Maximum Tax Deduction Under 80C – Investments Eligible for Tax Exemptions

Maximum Tax Deduction Under 80C: The Income Tax Act of India has Section 80c, which is a clause that points to the various investments and expenditures that are exempted under Income Tax. This means that there is a maximum deduction of about ₹1.5 lakh per annum, and this from the total taxable income of the investor.

Section 80C, however, is only applicable for Hindu Undived Families and individual taxpayers. Other businesses, partnership firms, and corporate bodies do not qualify for a tax exemption under Section 80C of the Income Tax Act of India.

Subsections of Section 80C

Section 80 is divided into specific subsections as is given below:

Tax saving sections  Investments Eligible for Tax Exemptions
Section 80C This includes investments in Provident Funds like PPF, EPF, and such, along with payments made towards the principal sum of a home loan, life insurance premiums, SCSS, NSC, SSY, Equity Linked Saving Schemes. etc.
Section 80CCC This includes payments made towards mutual funds and pension plans.
Section 80CCD(1) This includes payments made towards Government-backed schemes like Atal Pension Yojana,  National Pension System, etc.
Section 80CCD(1B) The exemption under this category is ₹50,000 in NPS.
Section 80CCD(2) The exemption under this category is of the contributions of the employers towards NPS, i.e., about 10%, and this comprises of dearness allowance if any and basic salary.

Latest: The NPS Returns Rates for Tier-1 accounts under corporate bonds are 13.59% and for government bonds, it’s 20.28% for the 1st year.

Investments Eligible for Deduction

In this section, we will take a look at all the investments that are eligible for a tax deduction under 80C, noting that the maximum is about ₹1.5 lakh per annum.

Life Insurance Premiums

Premiums that are paid for life insurance policies are eligible to receiving tax benefits according to the 80C limit. The exemptions are available against the policies held by self, dependent children, spouses, etc. Members of the Hindu Undivided Family may also benefit from these exemptions.

At the moment, the annual premium of up to 10%, i.e., of the total sum assured from the insurance policy, is the exempted tax under 80C. This particular clause was revised in 2012, on the 1st of April, before which the premiums liable for tax exemption deduction was up to 20% of the assured sum.

Public Provident Fund 

Contributions for the Public Provident Fund can be filed for a tax deduction under this specific clause. The Public Provident Funds come with a ₹1.5 lakh maximum deposit limit that allows the investor to claim the entire amount deposited as an exemption under Section 80C.

All voluntary contributions made by an employee for the provident fund are also eligible for a tax deduction under this clause.

NABARD Rural Bonds 

National Bank for Agriculture and Rural Development or NABARD offers Rural Bonds, and these are eligible for tax exemption under Section 80C. Here too, the maximum amount deductible is  ₹1.5 lakh.

Unit Linked Insurance Plans (ULIPs) 

Unit Linked Insurance Plans offer more returns when compared to the conventional insurance policies when considered in the long run. Due to the benefits offered by Section 80C of the Income Tax Act, they have become increasingly popular in the last few years. Tax exemptions can be availed on the invested amount up to ₹1.5 lakh.

National Savings Certificate

National Savings Certificate or the NSC is one of the most popular instruments for tax-savings for reis-avert individuals. The interest that is earned on the NSC is semi-annually compounded, and the maximum period of maturity ranges from about five to ten years.

There is no limit that the investors have to follow on the total sum that is invested towards the NSC in the period of a financial year. But ₹1.5 lakh is the maximum that can be subjected to exemption annually under Section 80C.

Tax Saving FD 

Tax Saving FDs are fixed deposit schemes that allow tax deduction under Section 80C of the Income Tax Act and are offered by post offices as well as banks. These fixed deposits have a lock-in time period of about five years, and the maximum tax exemption offered on the principal amount is ₹1.5 lakh. But the returns of these instruments are definitely liable to be taxed.

EPF

The returns that come from the EPF that is the Employee Provident Fund, with the interests, are eligible for a tax exemption under this clause. The eligibility extends only to employees that have continued their services for five years minimum. The voluntary contributions made by individuals to their EPF accounts are also eligible for a tax exemption.

Infrastructure Bonds 

Infrastructure bonds also have the option for tax exemptions under Section 80C, but only if the investment is equal to or more than ₹20,000. Here too, the limit is ₹1.5 lakh for the long-term secured bonds.

Equity-Linked Saving Scheme

Equity Linked Saving Schemes, or ELSS, comes under Section 80 of the Income Tac for a tax exemption, with the maximum limit being ₹1.5 lakh. These particular investment schemes have a three-year lock-in period that is mandatory.

Senior Citizens Savings Scheme

Investments that are made towards the SCSS, that is, the Senior Citizens Saving Scheme, are also eligible for tax exemptions under 80C, with the maximum allocated limit being ₹1.5 lakh. Those above the age of 60 or others above the age of 55 option for voluntary retirement scheme are eligible to get the benefits from SCSS. The minimum lock-in tenure here is of five years.

Principal Repayment Made Towards Home Loan 

The repayments that are made towards the principal component of the home loan EMIs alone are eligible for the tax deduction under this section. However, the borrower has to fulfil some clauses to be able to avail of the deduction benefits.

  1. Any amount that is claimed as a tax deduction has to be taxable in the transfer year in the case that the handover is made five years after possession of the property. Failure to do this will exclude it from Section 80C’s deduction.
  2. If a property is transferred within five years of possessing it, it will be excluded from tax exemptions under Section 80C.
  3. The exemption can be claimed only if the construction of the property is finished.

Stamp Duty And Registration Charges 

Stamp duty along with registration charges may be considered the two largest expenses made when taking ownership of a particular property. The Indian Government allows for a deduction of tax liability up to the limit under Section 80C on these charges that are paid for the procurement of the house. But these exemptions can be claimed only in the year the duties are paid, or they will not be eligible for consideration under this deduction.

Sukanya Samriddhi Yojana 

The Sukanya Samriddhi Yojana is a savings scheme that is specifically for the financial requirements for the education and marriage of a girl. The legal guardians or the parents of the child (who should not be older than ten years) can open this particular account, and parents of two or more children, only in the case of twins, can also invest in the plan. The interest that is earned from this scheme is eligible for tax exemption.

Section 80C of the Income Tax Act has various instruments, and the comprehensive idea of this clause is necessary for every investor. The benefits of this clause can save a good amount from tax liability.

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