Background for Section 80C of the Income Tax Act (India) / what
are eligible investments for Section 80C:
Section 80C replaced the existing Section 88 with more or
less the same investment mix available in Section 88. The new section 80C has become effective
w.e.f. 1st April, 2006. Even the section
80CCC on pension scheme contributions was merged with the above Section
80C. However, this new section has
allowed a major change in the method of providing the tax benefit. Section 80C of the Income Tax Act allows
certain investments and expenditure to be tax-exempt. One must plan investments well and spread it
out across the various instruments specified under this section to avail
maximum tax benefit. Unlike Section 88, there are no sub-limits and is
irrespective of how much you earn and under which tax bracket you fall.
The total limit under this section is Rs 1.50 lakh from financial
year 2014-15 / Assessment Year 2015-16. Before FY 2014-15 the limit was Rs. 1
Lakh. Under this heading many small savings schemes like NSC, PPF and other
pension plans. Payment of life insurance premiums and investment in specified
government infrastructure bonds are also eligible for deduction under Section
80C
Most of the Income Tax payees try to save tax by saving under
Section 80C of the Income Tax Act.
However, it is important to know the Section in to so that one can make
best use of the options available for exemption under income tax Act. One important point to note here is that one
can not only save tax by undertaking the specified investments, but some
expenditure which you normally incur can also give you the tax exemptions.
Besides these investments, the payments towards the principal
amount of your home loan are also eligible for an income deduction. Education
expense of children is increasing by the day. Under this section, there is
provision that makes payments towards the education fees for children eligible
for an income deduction
Sec 80C of the Income Tax Act is the section that deals with
these tax breaks. It states that qualifying investments, up to a maximum of Rs.
1.50 Lakh , are deductible from your income. This means that your income gets
reduced by this investment amount (up to Rs. 1.50 Lakh), and you end up paying
no tax on it at all!
This benefit is available to everyone, irrespective of their
income levels. Thus, if you are in the highest tax bracket of 30%, and you
invest the full Rs. 1.50 Lakh, you save tax of Rs. 45,000. Isn’t this great?
So, let’s understand the qualifying investments first.
Qualifying
Investments
Provident
Fund (PF) & Voluntary Provident Fund (VPF): PF is
automatically deducted from your salary. Both you and your employer contribute
to it. While employer’s contribution is exempt from tax, your contribution
(i.e., employee’s contribution) is counted towards section 80C investments. You
also have the option to contribute additional amounts through voluntary
contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is
tax-free.
Public
Provident Fund (PPF): Among all the assured returns small saving schemes,
Public Provident Fund (PPF) is one of the best. Current rate of interest is
8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years.
Minimum amount of contribution is Rs 500 and maximum is Rs 1, 50,000. A point
worth noting is that interest rate is assured but not fixed.
Life
Insurance Premiums: Any amount that you pay towards life insurance
premium for yourself, your spouse or your children can also be included in
Section 80C deduction. Please note that life insurance premium paid by you for
your parents (father / mother / both) or your in-laws is not eligible for
deduction under section 80C. If you are paying premium for more than one
insurance policy, all the premiums can be included. It is not necessary to have
the insurance policy from
Home Loan
Principal Repayment: The Equated Monthly Installment (EMI) that you pay
every month to repay your home loan consists of two components – Principal and
Interest. The principal component of the EMI qualifies for deduction under Sec
80C. Even the interest component can save you significant income tax – but that
would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT)
Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full
analysis of how you can save income tax through a home loan.
Stamp Duty
and Registration Charges for a home: The amount you pay as stamp duty
when you buy a house, and the amount you pay for the registration of the
documents of the house can be claimed as deduction under section 80C in the
year of purchase of the house.
Infrastructure
Bonds: These are also popularly called Infra Bonds. These are
issued by infrastructure companies, and not the government. The amount that you
invest in these bonds can also be included in Sec 80C deductions.
Pension
Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an
investment in pension funds is eligible for deduction from your income. Section
80CCC investment limit is clubbed with the limit of Section 80C – it maeans
that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This
also means that your investment in pension funds up to Rs. 1.50 Lakh can be
claimed as deduction u/s 80CCC. However, as mentioned earlier, the total
deduction u/s 80C and 80CCC cannot exceed Rs. 1.50 Lakh.
Senior
Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C
list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among
all the small savings schemes but is meant only for senior citizens. Current
rate of interest is 9.20% per annum payable quarterly. Please note that the
interest is payable quarterly instead of compounded quarterly. Thus, unclaimed
interest on these deposits won’t earn any further interest. Interest income is
chargeable to Best Tax
Saving Plan . The account may be opened by an individual,
Who has attained age of 60 years or above on the date of
opening of the account?
Who has attained the age 55 years or more but less than 60
years and has retired under a Voluntary Retirement Scheme or a Special
Voluntary Retirement Scheme on the date of opening of the account within three
months from the date of retirement.
No age limit for the retired personnel of Defense services
provided they fulfill other specified conditions.
Source: http://bestsavingsplan.tumblr.com/post/143625123529/all-about-deduction-under-section-80c-and-tax
