Friday, 26 February 2016

Complete Details About Tax Deductions Under Section 80C

Posted by MyInvestmentsPub
We are reaching to the end of FY 2015-16. This is the right time to review all our Investments and Taxes to submit for Tax deductions for FY 2015-16. Most of us are aware of popular tax deductions, especially under section 80C of the Income-tax, 1961, like ELSS, life insurance premium, PPF etc. However, either we ignore or don’t know the other investments and expenditure that are eligible for tax deductions under Section 80C. Awareness is required on Section 80C for better Tax deductions and avoid any mistakes in our Investment approach.

What Are Income Tax Sections under Section 80C:

Sections 80C is the most famous section for tax exemptions because of a large amount of the tax exemption allowed in this section. Broadly there are four income tax sections under which we can claim the tax exemptions - Section 80C, Section 80CCG, Section 80CCD and Section 80CD. Different amount of income deduction are allowed under different sections. Check the following diagram for basic understanding of Section 80C and the Sub sections under Sections 80C.

Section 80C and the Tax Deductions:

Under Section 80C you can save a maximum of Rs 1,50,000. A large number of Investments and expenditures are allowed for deductions under this 80C. Important investments under Section 80C tax deductions are:

1. Equity-linked savings scheme (ELSS): 

Investment up to Rs 1,50,000 per year is eligible for tax deductible under section 80C of the Income Tax Act. However, there is a lock-in period of 3 years during which an investor can’t redeem, transfer or pledge the units. If you are investing into ELSS through SIP approach, each SIP is considered as a new Investment.

2. Public Provident Fund (PPF): 

Investment in PPF is also tax deductible under section 80C, and the maximum cap is Rs 1,50,000 per year. The primary benefit of investment in PPF is Exempt- Exempt- Exempt status (EEE), investments, interest earned and withdrawal at maturity are not taxed. But the only disadvantage of PPF is that it is a 15 years investment and a partial withdrawal is only allowed after 7 years.

3. National Pension Scheme (NPS): 

To encourage the investors to invest for retirement planning, government has given a tax deduction of up to Rs 1,50,000 for investments in NPS under section 80C. In NPS, an investor has to invest till the retirement age (58-60 years). In addition, there is restriction on pre-mature withdrawals, so NPS is an illiquid investment. Besides, NPS has an EET status that means investments and returns are tax deductible but at maturity the amount will be taxed.

4. SukanyaSamriddhiYojana: 

This is newly introduced Investment product for Girl child. Parents or a legal guardian of a girl child can open this account till she attains the age of 10 years. The investment up to Rs 1,50,000 in SukanyaSamriddhiYojana is allowed for deduction under Section 80C. This scheme gives higher interest than other fixed investments and enjoys triple E status, which means investments, interest earned and maturity amount is not taxable.

5. Post Office Deposits:

Various Post office deposits like National Savings Certificate (NSC), Post Office Deposits (POTD) are comes under section 80C for a maximum investment of upto Rs 1,50,000 per year. However, interest earned is entirely taxable. Post Office Monthly Income Plan (MIP) with RD is a popular Tax savings plan.

6. Unit-linked insurance plans (ULIP): 

Investments in the ULIPs, which provide life insurance and invest in equity, in the name of self, spouse and a child are entitled to tax deduction under Section 80C. ELSS is better product than ULIP. For complete details on ULIPs, refer my previous article on ULIPs.

7. Five-Year Bank FD: 

The maximum investment of Rs 1,50,000 per year in five years FDs with certain banks is eligible for exemption under section 80C. However, the interest earned on your Bank FD is taxable.

8. Home loan principal repayment: 

The repayment of principal of a home loan is tax deductible under section 80C. The maximum deduction of Rs 1,50,000 is allowed per financial year. There are requests to GOI to increase this limit to Rs 2,50,000 with separate sub section under section 80C and we need to wait till the Budget outcome.

9. Stamp duty and registration charges for a home: 

Many of us are not aware of this. The Stamp duty and registration charges are also eligible for deduction under Section 80C. The maximum deduction is limited to Rs 1,50,000.

10. Tuition fees of Children: 

One more important factor for Tax deduction is your kid's tuition fees. Deduction of up to Rs 1,50,000 per financial year is allowed on tuition fees of any two children. However, the deduction is not allowed on part-time courses and private tuitions/coaching classes. In addition, development charges, transport charges, hostel charges, library fees, late fees etc. are not tax deductible. The tax exemption is allowed only on basic tuition fee.

Section 80CCG and the Tax Deductions:

The Rajiv Gandhi Equity Saving scheme (RGESS) is exclusively for the first time retail investor whose annual income is below Rs 12 lakh per annul. Under this section, the 50% of the investments in the Rajiv Gandhi Equity Saving Scheme are allowed for tax exemption for consecutive three years. Besides, the dividend received is also tax exempted. An investor can invest any amount in RGESS but the benefit is only limited to Rs 50,000. Therefore, the maximum tax benefit is limited to Rs 25,000 (50% of Rs 50,000).The primary disadvantage of RGESS investments in that it has a lock-in period of three years. During first year an investor cannot sell or transfer the MFs/ETFs/Stocks while during next two years transfer of MFs/ETFs/Stocks is allowed under certain conditions.

Section 80CCD and the Tax Deductions:

To encourage the investors to invest for retirement in Nation Pension Scheme, the government allowed addition tax deduction of Rs 50,000 under section 80CCD. You can refer my previous article on NPS for more information.

Section 80D and the Tax Deductions:

The medical insurance premium of up to Rs 25,000 of self, spouse and dependent children are tax deductible. In addition, a person can also avail the tax deduction on the medical insurance premium he/she is paying. A maximum deduction of Rs 25,000 is allowed, if the parents are not senior citizen and if the parents are senior citizen, then an additional tax deduction of Rs 5,000 is allowed on medical insurance premium that a person is paying. If the parents (uninsured parents) are more than 80 years old, then the medical expenditure incurred is also tax deductible under section 80D. The maximum deduction on medical expenditure is Rs 30,000. However, the total deduction for health insurance premium and medical expenses for parents is limited to Rs 30,000.


Get basic awareness on various Tax deduction Sections and the coverage. This will help you in avoiding any mistakes during Tax filing. This will also help you in better Tax deductions and saves you more in your Tax.


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