Section 80C of the Income Tax

Section 80C of the Income Tax Act

Interim Union Budget 2023 update regarding Section 80C

During the recently concluded Interim Union Budget 2023, Finance Minister Nirmala Sitharaman didn’t make any changes to the deductions under Section 80C. If you are filing your ITR under the old tax regime, you can claim a deduction of rupees ₹1.5 lakh, but this benefit is not available for the new tax regime. 

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When filing income tax returns, taxpayers can leverage the advantage of various available deductions. Among them, Section 80C is the most popular one which is used for tax saving. 

Here, we will be going to discuss, 

• How much deduction can be availed under section 80C?

• What is the eligibility criteria? 

• Investment options, and more. 

Let’s start by understanding what exactly Section 80C is. 

What is Section 80C  of the Income Tax Act?

Section 80C of the Income Tax Act is a provision that allows taxpayers to reduce their taxable income by investing in specified investment and payment options. 

Under Section 80C, you can claim deductions of up to ₹1.5 lakh, which effectively lowers your taxable income and reduces your overall tax liability. 

The objective of this section is to promote savings and investment while providing tax benefits. 

It is worth remembering that all the investments under Section 80C have their own terms and conditions, including lock-in periods and eligibility criteria, which taxpayers should understand before making investment decisions to optimize tax savings.

Eligibility Criteria of Section 80C of the Income Tax Act

The below entities are eligible to claim deductions under Section 80C of the Income Tax Act. 

• Individual taxpayers 

• Hindu Undivided Families (HUFs)

• Residents and Non-resident Indians (NRIs)

Which entities are not eligible? 

• Companies, 

• Partnerships, 

• Other corporate bodies

What is Covered Under Section 80C?

Below are the main categories of investments and expenses covered under Section 80C.

• Mutual Funds (Equity Linked Saving Scheme)

If you have knowledge of the stock market and mutual funds, then you can invest in ELSS or Equity-Linked Savings Scheme. The best part is that you can start with an investment amount as low as ₹500. 

Tax Benefits: Taxpayers can avail tax deductions of up to ₹1.5 lakh for investments. Also, LTCG of up to ₹1 lakh for one financial year is not taxable. Any profits above the specified limit will be subject to taxation of 10%.

Lock-in-Period: 3 years

• National Pension Scheme (NPS)

It is a government-backed savings scheme that has multiple tax benefits. Through the National Pension Scheme, you can build a corpus till the age of 60. 

Tax Benefits: ₹1.5 lakh deduction under Section 80CCE 

Lock-in-Period: Till retirement or up to the age of 60 years.

• ULIPs (Unit Linked Insurance Plans)

ULIPs is an insurance policy cum investment option. It offers the chance to capitalize on various investments like stocks, bonds and mutual funds. 

Tax Benefits:  ₹1.5 lakh tax deduction

Lock-in-Period: Three or five years

• Senior Citizen Saving Scheme (SCSS)

This scheme is a retirement benefits account backed by the Indian Government for individuals above the age of 60 years. The best part is that in this scheme, premature withdrawal is allowed. 

Tax Benefits: Tax deductions on investments up to ₹1.5 lakh

Lock-in-Period: Five years

• Sukanya Samriddhi Yojana (SSY)

SSY scheme was launched under the campaign “Beti Bachao Beti Padhao (BBBP)” by Prime Minister Narendra Modi in 2015. 

Under Sukanya Samriddhi Yojana, the parent or guardian of girl child can open an Sukanya Samriddhi Yojana on behalf of her until she reaches the age of 10. The minimum investment required is ₹250 which can go upto maximum ₹1.5 lakh p.a.

Tax Benefits:  ₹1.5 lakh tax deduction/ It’s EEE rated, which implies the proceeds are exempted from tax the time of investment, returns, and withdrawals. 

Lock-in-Period: 21 years (or until the girl is married after reaching the age of 18 years)

• 5-Year Tax Saving FDR

Every Indian invests in FDs, but only a few of them know that they can claim a deduction on it. Compared to standard saving accounts, FDs offer higher interest rates, especially for senior citizens. If you are looking for a safe investment option, go invest in FDs. 

Tax Benefits:  ₹1.5 lakh tax deduction

Lock-in-Period: Five years during which withdrawal is not allowed.

• Principal Repayment of Housing Loan 

The principal amount repaid towards a home loan for a residential property is eligible for deduction under Section 80C. This includes payments made towards the construction or purchase of a house property.

• National Saving Certificate (NSC)

It is a fixed-income investment plan and is considered very secure. You can start investing in the NSC scheme with a minimum amount of  ₹1000. 

Tax Benefits:  ₹1.5 lakh tax deduction

Lock-in-Period: Five years

• Children's Tuition Fees

You can also claim an 80C deduction on tuition fees paid for the education of up to two children (including fees for playschool, school, college, or university).

• Public Provident Fund (PPF)

It is a very popular long-term savings scheme launched in 1968. Like SSY, the minimum investment required is ₹250, which can go up to a maximum ₹1.5 lakh p.a. 

Tax Benefits:  It’s EEE-rated, which implies the proceeds are exempted from tax at the time of investment, returns, and withdrawals. 

Lock-in-Period: 15 years (Can be renewed in sets of 5 years)

Tabular Format of Deductions List on Investments under Section 80C

Frequently Asked Questions (FAQs)

1. How much deduction can be claimed under Section 80C?

Taxpayers can claim a deduction of up to ₹1.5 lakhs under Section 80C of the IT Act.

1. Can I claim a deduction of more than ₹1.5 lakhs under Section 80C?

No! You can not claim a deduction of more than ₹1.5 lakhs under Section 80C. You have to pay tax on the additional amount according to your income tax slab.  

1.  Is it possible to save income tax beyond Rs 1.5 lakhs? 

Along with 80C, you can also save some taxes through other tax deductions like 

• Preventive health checkup under section 80D

• Interest repayment on education loans under section 80E.

If you want to take expert advice on tax-saving purposes, click here.

1. Can I claim a deduction under both sections 80C and 80D?

Absolutely, yes! You can avail a deduction of up to ₹1.5 lakhs under Section 80C and  ₹75,000 under Section 80D. In the case of senior citizens, the maximum benefit goes up to ₹1 lakh.