Section 80C of the Income Tax Act of India refers to a provision that outlines specific expenditures and investments eligible for tax exemptions. It permits an individual to claim a maximum deduction of up to Rs 1.5 lakh each year from their total taxable income.
Tax exemptions under Section 80C apply only to individual taxpayers and Hindu Undivided Families. Corporate bodies, partnership firms, and other business entities are not eligible for these exemptions.
Understanding Section 80C in Income Tax and its Subsections
Section 80C allows certain investments and expenses to be exempted from tax liability.
By strategically planning investments under 80C across diverse options like NSC, ULIP, PPF, and others, individuals can claim deductions of up to Rs 1,50,000. Utilizing these tax benefits can significantly reduce one’s tax obligation.
Under the Income Tax Act of India, deductions under Section 80C are divided into various sub-sections. These include:
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80C Deduction List - Tax Saving Sections |
Eligible Investments for Tax Exemptions |
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Section 80C |
Investments in Provident Funds like EPF, PPF, etc., life insurance premium payments, Equity Linked Saving Schemes, home loan principal repayments, SSY, NSC, SCSS, and more. |
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Section 80CCC |
Contributions towards pension plans and certain mutual funds. |
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Section 80CCD(1) |
Contributions to government-backed schemes like the National Pension System and Atal Pension Yojana. |
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Section 80CCD(1B) |
Exemption of investments up to Rs 50,000 in the NPS under this section. |
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Section 80CCD(2) |
Employer contributions towards NPS (up to 10% of basic salary plus dearness allowance) are exempt from tax under this section. |
Eligibility for Deductions Under Section 80C of the Income Tax Act
Section 80C deductions are available to individuals and Hindu Undivided Families (HUFs). Both Indian residents and non-resident Indians (NRIs) can avail of this section.
However, corporate entities, partnerships, and other business bodies are not eligible for these deductions.
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Eligible Investment Options for Deduction Under Section 80C
Here are several tax-saving investment options available under 80C for individuals:
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Investment Type |
Interest Rates |
Minimum Lock-in Period |
Guaranteed Return |
Risk Level |
|
Equity Linked Savings Scheme (ELSS) |
12% to 15% (market-dependent) |
3 years |
No |
High |
|
National Pension Scheme (NPS) |
8% to 10% |
Until retirement at 60 years |
No |
High |
|
Senior Citizens Savings Scheme (SCSS) |
8.20% |
5 years |
Yes |
Low |
|
Public Provident Fund (PPF) |
7.10% |
15 years |
Yes |
Low |
|
National Savings Certificates (NSC) |
7.7% |
5 years |
Yes |
Low |
|
Unit Linked Insurance Plans (ULIP) |
8% to 10% (market-driven) |
5 years |
No |
Moderate |
|
Fixed Deposits (FD) |
Up to 8.40% |
5 years |
Yes |
Low |
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Sukanya Samriddhi Yojana |
8.20% |
8 years |
Yes |
Low |
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Life Insurance Premiums
Life insurance premiums paid are eligible for tax exemptions under the 80C limit. This applies to policies held by the taxpayer, their spouse, dependent children, and members of the Hindu Undivided Family (HUF).
Currently, premiums of up to 10% of the sum assured (on the policy) are exempt under this section. This rule was revised in April 2012, from the previous limit of 20% of the sum assured.
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Public Provident Fund (PPF)
Any contribution to the Public Provident Fund (PPF) qualifies for a tax deduction under Section 80C. The maximum amount eligible for deduction is Rs. 1,50,000 annually, and it allows an investor to claim the entire deposit as a tax-exempt amount.
Additionally, voluntary contributions by employees to the fund are also eligible for a deduction under Section 80C of the Income Tax Act.
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NABARD Rural Bonds
NABARD (National Bank for Agriculture and Rural Development) offers rural bonds that are eligible for tax exemptions under the Income Tax Act. These bonds are eligible for a maximum deductible amount of Rs. 1.5 lakh under Section 80C.
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Unit Linked Insurance Plans (ULIPs)
ULIPs, which offer higher returns over time compared to regular insurance policies, have gained popularity. These plans qualify for tax exemptions under Section 80C of the Income Tax Act 1961, allowing investors to claim tax exemptions up to Rs. 1.5 lakh on the invested amount.
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National Savings Certificate
The National Savings Certificate (NSC) is a widely preferred tax-saving instrument, ideal for conservative investors. The interest accrued on NSC is compounded every six months, and the maturity period can range from 5 to 10 years.
There are no restrictions on the amount that can be invested in NSC during a financial year. However, only up to Rs.1.5 lakh can be claimed for tax exemption under Section 80C.
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Tax Saving FD
Tax-saving Fixed Deposits (FDs) are offered by banks and post offices, providing tax benefits under Section 80C. These FDs come with a 5-year lock-in period and allow a maximum tax exemption of Rs.1.5 lakh (on the principal). However, the returns from such FDs are subject to tax.
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EPF
The Employee Provident Fund (EPF), including the accumulated interest, qualifies for tax exemption under Section 80C of the Income Tax Act, 1961.
This exemption is available to employees who have completed at least 5 years of service. Voluntary contributions made to the EPF are also eligible for tax benefits under Section 80C.
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Infrastructure Bonds
Section 80C of the Income Tax Act provides tax exemptions for investments in infrastructure bonds, provided the amount invested is Rs.20,000 or more.
The exemption limit of Rs.1.5 lakh under Section 80C applies to these long-term secured bonds as well.
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Equity-Linked Saving Scheme
Equity Linked Saving Schemes (ELSS) are eligible for tax exemptions under Section 80C up to the maximum limit of Rs.1.5 lakh. These schemes have a mandatory lock-in period of 3 years.
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Senior Citizens Savings Scheme
Investments in the Senior Citizens Savings Scheme (SCSS) are eligible for tax benefits under the 80C limit, i.e., up to Rs.1.5 lakh.
SCSS is available to individuals over 60 years of age, with an exception for those opting for voluntary retirement after 55 years. The scheme comes with a minimum lock-in period of 5 years.
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Principal Repayment Made Towards Home Loan
The tax deduction under Section 80C is available only for the principal portion of home loan EMIs. To avail of this benefit, certain conditions must be met:
- Exemptions can be claimed only after the construction of the property is completed.
- If the property is transferred within 5 years of possession, the tax exemption is no longer applicable under Section 80C.
- Any amount claimed as tax deduction will be taxable in the transfer year if the property is transferred after 5 years of possession. Non-compliance with this clause will disqualify the deduction under Section 80C.
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Stamp Duty and Registration Charges
The Government of India allows a tax deduction for stamp duty and registration charges paid during property transactions, subject to the Section 80C exemption limit.
Deductions can only be claimed in the year these charges are paid; otherwise, they will not be eligible for the Section 80C deduction.
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Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a savings scheme aimed at securing the financial future of a girl’s education and marriage. Parents or legal guardians of a girl child, under the age of 10, can open an account in this scheme. Parents with two or more girls (only in the case of twins) can also participate in the scheme.
The interest earned on this scheme is eligible for tax exemption under Section 80C.