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Definition of Section 80C of the Income Tax Act and the benefits available

Section 80C has become effective with effect from 1st April, 2006 as a replacement to the earlier Section 88 with almost same investment mix available in Section 88. Even the section 80CCC on pension scheme contributions was merged with the above 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 lakh. Included under this heading are many small savings schemes like NSC, PPF, life insurance, ELSS 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 total so that one can make best use of the options available for exemption under income tax Act.   This section provides tax rebate not only for the investments you made but also for the expenditures you incurred to acquire various assets.

The investments that fall under Section 80C can be broadly classified as contributions / investments to:  
• Provident Fund 
• Public Provident Fund 
• Life insurance premium 
• Pension plans 
• Equity Linked Saving Schemes of mutual funds 
• Infrastructure bonds
• National Savings Certificate

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.

In 2008, Senior Citizens Saving Scheme 2004 and the Post Office Five Year Term Deposit Account have been added to the basket of saving instruments under Section 80(C) of the Income Tax Act.  An additional deduction of Rs.15, 000 under Section 80D has been allowed to an individual who pays medical insurance premium for his/her parent(s).

As given above, the limit under this section 80C is Rs.100, 000, irrespective of how much you earn and under which tax bracket you fall.  Also, there are no sub-limits under this overall Rs 100,000 amount.  Therefore, if you like, you can invest the entire amount in ELSS or NSCs.  If you are repaying a home loan and the principal repayment amounts to Rs 100,000, then you can claim the entire amount as a deduction and thus no further savings will be needed.

All the above must be made from the current year\’s earnings and not past earnings.

Tips to avail the maximum benefits Under Section 80C:
(1) Explore the possible tax benefits, which can be availed from every Savings/Investments/Expenditures you do: 
(A) Savings in Provident Fund: 

Salaried income tax payee are usually have a forced saving which are eligible for deduction under section 80C.    A fixed percentage of basic salary  (ranges from 8.33% 12%) is deducted by your employer towards the Employees Provident Fund (EPF).   Some employers allow higher deduction towards EPF.  Thus, you should first of all check the total amount that is expected to be deducted towards EPF during the financial year.     The total amount deducted from your salary will be eligible for investments under Section 80C.

(B) Interest earned from National Saving Certificates: 
In case you have purchased NSCs during some earlier years, then the accrued interest as per the tables released by authorities is eligible for deductions under Section 80C.

(C) Home Loan Principal Repayment:  
There is a provision that the payment made for repayment of the principal amount (not interest payment) of the Home Loan  is eligible for a deduction under Section 80C if you have taken a home loan and you fulfill certain conditions.

(D) Tuition fee paid for your children education: 
Most of the young couples and middle aged income tax payee incur quite high payments towards the education fees of their children.  The expenditure incurred on education fees is also eligible for a deduction under Income Tax Act,   Thus, if you are incurring expenditure towards education fee of your children, please check whether these are eligible for deduction under the IT Act.

(2) Lock in period in case of Tax saving investment/savings plans:
Tax saving investments; normally have a minimum lock-in period i.e. the period during which withdrawals are usually not allowed.  If the same are withdrawn before the lock in period, these will be taxable in the year of withdrawal.  For example, National Savings Certificates (NSC) has a lock-in period of six years, Public Provident Fund (PPF) has a lock-in of 15 years, Equity Linked Saving Schemes (ELSS) has a lock-in period of three years.  Insurance policies have even greater period of lock in.

(3) Consider your life goals while making every investment to save tax: 
You are saving every year and while saving you normally have some goal in mind, e.g. to meet the expenditure on education of children, purchase of a vehicle or house or marriage of your children.  Therefore, you should always look at the investments from the angle whether it will meet your specific requirements on maturity. You should also try to diversify your savings in different instruments.

For instance, if you have already invested a fair portion of your money in equity (shares and mutual funds that invest in shares), avoid an ELSS. Opting for an ELSS means a huge portion of your investments will be in equity and that may not be what you want. Small savings schemes are usually preferred by the risk-averse people. Equity-linked savings schemes (ELSS) are a good option to consider for those with appetite for risk. ELSS tax savers are like any other diversified equity fund, but with a three-year lock-in, providing benefits under Section 80C.

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14 comments on “Definition of Section 80C of the Income Tax Act and the benefits available

  1. Priyesh
    February 16, 2009

    It is very good information. I have got good knowledge from this blog. Thanks to Gyanesh. Keep posting such information.

  2. Vilas Mangaj
    July 14, 2009

    Dear Sir,
    My son has availed an education loan from State Bank of India, and
    recently has joined in a company. The repayment will start from next month. Please let me know,shall we get income tax exemption for the repayment amount ?. Please inform

    Thanking You,
    Yours Faithfully
    Vilas

    • gyanjain19
      July 15, 2009

      Hello sir,

      Only Interest portion of the education loan is exempted from the education loan and it is apart from the section 80C ( 1 lakh Rs.). You goto the bank they will give you the letter about the yearly projection of Interest letter. That your son can submit to the company. If you have more query related with investment you can give me call at 098868 68488

  3. surendra
    August 25, 2009

    sir

    kindly elucidate about deduction U/S 80 E

  4. Ram Babu Sharma
    January 2, 2010

    Hello Sir,

    I am a Central Government employee. Tuition Fees is comes under deductions under Section 80 C. Kindly intimate whether other Education Expenses of Children (Children Education Allowance) like reimbursement of school uniform, one set of text books & note books etc is exempted from the Gross Income or otherwise.

  5. R.anuratha
    March 3, 2010

    My office says NSC purchased during this financial year for Rs.21,000.00 is not fully exempted under section80 c. Kindly clarify

    • gyanjain19
      March 4, 2010

      it is exempted fully. Investment up to Rs. 1,00,000/- per annum qualifies for IT Rebate under section 80C of IT Act. and under section 80C, NSC also comes.

  6. vikas
    March 12, 2010

    Dear Sir,

    regarding the tax saving deposites for 5 years in Bank and NSCs. Kindly confirm that the maturity valur is fully taxable or only earned interest portion will be taxable or fully exempted from tax etc.

    Thanks and regards.

    Vikas

    • gyanjain19
      June 1, 2013

      only earned interest portion is taxable.

  7. Kasi
    March 17, 2013

    If i invest in 1 lakh in Axis long term equity or sundaram tax saver fund whether i exemption fully under the section 80c. This 1 lakh exempt is include of insurance & investment clarify.

    • gyanjain19
      June 1, 2013

      Yes it will be exempted under section 80c. This 80c includes Insurance, Provident Fund, Mutual Funds, NSC etc all. and overall limit of 80c is Rs 1 Lakh.

  8. deepa
    June 1, 2013

    It was a wonderful blog. There are many things that are clear to me now which were a bit cloudy earlier. Thanks for sharing the knowledge..

  9. kalpana
    March 26, 2014

    how much amount of fd we can make per anaum for i.t. rebate is there any limit please reply

    • gyanjain19
      March 26, 2014

      you can invest Max. Rs 1 Lakh in Tax Saving FD
      Overall limit of 80C is Rs 1 Lakh.

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This entry was posted on February 9, 2009 by in Tax Savings, Investments and tagged , , , .
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