Section 80C of the Income Tax Act provides exemptions on specific expenditures and investments from income tax. By planning investments in various financial assets like PPF, NSC, ELSS, etc., you can claim deductions up to Rs. 1.5 lakh under Section 80C, effectively reducing your taxable income.
If you on the lookout for smart strategies to cut down on your taxable income this year? Look no further than Section 80C of the Income Tax Act.
This section offers a treasure trove of tax-saving opportunities through various investments and allowable expenses. By tapping into tax saving investments under 80C, taxpayers can significantly reduce their tax burdens.
In this article, we will explore the meaning of Section 80C, the deductions available under this section, the exemptions it offers, and the associated tax benefits. Additionally, we will cover who is eligible for an 80C deduction, how to maximize these benefits, and more.
What is Section 80C
Section 80C of the Income Tax Act offers a valuable opportunity to reduce your taxable income. By strategically investing in eligible financial instruments, you can claim 80C deductions of up to Rs. 1.5 lakh.
Popular options include Public Provident Fund (PPF), National Savings Certificates (NSC), and Equity Linked Savings Schemes (ELSS). Diversifying your investments across these assets not only helps mitigate risk but also ensures you make the most of Section 80C benefits.
Consider consulting with a financial advisor to create a personalised tax-saving plan that aligns with your financial goals and risk tolerance.
Union budget 2025: Update on Section 80C
In the Union Budget 2025, many taxpayers were expecting a revision to the Section 80C deduction limit. However, no changes were made, and the limit remains at Rs. 1.5 lakh under the old tax regime. Despite calls to raise it in line with inflation and rising incomes, the government chose to retain the existing threshold.
Section 80C remains a preferred tax-saving option
Section 80C of the Income Tax Act, 1961 continues to be a go-to tax-saving tool in 2025. It covers a range of eligible investments and expenses such as:
- Life insurance premiums (e.g. LIC)
- Public Provident Fund (PPF)
- Equity-Linked Savings Schemes (ELSS)
- 5-year tax-saving fixed deposits
- National Savings Certificate (NSC)
- Principal repayment on home loans
- Children’s tuition fees
For the financial year 2025–26, individuals under the old tax regime can still claim deductions up to Rs. 1.5 lakh under Section 80C. Those following the new tax regime, however, will not be able to claim these deductions—making Section 80C relevant mainly for old regime taxpayers.
Current limitations and expectations
Taxpayers continue to feel that the Rs. 1.5 lakh limit is outdated, especially given rising living costs and broader investment needs. Most salaried individuals hit the cap quickly through basic contributions to PPF, EPF, insurance premiums, or home loan repayments. This leaves little scope to diversify into other tax-saving instruments like ELSS or FDs.
There was widespread expectation that Budget 2025 would increase the limit to Rs. 2 lakh, but the government chose not to revise it. The unchanged limit may disappoint those hoping for more flexibility and relief in managing their tax-saving investments.
Impact on taxable income
Since the Section 80C limit remains unchanged, the impact on taxable income stays the same as previous years. Individuals can deduct up to Rs. 1.5 lakh from their gross income under the old regime, helping to reduce their tax liability.
However, the Budget did bring relief in other ways—higher basic exemption limits, enhanced rebates under Section 87A, and added deductions for NPS (Vatsalya) may help taxpayers reduce their tax outgo even if 80C stays capped.
Still, the lack of revision to 80C may discourage wider participation in tax-saving schemes, especially among those who’ve already maxed out their limit.
Comparison of risk factors of investment options under section 80C
The following table provides an overview of various investment options available under Section 80C of the Income Tax Act, along with their key features:
Investment Option |
Minimum Lock-in Period |
Rate of Interest |
Associated Risk |
National Pension Scheme (NPS) |
Till the age of 60 |
8% to 10% |
High |
Equity Linked Savings Scheme (ELSS) |
3 years |
Ranging between 12% and 15% |
High |
Public Provident Fund (PPF) |
15 years |
7.1% |
Low |
Senior Citizen Savings Scheme (SCSS) |
5 years |
8.2% |
Low |
National Savings Certificate (NSC) |
5 years |
7.7% |
Low |
Unit Linked Insurance Plan (ULIP) |
5 years |
Ranging between 8% and 10% |
Moderate |
Fixed Deposit |
5 years |
Up to 8.40% |
Low |
Sukanya Samriddhi Yojana |
21 years |
8.00% |
Low |
What are the exemptions under 80C?
Section 80C and Section 80CCC of the Income-Tax Act offers several tax benefits to lower the overall income tax liability. Section 80C allows a deduction of up to Rs. 1.5 lakh per year for investments in specified financial instruments such as Life Insurance premiums, Public Provident Fund (PPF), National Savings Certificates (NSC), and Equity-Linked Savings Schemes (ELSS).
On the other hand, Section 80CCC provides a similar deduction of up to Rs. 1.5 lakh for contributions made to specified pension funds designed to provide retirement benefits.
Eligibility criteria for Section 80C deductions
To claim deductions under Section 80C of the Income Tax Act, 1961, you must meet the following eligibility criteria:
Eligible taxpayers
You are either an individual taxpayer or a Hindu Undivided Family (HUF).
Maximum deduction
The maximum deduction you can claim is up to Rs. 1.5 lakh per financial year.
Eligible investments
Life insurance premiums
Unit Linked Insurance Plans (ULIPs)
Provident Fund contributions
National Savings Certificates (NSCs)
Equity-Linked Savings Schemes (ELSS)
Sukanya Samriddhi Yojana (SSY)
Tax-saving Fixed Deposits (FDs)
Other eligible expenses
Tuition fees for your children's education.
Repayment of the principal amount on a home loan.
Lock-in period
Certain investments have a mandatory lock-in period, such as:
ELSS (3 years)
Public Provident Fund (PPF) (15 years), and
ULIPs (5 years).
Premature withdrawal
If you withdraw from these investments before the lock-in period ends, you will lose the tax deduction benefits under Section 80C.
The amount previously exempt would become taxable in the year of premature withdrawal.
Financial year applicability
Deductions apply to the financial year in which you make the investment.
Features of income tax deduction u/s 80
Section 80C allows you to claim a tax deduction of up to Rs. 1.5 lakh for investments in certain financial instruments. These deductions reduce your taxable income and, ultimately, your income tax liability. Below is a list of all the eligible deductions (investments/ expenses) you can claim under Section 80C:
Investments
Life insurance premiums: You can deduct premiums paid on life insurance policies for yourself, your spouse, or your children (both minor and major). For Hindu Undivided Families (HUFs), premiums for any member can be deducted. However, premiums paid for parents are not eligible.
Sukanya Samriddhi Scheme: Investments in this scheme for your daughter or any girl child under your guardianship are deductible.
Fixed Deposits (FDs): Investments in five-year FDs of Scheduled Banks or Post Offices are eligible.
Contributions to various funds:
Public Provident Fund (PPF)
Approved superannuation fund
Unit-linked Insurance Plan (ULIP), 1971
Unit-linked Insurance Plan of LIC Mutual Fund
Approved annuity plan of LIC
Pension funds set up by mutual funds or administrators
National Housing Bank Term Deposit Scheme, 2008
Additional accounts under the National Pension System (NPS)
Senior Citizens Savings Scheme
Subscriptions:
National Savings Certificates (NSC) (VIII issue)
Units of any mutual fund or administrator-specified company
Notified deposit schemes of public sector companies providing long-term finance for housing
Specified equity shares, debentures, or units of mutual funds
Notified bonds issued by the National Bank for Agriculture and Rural Development (NABARD)
Payments towards the principal amount of a housing loan, including stamp duty, registration fees, and other related expenses, can be deducted.
Tuition fees paid to any school, college, university, or any other educational institution within India for the full-time education of up to two children can be claimed as a deduction.