Tax Saving Investments eligible under section 80C
Updated: Feb 4, 2021
Deductions under Section 80C of the Income Tax
Every tax payer is always keen to know how to save taxes?, which of his investments are tax savers?, how can he earn more?, well we have tried to cover almost all most popular tax saving schemes and investments that may even create a wealth in your hands.
Income Tax Act provides various deductions up to Rs.1,50,000/- for the Investments under 80C/80CCC/80CCD. However, aggregate deduction from section 80C/80CCC/80CCD is limited to Rs.1,50,000/- as mentioned in section 80CCE, also tax payer can claim additional deduction up to Rs.50,000/- for voluntary contribution in National Pension Scheme under 80CCD.
Well, now lets begin with our first deductible investment under income tax act.
80C: Deductions for Specified Investments and Expenses
Under this section deduction from gross total income is allowable in respect of contribution to various investments and expenses.
Lets first look on to which investments are allowable under this section.
Tax Deduction for investment in Public Provident Fund (PPF):
PPF is a long term Investment plan, that is backed by government for resident Indian. Any resident Indiancan open PPF account in his own name or in the name of his Minor Child.
Who is Eligible? : As mentioned above, PPF account can be opened by Indian Resident (Salaried and Self Employed). HUF and Non Resident can not invest in PPF.
Maximum Amount Deductible: Maximum deductible limit from Gross Total Income is Rs.1,50,000/-
Tax Treatment: Interest on PPF or maturity amount received on PPF is fully exempt from Tax.
Max-Min Investment: Minimum Investment Rs.500/-, Maximum Rs.1,50,000/-. Any amount invested in excess of Rs1,50,000/- will not yield any interest or tax benefits.
Tax Deduction for investment in Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF):
EPF is a retirement benefit scheme that is available to all salaried employees. Employer and employee both have to contribute equally (12% of basic salary) to the provident fund account of an employee. An employee can contribute a higher sum of money through voluntary contributions (VPF). Employee’s own contribution to provident fund qualifies for 80C deductions, and Employer's contribution to EPF is exempt from Tax upto 12% of Basic + DA.
Who is Eligible?: Employees whose basic monthly salary does not exceed Rs.15,000/- then he/she has to compulsorily contribute to Provident Fund. Other employees has option to contribute to the scheme.
Tax Treatment:
Employer's contribution to PF account is exempt up to 12% of Basic + DA.
Employee's contribution to PF account is allowable as deduction under 80C up to Rs.1,50,000/-.
Amount received (including Interest) on maturity or withdrawn (after continuous service for 5 years) is Fully Exempt.
Max-Min Investment:
Employer and Employee has to contribute to EPF at 12% of Basic + DA.
Employee can contribute up to 100% of Basic + DA voluntarily.
Tax Deduction for investment in National Savings Certificate (NSC):
The National Savings Certificate (NSC) is a postal department’s saving scheme. It is categorized as a ‘highly secured’ among the various class of investments. The NSC is a ‘fixed duration’ saving scheme.
Who is Eligible?: Non Resident, Trust and HUF can not invest in to NSC.
Tax Treatment:
Investor can get deduction for Amount invested, up to Rs.1,50,000/-.
Interest accrued on NSC is considered as fresh Investment and is eligible for deduction under 80C.
Interest received on maturity is taxed at applicable marginal tax rates.
Max-Min Investment:
Minimum investment Rs.100/-
Maximum Investment: No Limit
Tax Deduction for investment in Equity Linked Savings Scheme (ELSS):
Equity Linked Savings Scheme is kind of mutual funds that invest majorly in equity and equity-related securities. ELSS funds are approved for tax savings under Section 80C. Most of the tax savings investments have a lock-in period of 5 years, wherein you cannot withdraw funds in between. ELSS funds also has a lock-in period of three years which means you cannot withdraw the amount in between three years. These funds get matured at the end of three years of their investment date.
Who is Eligible?: Resident Individual
Tax Treatment:
Investor can claim deduction up to Rs.1,50,000/- for investing in ELSS.
Dividend received from such scheme is exempt from Income Tax.
Max-Min Investment:
Minimum Investment Rs.500
Maximum : No Limit
Tax Deduction for investment in Sukanya Samriddhi Scheme:
It is one of the most popular investments in Indian government small savings scheme. This particular scheme was launched by the Indian Prime Minister, Shri. Narendra Modi. The prime objective of this investment scheme is the progress of girl child in the nation. This scheme can be availed by any parent having a girl child. The amount saved under Sukanya Samriddhi Scheme is aimed to provide for the higher education of girl and aid in for her wedding expenses.
Who is Eligible?: Indian Resident (Parent/Legal guardian can invest in this scheme for up to 2 daughters)
Tax Treatment:
Investor can claim deduction of up to Rs.1,50,000/- per annum.
Any investment over and above Rs.1,50,000/- isn't eligible for deduction.
Max-Min Investment:
Minimum Investment Rs.1000 p.a
Maximum Investment Rs.1,50,000 p.a
Tax Deduction for investment in Senior Citizen Saving Scheme:
Senior citizen savings scheme is an investment product sponsored by Indian Government. This account can be opened for an Indian senior citizen and can also be jointly held by spouse regardless of age of secondary member (spouse).
Who is Eligible?:
Indian resident 60 years or above of age.
Indian resident off 55 years or more but less than 60 years (who retired under voluntary retirement scheme) can invest in this scheme, if
- the account is opened within 1 month of receipt of retirement benefit.
- Investment amount should not exceed the amount of retirement benefits.
Tax Treatment:
Investment under this scheme is eligible for deduction up to Rs.1,50,000/-.
Interest received is Taxable (TDS will be deducted if interest exceeds Rs.10,000 p.a.)
Max-Min Investment:
Minimum: Rs,1,000/-
Maximum: Rs.15,00,000/-
Tax Deduction for investment in Tax Saving Deposit (5Year):
As the name suggests it is a type of fixed deposit savings
Who is Eligible?: All resident individuals (including Senior Citizen above 60 years of age)
Tax Treatment:
Investment amount is deductible up to Rs.1,50,000/-
Interest income on maturity is Taxable
Maturity amount is Exempt
Max-Min Investment:
Minimum : Rs.1,000
Maximum: No Limit
Tax Deduction for investment in Post Office Time Deposit:
5 year fixed deposit account is offered by India Post, Any individual can open account under this scheme.
Who is eligible?: Resident Individual
Tax Treatment:
Investment amount is deductible up to Rs.1,50,000/-
Interest income on maturity is Taxable
Maturity amount is Exempt.
Max-Min Investment:
Minimum : Rs.200
Maximum: No Limit
Tax Deduction for investment in Unit Linked Insurance Plan:
Unit Linked Insurance Plan is a life insurance product that is a combination of investment and insurance. That means a portion of the money invested in ULIPs will be used to provide risk cover and the balance amount will be invested in the stock market.
Who is Eligible?: Resident Individual (Self, Spouse and Children)
Tax Treatment:
Investment amount is deductible up to Rs.1,50,000.
Withdrawals and Maturity amount are tax free.
Now lets look on to which expenses are eligible for deduction under 80 C
Tax Deduction for expenses incurred for School Fees (Tuition Fees):
School fees paid for the children during the year is allowable as deduction under this chapter, however such deduction is allowable up to 2 children only and maximum Rs.1,50,000/-. Following are some of the allowable deduction:
Only tuition fees paid for full-time education to regular educational institutions like schools, colleges, universities, etc. in India, qualifies for deduction.
Deduction can be claimed whether the child attended the class or not.
Payment of tuition fees to play schools or day care is allowed as deduction.
Adopted child’s tuition fees is also eligible for deduction.
However, following does not conclude as tuition fees for deduction under this section:
Any fees paid to private tutor, coaching center.
Fees like admission fees, development fees, uniform fees or any other fees do not qualify for deduction.
A late fee is not eligible for deduction.
Development fees or donation is not eligible.
Payment of fees for overseas education is not allowed.
Fees for admission are excluded from amounts eligible for deduction.
Transport charges, hostel charges, mess charges, library fees charges incurred for education are not allowed.
Spouse’s tuition fees is not allowed for deduction.
Tax Deduction for Repayment of Housing Loan (Principle):
Payment towards principle amount of housing loan (for purchase or construction) is allowable as deduction under this section. However, interest on such loan is allowable under section 24 under the head house property subject to certain conditions.
Tax Deduction for expenses incurred for Stamp Duty and Registration charges for Purchase:
Besides repayment of principle amount, amount paid towards stamp duty and registration charges on purchase of property is allowable as deduction.
Tax Deduction for expenses incurred for Life Insurance Premium Paid:
Any premium paid for purchase of new life insurance policy or renewal of existing policy is allowable as deduction under this section. However there are certain conditions to it, which are as follows:
Allowable deduction for the premium paid is 20% of the sum assured or actual premium paid whichever is lower.
In year of surrender of policy by insured or cancellation of policy by insurer, any premium paid during the year will not be eligible for deduction.
Insurance policy must be held for minimum of 2 years in case of general policies, and 5 years in case of ULIP to enjoy deduction.
Tax Benefit: Premium paid is deductible under section 80C. Maturity amount is also exempt from Tax u/s 10(10D)
Other than the above-mentioned investment and expenses there are some other investments that can be claimed as deduction under 80C.
Tax benefit for investment in Infrastructure bonds:
Infrastructure companies such as Development Finance Company and India Infrastructure Finance Company issue infrastructure bonds, also popularly called infra bonds that are approved by the government. The amount invested in these bonds can be claimed as a deduction.
Tax benefit for investment in NABARD Rural Bonds:
NABARD (National Bank for Agriculture and Rural Development) issues two types of bonds. One is NABARD Rural Bonds and the other one is Bhavishya Nirman Bonds. Investments made in NABARD Rural Bonds are eligible for tax deductions.