saving mutual funds.

Over the last year, he paid a premium of Rs. 80,000 for a life insurance policy, and paid Rs. 10,000 for retirement planning.

From the above data, Nikhil’s gross total income calculations (in Rs.) are:

Nature of income

Amount

Salary

10,50,000

Other sources

28,000 (Savings account + FD)

Gross total income

10,78,000

His deductions (in Rs.) are:

Deductions

Amount

80C

1,50,000 (PPF + ELSS + Insurance policy)

80CCC

10,000 (retirement/annuity plan)

80CCD

50,000 (NPS + APY)

Total

2,10,000

 

Know more about what are the types of indirect taxes in India. Get a detailed explanation on the interest imposed due to late filing of income tax return under section 234A, B & C here.

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