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 of the Income Tax Act?
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.
Budget 2024: Will the government raise the section 80C deduction limit?
From the Union Budget 2024, taxpayers hope for lower tax rates and higher exemption limits. A key expectation is increasing the Section 80C tax deduction benefits, which currently allow up to Rs. 1.5 lakh in tax-deductible investments or expenses. Let’s understand these expectations in detail:
Preferred tax-saving option
Section 80C of the Income-Tax Act, 1961, is a favoured choice among taxpayers for reducing their tax burden. It includes a wide range of savings and investment options such as Life Insurance Corporation (LIC) premiums, Public Provident Fund (PPF) contributions, and Equity-Linked Savings Schemes (ELSS).
For the fiscal year 2024-25, individuals following the old tax regime can claim up to Rs. 1.5 lakh in deductions under Section 80C. However, the new tax regime does not allow for these deductions. This makes Section 80C particularly valuable to those opting for the traditional tax system.
Current limitations and expectations
Many taxpayers believe the current Rs. 1.5 lakh limit under Section 80C restricts their ability to invest in various tax-saving instruments like fixed deposits, ELSS, and the principal repayment of housing loans. With the rising cost of living and increased salaries, taxpayers quickly exhaust this limit, leaving little room for additional tax-saving investments.
Hence, there is a growing demand for the government to increase the deduction limit to Rs. 2 lakh in the upcoming Union Budget 2024. Such an increase would align the tax benefits with current economic conditions and provide taxpayers with greater flexibility and relief.
Impact on taxable income
It is worth mentioning that revising the Section 80C deduction cap would directly affect an individual's taxable income and tax liability. With rising living costs and salaries, the current Rs. 1.5 lakh limit is often insufficient and causes many taxpayers to hit the cap quickly. By increasing this limit, the government can reduce the taxable income for a larger number of taxpayers and lower their overall tax liability.
Additionally, this change would also encourage more investments in tax-saving instruments. By addressing these expectations in the Union Budget 2024, the government could provide significant relief and promote broader participation in Section 80C schemes.
Deductions list on investments 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.