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Section 80C Deduction – Income Tax Act


Section 80C Deduction – Income Tax Act

Section 80C is a facility available in the Income Tax Act which provides deductions for a variety of miscellaneous circumstances. Section 80C deduction is one of the most popular income tax deduction among taxpayers in India. Under section 80C, taxpayers can claim an income tax deduction for a variety of circumstances including premiums for life and health insurance, investments in mutual funds, investments in pension schemes and fixed deposits. In this article, we look at some of the popular various avenues of deduction available under Section 80C.

Eligible Deductions under Section 80C

The following types of investments and payments are eligible for deduction under Section 80C.

PPF (Public Provident Fund)

PPF or Public Provident Fund can help the taxpayer to be provided with reasonable returns and also acts as a tax-saving tool. PPF investments are exempted at the investment stage and also exempted at the accrual stage. Hence, the taxpayer need not pay any tax both at the time when the interest is credited and at the time when the principal amount is withdrawn. Deduction under Section 80C for PPF can be claimed for the investments in the name of spouse or children.

EPF (Employees’ Provident Fund)

Employees’ Provident Fund is a social security Schemes run by the Employees’ Provident Fund Organisation. It is largely intended for the benefit for employees who are employed in industrial establishments. Businesses registered under PF deduct PF payments from salary and also make a contribution on the part of the employer. The amount obtained on withdrawal from a Provident Fund and Voluntary Provident Fund contributions made by employers is exempt from tax. The employees’ contribution can be used for tax deduction under section 80C. Voluntary Provident Fund (VPF) contributions are also eligible for deduction under Section 80C.

Five Year Bank Deposit

Tax saving fixed deposits under scheduled banks with a tenure of five years are eligible for Section 80C deduction.

Post Office Tax Saving Deposits

Post Office Tax Saving Deposits with a five-year tenure qualify for an income tax deduction under Section 80C. However, for a post office tax-saving deposit to be eligible for a deduction, the account must have been opened on or after 8th December 2007.

NSC (National Savings Certificates)

National Savings Certificates or NSC is a tax-saving bond issued by the Indian Postal Service. National Savings Certificates can be used as a tax-saving tool in India, as it is eligible for deduction under Section 80C. Interest accrued on National Savings Certificates is liable to tax. However, if the interest is reinvested, it would be eligible for section 80C deduction.

ELSS Mutual Funds (Equity Linked Saving Schemes)

Equity Linked Savings Scheme (ELSS) are a type of open-ended Equity Mutual Fund that qualifies for tax exemptions under Section 80C of the Income Tax Act. Compared to bank deposits, post office tax saving deposits or National Savings Certificates, ELSS allows the funds to be invested in equity markets with potential for higher returns when compared to returns from savings accounts maintained with banks. Also, long-term capital gains from ELSS funds are tax-free and the lock-in period is only three years.

Tuition Fees of Children

Taxpayers who have paid tuition fee to any University/College/Educational institution in India for their children for full-time education can claim deduction under Section 80C. In case the taxpayer has availed an educational loan for payment of tuition fee, then a deduction can also be availed under Section 80E.

SCSS (Post Office Senior Citizen Savings Scheme)

Post Office Senior Citizen Savings Scheme is available in the Section 80C deduction list. Individuals who are over the age of 60 years or above on the date of opening of the account or an individual who attained the age of 55 years or more and who has retired under a Voluntary Resignation Scheme (VRS) is eligible for the deduction. Deposits made in Post Office Senior Citizen Savings account that were opened on or after 8th December 2007 are eligible for section 80C deduction. Senior Citizen Savings Scheme account can be closed after expiry of five years from the date of opening of the account can be extended for another three years.

Principal Repayment of Home Loan

Taxpayers repaying home loan can claim deduction under Section 80C for the amount of principal repayment. Interest paid on home loan is also eligible for income tax deduction under Section 24.

Stamp Duty Charges

Stamp duty charges paid during the purchase of a home is tax-deductible under Section 80C. However, this deduction is applicable only during the year of purchase of a residence.

Life Insurance Premium

Life insurance premium for insurance policy purchased from any insurance company is eligible for deduction under this section. The deduction can be claimed by a taxpayer for insurance premium paid. The premium can be paid for policies taken in the name of the assessee. Alternatively, the policies can be taken in the name of the assessee’s spouse and children. In either case, a deduction can be claimed under Section 80C.

Sukanya Samriddhi Account Deposit Scheme

Sukanya Samriddhi Account Deposit is a type of Post Office Saving Schemes eligible for tax deduction under this section. The parent or a legal guardian can open a Sukanya Samriddhi Account in the name of the girl child. Parents can open one account in the name of one girl child and a maximum of two accounts in the name of two different girl children. Sukanya Samriddhi Account can be opened in the name of a girl child up to the age of 10 years only commencing from the date of birth. The account can be closed after completion of 21 years. Premature closure is also allowed after the girl child completes 18 years, provided the girl is married. Currently, an interest of 8.4% per annum, calculated on a yearly basis, is provided for Sukanya Samriddhi Accounts. The minimum deposit is Rs.1000 per year and the maximum deposit is Rs.1.5 lakhs per year.

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