In the month of March, most tax payers rush to invest their money in tax saving instruments. Though it is better to do the tax planning at the start of year & plan your investments over the whole year. Many salaried taxpayers has to submit the investment proofs etc to their employer in Jan.
Section 80C of the Income tax Act 1961 provides list of Investments / expenses which is allowed as Deduction from your taxable Salary. Under 80C, you can claim maximum deduction of Rs 1.50 lakh.
List of deductions under Section 80C –
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Investment Eligible for deduction u/s 80C
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PF/ EPF (Employee Provident Fund
PPF – Public Provident Fund
NSC – National Savings Certificate
5 year Tax Saver Bank FD
5 year Post Office Time Deposit
Senior Citizen Savings Scheme
NHB Suvriddhi Bonds
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ELSS – Equity Linked Savings Scheme Mutual fund
Life Insurance Premium
ULIP – Unit Linked Insurance Plan
Pension Fund
NPS – National Pension Scheme
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Children Tuition Fees
Home Loan Principal Repayment
Stamp Duty & registration charges for home
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Apart from below 80C deductions, you can also check other tax benefits under 80D to 80U (Read here)
Read my other post – 13 Important things to know before you file your Income Tax returns.
1. PF / EPF – Provident Fund: For Salaried employees, PF is default investment which qualifies for deduction u/s 80C. Employers take this investment into account while deducting TDS. You can check the monthly PF deduction in your payslip and check what balance amount you need to invest in other 80C securities. Current interest is 8.65%. Interest Tax free. Read – How to check your PF Balance online
2. PPF – Public Provident Fund: PPF is available for both salaried & self-employed people . It is one of the best long term saving options which is safe & give assured returns. Maturity period is 15 years & current interest rate is 8% tax free (Q1 2019)
3. ELSS – Equity Linked savings scheme: ELSS mutual fund are mutual fund schemes which are approved for tax savings. These funds have lock-in period of 3 years and underlying investment in Equity. If you invest for long term, then ELSS has potential to give handsome returns (some of the funds have given 20% annual CAGR return in last 5 years). Capital Gains from ELSS are subject to Long term capital Gains tax. Read – Best performing ELSS Funds
4. Life insurance premium: Life Insurance premium for youself, spouse & children is eligible for deduction u/s 80C. Note that premium paid for your parents are not covered under this section. It is not necessary to take policy from LIC and you can take insurance policy from any insurer (LIC or private) . From 01-April-2013, Only premium equal to 10% of sum assured will be allowed. So make sure, you have sum assured of 10 times the annual premium. If premium is more than 10% of sum assured, you can only claim up to 10% of Sum assured.
5. NPS – National Pension Scheme: Any contribution made by an individual to the National Pension System (NPS) is allowed as deduction under section 80CCD (1). Also note that the combined deduction under section 80C and 80CCD (1) cannot exceed Rs 1.5 lakh. However, if one contributes an additional Rs 50,000 to NPS (over and above the combined limit of Rs 1.5 lakh) it can be claimed as deduction under section 80CCD(1B) i.e. total deduction that can be claimed for contributions to NPS is Rs 1.5 lakh plus Rs 50,000 under two different sections of the Income Tax Act. The additional deduction of Rs 50,000 is available only on investment in Tier-1 account of NPS.
Any contributions made to the Atal Pension Yojana (APY) scheme are also eligible for tax deduction under section 80CCD (1). Therefore, additional NPS and APY contributions can offer you maximum tax deduction of Rs 50,000
6. NSC – National Savings Certificate: You can purchase NSC through post office Period of NSC is 5 years or 10 years. Current interest is 8.6-8.9% (taxable)
The interest accrued every year is liable to tax (i.e. included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.
7. 5 year Bank Fixed Deposit: These are special 5 year FD by banks which are eligible for deduction u/s 80C. You need to ask bank that you need “Tax Saver FD”, bank will then put a stamp on your FD regarding 5 year lock-in. Interest Rates are 8.5 -9.5% (Taxable)
8. 5-Yr post office time deposit (POTD) scheme: 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C. Interest – 8.5 % (Taxable)
9. NHB Suvriddhi: National Housing Bank (Tax Saving) Term Deposit Scheme is also eligible for deduction u/s 80C. The duration of this scheme is 5 years and Interest rate is 9.25% (taxable, also TDS) See details at NHB website.
10. Pension Fund: Any premium paid towards any Pension Fund (LIC or private insurer) annuity plan, whether deferred or immediate will give you tax relief u/s 80CCC. (part of section 80C for overall Rs 1 lakh limit.)
11. ULIP – Unit linked Insurance Plan: ULIPs are a combination of life insurance and investments. Few years back, distributors were pushing ULIP to customers because they were getting hefty commission upto 70% of first year premium. But now, IRDA has capped the total charges to 3%. So current ULIP schemes are better than previous ones but still there are other investment options which can yield the same results at a lower cost. SO AVOID.
12. Sukanya Samriddhi Account
In this scheme, you can open an account on behalf of your minor daughter till the age of 10. Any amount deposited in this account would be eligible for deduction under Section 80C. Further, this account can be opened for a maximum of two girls and in case of twins this facility will be extended to the third child as well. There are other conditions attached to this investment. See details
In addition to above investment option, 80C tax beenfit / deduction is also allowed for certain expenses:
13. Tuition fees: Any amount paid as tuition fee for the education of the first 2 children is eligible for deduction u/s 80C. The deduction can be claimed for full-time courses including pre-nursery and playschool.
14. Stamp Duty and Registration Charges for a home: If you have bought a house and paid stamp duty & registration charges, you can claim deduction under section 80C for these charges.
15. Home Loan Principal Repayment: You can claim the Home loan principal repayment as deduction under section 80C. Only principal qualifies for deduction under Sec 80C. The deduction for interest component can be claimed under Section 24 and Section 80EE of the Income Tax Act. Read – Tax benefits on Home Lone – Section 24, 80C, 80EE
Further, any payment made to development authorities like Delhi Development Authority (DDA) in order to purchase a house (which has been allotted to you in a scheme made in this regard) also qualifies as deduction under section 80C.
80C deductions for NRI
As an NRI, you can also claim deduction u/s 80C by investing in all of the products above except
- new investment in NSC
- 5 year post office FD
- new PPF account opening (contribution to existing PPF is eligible)
How to claim 80C deduction
If you are salaried employee, you should normally declare your investments to your employer & submit proofs. Employer will then give you the deduction when calculating TDS.
You will need to submit Form 12BB for claiming 80C deductions, HRA & LTA. Read more details about this new FORM 12BB
In case you could not submit proofs to employer, you can still claim the deduction u/s 80C while filing your Income Tax returns.
Apart from above 80C deductions, you can also check other tax benefits under 80D to 80U (Read here)
Read my other post – 13 Important things to know before you file your Income Tax returns.
If you have any tax queries, please comment below.