Insights into Section 80C of Income Tax Act,1961

Most of us know that we can claim a MAXIMUM deduction of Rs.1,50,000 under Section 80C of Income Tax Act,1961 to save taxes.

I have compiled the various components of Section 80C in this article.

What is Section 80C?

This section is part of Chapter VI-A which enables the assessee to claim certain expenditure from the gross taxable income earned during the year. Claiming the expenditure under Section 80C reduces our tax liability. It aims at encouraging the assessee to save money in the form of eligible investments and thus can help in saving the taxes too.

Who can claim Section 80C?

Individuals, HUF(the contributions made by HUF in the name of its members only).

Maximum limit that can be claimed as deduction?

Rs.1,50,000. Under this section, a maximum deduction of Rs.1,50,000 can be claimed irrespective of the higher amount of actual investments made during a financial year.

Components of Section 80C

1. LIFE INSURANCE POLICY- Any amount paid to keep the insurance policies in force in the name of self, spouse, children or members of HUF can be claimed as deduction. Minimum holding period of insurance shall be 2 years to claim deduction. Premium paid towards TERM LIFE INSURANCE POLICY is also eligible. 

       Note: Late Fee charges and GST paid on policy can also be claimed as deduction.

The following table elaborates on the eligibility of premium that can be claimed as deduction.

DATE OF COMMENCEMENT OF POLICY	POLICY HOLDER IS WITHOUT DISABILITY	POLICY HOLDER IS WITH        DISABILITY
policy is issued before 31.3.2012	Premium up to 20% of sum assured	Premium up to 20% of sum assured
policy is issued after 01.04.2012	Premium up to 10% of sum assured	Premium up to 15% of sum assured

     

      2. SUKANYA SAMRIDHI YOJANA- Investment made in SSY account during the year is eligible for deduction. This deduction can be availed for investment made in the name of maximum 2 girl child's and 3 in case of twin girls. SSY account can be opened in the name of a girl child aged less than 10 years.

    3. PROVIDENT FUND- Contributions to following funds are eligible

• STATUTORY PROVIDENT FUND- applicable for government employees.
• EMPLOYEE PROVIDENT FUND- Contribution made by non-government EMPLOYEE towards EPF is alone eligible.
• VOLUNTARY CONTRIBUTION FUND- Contribution made by EMPLOYEE voluntarily over and above the minimum requirement (currently 12%).
• PUBLIC PROVIDENT FUND- The contributions to PPF can be done by an individual.Minimum contribution in PPF during a financial year shall be Rs.500. HUF can invest in PPF in the name of its member to avail deduction.

    4. EQUITY LINKED SAVINGS SCHEME (ELSS)- The lock-in period is 3 years from the date of investment. If the assessee withdraws the amount before 3 years, then the proceeds from the ELSS are taxable otherwise the maturity proceeds are exempt. It is always suggested to invest in ELSS for a longer duration to reap good results.

   5. POST OFFICE OR BANK DEPOSITS: Fixed Deposits with a lock-in period of 5 years are eligible for deduction. Premature withdrawal of such fixed deposits is not allowed. In case of joint holders of FD, deduction is available to one of the joint holders only. A tax saver FD can be transferred from one bank to another bank so that the 5 years holding tenure is satisfied.

  6. SENIOR CITIZENS SAVINGS SCHEME- Available to the senior citizens i.e., individuals aged above 60 years. This has a tenure of 5 years. An individual who is aged between 55-60 years and having retired under Voluntary Retirement Scheme (or) Special Retirement Scheme is also eligible to invest in this scheme, provided the account is opened within 3 months from the date of retirement.

  7. NATIONAL SAVINGS CERTIFICATE- Investment made in NSC bonds issued by Government qualifies for deduction. Interest earned on NSC bonds is taxable. However, interest earned on NSC bonds is re-invested every year till maturity and hence interest which is deemed to be re-invested from NSC bonds QUALIFIES for deduction under Section 80C during the year of re-investment. NSC bonds are issued with 5 year tenure and 10 year tenure. The interest earned during the year of maturity is NOT re-invested and hence paid along with maturity amount. Hence, interest earned at the time of maturity CANNOT be claimed as deduction.

  8. NATIONAL PENSION SCHEME- Contributions made in TIER-I account of NPS qualifies for deduction under Section 80C.

  9. SUPERANNUATION FUND- Employee's contribution to approved group superannuation fund is ELIGIBLE.

10. UNIT LINKED INSURANCE PLAN(ULIP)- Any sum paid to keep in force as contribution to the plan subject to 10% of Sum assured is eligible for deduction. Taxes and other incidental charges paid along with premium are also ELIGIBLE to claim as deduction. The lock-in period is 5 years.

 11. STAMP DUTY CHARGES ON PURCHASE OF HOUSE PROPERTY- Stamp duty and other registration charges paid at the time of purchase of house property are eligible for deduction in the YEAR OF REGISTRATION.

 12. PRINCIPAL REPAYMENT OF HOME LOAN- Repayment of principal component of home loan is allowed as deduction for the CONSTRUCTED PROPERTY only. If the house is transferred within 5 years from the date of acquisition, the deduction claimed in previous years shall be TAXED in the year of TRANSFER of such property. 

Note: home loan availed from financial institutions alone is eligible for deduction under section 80C.

 13. TUITION FEE- Payment of tuition fee (excluding development fee or donation or such kind) at the the time of admission or thereafter for the purpose of FULL TIME EDUCATION including play school and pre-nursery activities is eligible. Fee shall be paid for education in India only. Deduction can be claimed towards fee paid for maximum of 2 DEPENDENT CHILDREN. 

Note: Tuition fee paid for self or dependent siblings or spouse or any other dependent relative is NOT eligible.

Hope the above information helps you in claiming the deduction under Section 80C of Income Tax Act,1961.

Composed by

CA. KONDA MOUNIKA FCA,BBM,DISA