Section 80C: All About Tax Deductions Under Section 80C

Section 80C of the Income Tax Act exempts certain investments and expenditures from taxation. However, the maximum permissible limit for such deductions is Rs 1.50 lakhs. This section's benefit apply to both salaried and self-employed individuals, a Hindu Undivided Family, partnership firms, and a few other entities.

When filing their income taxes, many people want to know what is section 80C and whether it applies to their investments for claiming tax rebates. This article seeks to answer these and many other questions related to Section 80C of the Income Tax Act.
 

Subsections of Section 80C of the Income Tax Act, 1961

The investments eligible for deduction under Section 80C include life insurance premiums, ELSS, home loan repayment, and more. These are covered under its various subsections, as described in the table below.
 

Section	Description
Section 80C	This section applies to the provident fund schemes such as PPF, EPF, etc. and contribution/payment made towards SSY, SCSS, NSC, life insurance premiums, home loan principal repayment, etc.
Section 80CCC	This section applies to investment in mutual fund schemes and pension plans.
Section 80CCD (1)	This section applies to government-launched initiatives such as Atal Pension Yojana, National Pension Scheme, etc.
Section 80CCD (1B)	This section deals with the voluntary contribution towards NPS.
Section 80CCD (2)	This section deals with the employer's contribution toward NPS.

 

What are the deductions under 80C?

Section 80C allows you to claim a tax deduction on the following investment options.
 

Investment Scheme	Interest	Lock-in Period
ELSS	12-15% (depending upon the economic events)	Three years
NPS	9 to 12%	Sixty years of age of the investor
SCSS	7.40%	Five years
PPF	7.10%	Fifteen years
NSC	6.80%	Five years
ULIP	Depends on the market movement	Five years
Fixed Deposit	Up to 8.40%	Five years
Sukanya Samriddhi Yojana	7.60%	Eight years

 
Also Read: Guide to e-Filing or Online Filing your Income Tax Returns
  

Explanation to Available Deductions Under Section 80C

 

1. Life Insurance Premiums

   The premium you pay towards life insurance is subject to tax deduction under section 80C. The tax benefit applies to premium paid for self, spouse, dependent parents, and dependent children. The Hindu Undivided Family (HUF) is also eligible for tax benefits under this section.
    
   Conditions for deduction:
    
   • If the policy is issued between 1st April 2003 and 31st March 2012, the premium paid, up to 20% of the sum assured, is eligible for tax benefits.
      
   • In case your policy is issued on or after 1st April 2012, the premium paid, up to 10% of the sum assured, is eligible for tax benefits.
    

2. Public Provident Fund

   The amount you contribute to PPF is also deductible under Section 80C. The maximum annual contribution to this scheme is Rs 1.50 lakhs. You can claim the entire contributed amount as a deduction.
    
   PPF investment comes with a 15-year lock-in period. But in the event of an emergency prescribed by the EPFO, partial withdrawal is permissible for the subscribers.
    

3. National Pension Scheme (NPS)

   Both you and your employer qualify for tax exemption under Section 80C for making contributions towards NPS. However, in case of the employer, the contribution cannot exceed 10% of basic salary plus dearness allowance. Additionally, subscribers can claim further exemption of Rs 50,000 over Rs 1.50 lakhs for voluntary contribution toward this scheme. 
    
   Self-employed individuals can also avail tax benefits on NPS. In  this case, the benefit applies to contributions of up to 20% of  the gross income.
    

4. Investments in Equity Linked Savings Scheme (ELSS)

   ELSS is a three-year lock-in investment scheme. More than 80% of the scheme's portfolio is made up of equity investments. The amount you contribute to this scheme is tax-deductible. However, your earnings are tax-free up to Rs 1 lakh only. In case your income exceeds this limit, you must pay a 10% long-term capital gains tax.
    

5. Tax Saving Fixed Deposits

   This type of scheme is usually available with post offices and banks, and they come with a five years lock-in period. The maximum exemption limit for deposits made in this scheme is Rs 1.50 lakh. However, the interest income earned on tax-saving fixed deposits is taxable. 
    

6. Sukanya Samriddhi Yojana

   Sukanya Samriddhi Yojana is a government-backed initiative that aims to provide financial assistance for girls' education and marriage. You can participate in this scheme if you are the parent of a daughter under the age of ten. This scheme has a 21-year maturity period and provides tax-free returns.
    

7. Senior Citizens’ Savings Scheme (SCSS)

   As the name suggests, SCSS is available to individuals over the age of 60. If you choose voluntary retirement, you can also contribute to this scheme if you are over the age of 55. SCSS is a government-backed scheme with a five-year lock-in period.
    
   The investment made to this scheme is deductible up to Rs 1.50 lakh. The interest income earned under this scheme is taxable according to your tax slab.
    

8. Infrastructure Bond

   Section 80C provides tax benefits of up to Rs 1.50 lakhs on investments made towards infrastructure bonds. The minimum contribution to qualify for the tax benefit is Rs 20,000.
    

9. NABARD Rural Bonds

   This type of bond is offered by the National Bank for Agriculture and Rural Development. The investment under this scheme is tax-deductible up to Rs 1.50 lakhs. 
    

10. Unit Linked Insurance Plans (ULIPs)

    ULIP is one of the best insurance schemes in terms of returns. The scheme offers you life insurance coverage as well as the option to choose your investment type (debt, equity, balanced fund). You can claim a tax benefit of Rs 1.50 lakhs under Section 80C of the Income Tax Act for the amount invested under this scheme.
     

11. National Saving Certificate (NSC)

    Another popular investment scheme is NSC, which has a maturity period ranging from five to ten years. The interest you earn on it is compounded twice a year. You can contribute any amount you want, but the 80C deduction limit is available only up to Rs 1.50 lakhs of the invested amount in a financial year.
     

12. Stamp Duty and Registration Charges

    When you acquire a property, you need to spend a significant amount on registration and stamp charges. Thus, in order to provide some relief, the government allows you to claim such payments as a tax deduction under Section 80C. However, you can claim the deduction only in the year the charges were actually paid.
     

13. Employees Provident Fund (EPF)

    Returns from EPF, including interest payments, are exempt under Section 80C if you have served for at least five years in your job. Furthermore, voluntary contributions to this scheme qualify for tax exemption under Section 80C.
     

14. Home Loan Principal Repayment

    The principal repayment of a home loan is deductible under Section 80C. However, certain conditions must be met in order to receive this benefit. These are as follows:
     
    • You can file for an exemption only if the construction work is completed.
     
    • In case you transfer the property within five years of possession, the previous exemption benefits will be added to the property’s sale price and taxed accordingly.
     

Also Read: Home Loan vs Loan Against Property: What should you choose
 

To conclude

 
Section 80C of the Income Tax Act provides significant relief to taxpayers. This section covers every major investment option and common expenditures, from mutual fund investment to home loan principal repayment. Therefore, it is important that you understand this section thoroughly before filing your taxes.