Deductions available under Section 80C of Income Tax Act, 1961

Every Taxpayer is entitled to reduce his tax liability by taking benefits of various deductions available under the Income Tax Act. Therefore one should plan his investment and make decision in such manner that, he may get benefit of deductions u/s 80C to 80U.  Section 80C of Income tax Act is an important section wherein investment in certain saving plans and some other expenditures are allowed as deduction to the taxpayer from his total income thereby saving his taxes.

The computation of expacted total income and tax thereon should be made right at the beginning of new financial year and should be reviewed in the later part of the financial year. The Finance Act, 2005 has withdrawn the rebate u/s 88 and in its place re-inserted section 80C for deduction in respect of contribution to PF, LIC premiums, investment in NSC, infrastructure bonds etc, w.e.f A.Y 2006-07.

Here below the deductions available  u/s 80C of Income Tax Act have been discussed:

Who is eligible for deduction u/s 80C: The individual and HUF assesses are eligible for deduction u/s 80C.

How much deduction is available u/s 80C: W.e.f A.Y 2006-07, the individual and HUF assesses are entitled to a deduction of an aggregate amount paid or deposited in the specified items, subject to a maximum limit of Rs. 1 Lakh.

Investment or payment need not to be out of income chargeable to tax: The payments or deposits u/s 80C can be made from any source, even out of borrowings. There is no condition that such payment has to be made out of income chargeable to tax.

Payments eligible to deduction u/s 80C:

Life insurance Premium: Any amount paid towards Life insurance premium in case of individual for the assessee himself, his spouce, children and in case of HUF, the payment of LIP for insurance of any member/members of HUF, is eligible for deduction u/s 80C. If more than one policy have been taken then Premium of all can be taken.

It should be noted that premium paid upto 20% of the actual capital sum assured will only qualify for the deduction. The actual capital sum doesnot include value of any premium agreed to be returned or of any benefit by way of bonus or other wise over and above the sum actually assured, which is to be or may be received under the policy by a person.

Section 80C has not made any distiniction between minor child and major child. Hence the premium paid to keep in force of of any child whether minor or major will be eligible for deduction u/s 80C.

Payment by a person in respect of non-commutable deferred annuity is also eligible for deduction u/s 80C: Annuity may be taken in the name of Individual, the spouce and children of such individual. For this purpose payments made by HUF are not eligible for deduction.   

Provident Funds: Provident Fund deducted from the salary also qualifies as deduction u/s 80C.  Thus contribution made towards statutory provident fund(i.e the one to which Provident Funds Act 1925 applies), contribution made by an employee towards recognized provident fund qualifies for deduction.

Non salary class persons can also make contributions to 15 year Public provident fund set up by the Central Government under Public Provident Fund Scheme, 1968. Contribution towards PPF can be made by individual in the name of himself, spouce and children. The HUF can also make contribution towards PPF in the name of any member of HUF(But it is to be noted that the Government is putting restriction on such contributions to PPF by HUF, so it is advisable to check the position at the time of making contribution)

It should also be noted that contribution towards provident fund for repayment of any loan taken against it doesnot qualify for deduction u/s 80C.

Contribution by an employee to an approved superannuation fund is also eligible for deduction u/s 80C.

Repayment of Housing Loan: The principal amount paid towards repayment of Housing loan is eligible for deduction u/s 80C. EMI of housing loan consists of two things, one is principal amount and other is interest amount. The Principal amount paid in the EMI qualifies for deduction u/s 80C. Interest paid on the housing loan can also save your tax as such interest qualifies for deduction u/s 24 Of Income Tax Act.

One should get  housing loan certificate at the end of the year so as to know the interest and principal amount paid during the year.

Housing loan  must be taken for purchase or construction of residential house or flat for deduction u/s 80C. Any payment towards the cost of any addition or alteration/renovation of house property carried on after the completion certificate or after the house property or part thereof has been occupied by the assessee or any other person on his behalf or let out is not eligible for deduction u/s 80C.
Any payment towards any expenditure in respect of which deduction is allowable u/s 24 of Income Tax Act, is not covered by deduction u/s 80C.

Housing loan can be taken from Central Govt. State Govt. LIC, National Housing Bank, any bank(including cooperative bank), employer of the assessee where such employer is an authority or a board or a corporation or a public company, university established by law or a college affiliated to such university or a local authority or a cooperative society or and other body established under a Central or State Act.

Stamp duty, registration fee and other expenses incurred for the purpose of transfer of house property to the assessee  is also eligible for deduction u/s 80C. The expenses incurred by the assessee on stamp duty, registration fee etc for purchase of a House property are eligible for deduction u/s 80C. House property here means the residential house property income of which is chargeable to tax under the head Income from House property.

Deposit in 10 years or 15 Years account under the Post officer Saving Bank (CTD) Rules 1959 is eligible for deduction u/s 80C. Such deposit can be made in the name of assessee himself, spouce or minor children. In case of HUF deposit can be made in the name of any member of HUF.

National Saving Scheme: Subscription made to National Saving Scheme, 1992 is eligible for deduction u/s 80C.

National saving Certificate(NSC): National Saving certificates is an instrument which matures after 6 years and carries interest @ 8.16%. These certificates can be purchased from any post office. These certificate are eligible for deduction u/s 80C. The interest accruing from NSC certificates is deemed to be reinvested in such certificates hence the interest accruing every year also qualifies for deduction u/s 80C.

Contribution to ULIP: Contribution to ULIP of UTI and of LIC Mutual Fund i.e Dhanraksha plan of LIC Mutual Fund referred to u/s 10(23D) also qualifies for deduction u/s 80C. Such contribution can be made by individual in his own name, spouce or his children’s name. In case of HUF contribution can be made in the name of any member of HUF.

Contribution to Equity linked Savings scheme(ELSS): There are certain mutual fund schemes notified by the central Govt, contribution to which is eligible for deduction u/s 80C, Equity linked saving scheme is one of them, contribution to it qualifies for deduction u/s 80C.

Tution Fees: Tution fees which you pay for the education of your children also qualifies for deduction u/s 80C. Tution fees paid whether at the time of admission or therafter, to any university, college, school or other educational institution situated within India for the purpose of full time education of any 2 children of the individual assessee, can be claimed as deduction u/s 80C.

It is to be noted that its only the tution fees that qualifies for deduction, the payment made towards any development fees or donation or any other payment of similar nature do not qualify for deduction u/s 80C. Therefore one should get certificate from the educational institute specifying therein tution fee paid during the year.

Pension plans: Contributions made towards pension/annuity plans of LIC or any other insurer also qualifies for deduction u/s 80CCC. It is to be noted that contributions made u/s 80CCC together with deduction u/s 80C cannot exceed the maximum limit of Rs 1 Lakh. For more on 80CCC you can follow this link. 

Bonds issued by NABARD: Subscription to notified bonds issued by National Bank for Agricultural and Rural Development(NABARD) qualifies for deduction u/s 80C.

Senior Citizen saving scheme: Amount deposited in an account under the Senior Citizen Scheme rules, 2004 is eligible for deduction u/s 80C of Income Tax Act. Rate of interest in this scheme is ussualy higher than the normal.

5 Year term deposit in Post office: This scheme has been added w.e.f A.Y 2008-09. The amount deposited under 5 year term deposit plan in the post office is now an eligible investment for deduction u/s 80C.

Fixed deposit of 5 Years in Bank: W.e.f. Asst. Year 2007-08 investment in term deposit for a fix period of 5 years with a scheduled bank qualifies for deduction u/s 80C.

Additional Deduction u/s 80CCF: from 1st April 2010 section 80CCF would provide an additional tax deduction, over and above the existing 80C deduction, in respect to investment made in long term infrastructure bonds.

The new section 80CCF, will offer a deduction of Rs 20,000, in addition to the deduction of Rs 1 lakh under sections 80C, provided the investments are in notified long term infrastructure bonds. The government has proposed this section to promote investments in infrastructure projects in the country.

The deductions available u/s 80C are important tools for tax planning and at the same time it encourages saving from the assesses. It is generally seen that people tend to make investments at the end of financial year, which may sometimes lead to ending up choosing a les beneficial plan for investment purposes. Therefore one should start investing right from the beginning of the financial year and that way also benefits/interest from such investment can be enjoyed/earned from the beginning of the year.  

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