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What is Section 80C?

Section 80C of the Income Tax Act, 1961 enables you to avail tax exemptions through strategic investments. This section allows you to benefit from financial growth and reduce your tax liabilities. By diversifying your investments in options like the Life Insurance Plan, National Savings Certificate (NSC) and Public Provident Fund (PPF), among others, you can claim deduction under Section 80C up to ₹ 1.5 lakh per financial year.

Apart from the 80C deduction, you can also ease your overall tax burden by leveraging Section 80CCD(1), which allows deductions capped at 10% of the basic salary plus Dearness Allowance (DA). Further, self-employed individuals can benefit from a more flexible deduction limit of 20% of their gross total income within the ₹ 1.5 lakh cap of Section 80C.

Who are Eligible for Sec 80C of Income Tax Act

Individuals

Individuals, both Indian residents and Non-Resident Indians (NRIs), are eligible to claim a deduction under Section 80C of The Income Tax Act, 1961. This category covers salaried individuals and self-employed professionals such as businesspersons and doctors.

HUFs (Hindu Undivided Families)

HUFs are recognised as separate assessable entities under The Income Tax Act, 1961 and can avail benefits under Section 80C deduction limit of ₹ 1.5 lakh per financial year. HUFs have the flexibility to invest in various instruments such as life insurance, tax-saving Fixed Deposits (FDs) and Equity Linked Savings Schemes (ELSS) to claim deductions under this section.

Senior Citizens and Others

Senior citizens are individuals aged 60 and above. These individuals can benefit from the deduction under 80C. They can utilise all the investments mentioned in the Section 80C deduction list as well as specified investment options like the Senior Citizen Savings Scheme (SCSS) to claim deductions.

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How to avail tax deductions under Section 80C?

Activities under Section 80C can be divided into two parts:

1. Investment Activities: You park your money in an investment for some time and then get it back.
2. Spending Activities: You spend your money on the activities listed under Section 80C.

Section 80C Deductions List

ELSS funds

Equity-Linked Savings Scheme is a type of mutual fund that invests in equity and equity-related instruments. ELSS funds have a lock-in period of three years.

Employee Provident Fund (EPF)

EPF is a savings scheme introduced by the Employees' Provident Fund Organisation (EPFO). It is designed to help employees save for their retirement. Under this instrument, both the employer and employee make regular contributions to the EPF account.

The EPF account earns interest periodically. Employees can withdraw the accumulated fund upon retirement or when they leave their jobs, subject to certain conditions set by the EPFO.

National Savings Certificate (NSC)

NSC is a government-backed savings scheme that matures in five years. It can be opened by an adult either for themselves or on behalf of a minor. The NSC offers a secure way to grow your savings with a fixed return. The NSC also provides a loan facility to help you cover your short-term needs.

National Pension Scheme

The National Pension Scheme is a government-backed savings scheme for employees of private, public, and unorganised sectors. It cannot be used for investment by the armed forces. The NPS has a lock-in period for up to the age of 60 years.

ULIPs

A Unit-Linked Insurance Plan (ULIP) is a life insurance plan that offers investment opportunities along with a life cover. It offers the choice to invest in equity, debt and hybrid funds to fulfil your financial goals. The returns from a ULIP can vary based on the funds you choose. ULIPs have a five-year lock-in period.

Tax saving fixed deposits

These type of fixed deposits offer tax^{^} benefits subject to conditions under Section 80C of the Income Tax Act, 1961. They have a lock-in period of five years. Fixed deposits offer fixed returns.

Public Provident Fund

PPF is a government savings scheme that can be used for long-term financial goals. It matures 15 years after the date of account opening. However, you can withdraw money from your PPF account every year from the seventh financial year.

Senior Citizen Savings Scheme

It is a savings scheme for people over the age of 60. However, it can be used by people over 50 and 55 years under some special circumstances. It has a lock-in period of five years, after which it can be closed or extended for another three years.

Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana is a savings scheme backed by the Government of India. It is an investment option for parents who have a girl child. The plan matures when the girl child reaches the age of 21.

Infrastructure Bonds

Infrastructure bonds are issued to fund long-term infrastructure development projects, such as transportation, energy and others. They come with a long lock-in period, which makes them suitable for long-term goals.

Infrastructure bonds offer a deduction under Section 80C while allowing you to contribute to infrastructure advancements and earn returns at a low risk.

Expenses Qualifying for Deductions

You can also take advantage of some expenses to lower your taxable income. Here are some expenses that qualify for deductions under 80C.

Life Insurance Premiums

The premiums paid for a life insurance policy qualify for deductions under Section 80C of The Income Tax Act, 1961. This deduction is applicable to all types of life insurance policies, including term plans, Unit Linked Insurance Plans (ULIPs), endowment plans, guaranteed income plans and more.

Tuition Fees for Children

The amount paid as tuition fees to a school, college, university or any other educational institution can be claimed as a deduction under Section 80C of The Income Tax Act, 1961.

Principal Repayment of Home Loan

You can claim a deduction on the principal repayment of a home loan under Section 80C of The Income Tax Act, 1961.

Contributions to Pension Funds (under Section 80CCC)

Section 80CCC of The Income Tax Act, 1961 allows you to claim a deduction for contributions made to pension plans provided by life insurance companies. This deduction also helps you build savings for retirement.

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How much can be claimed under Section 80C?

There are limits to the amounts that can be claimed for different activities and the total that can be claimed under these activities.

The total amount that can be claimed under Sections 80C, 80CCC and 80CCD(1) combined is `150,000/-.

There is an option to increase the total deduction by an additional `50,000/- under Section 80CCD. Here’s how it works:

80 CCD(1) and 80 CCD(2) applies for contributions by employee and employer respectively.

Note that, the deduction of `50,000/- is available on NPS over and above `150,000/- deduction available under Sections 80C, 80CCC & 80CCD(1).

How does ICICI Prudential Life help you save tax?

ICICI Prudential Life Insurance plans offer tax¹ benefits subject to conditions under Section 80C of the Income Tax Act, 1961. The premiums paid towards the life insurance plan qualify for tax deductions of up to ₹ 1.5 lakh in a financial year. Additionally, the maturity benefits under the policy are also exempt subject to the conditions of Section 10(10D) of the Income Tax Act, 1961.

How long should you stay invested?

This is an important obligation often ignored by taxpayers while investing under Sections 80C, 80CCC & 80CCD. Different investment instruments have different time limits which you must follow to avoid reversal of the deduction:

Thus, you can reduce your total taxable income up to `200,000/- by fully utilising Sections 80C, 80CCC and 80CCD.