Understanding 80C deductions of the Indian Income Tax Act
Understanding 80C deductions of the Indian Income Tax Act
What is Section 80C?
Section 80C, including section 80CCC & 80CCD, prescribes combination of activities. If you want to utilize your income in some of these activities during the Previous Year (PY) you can claim the amount as a deduction from your total taxable income for the PY.
For Example:Assuming you earned a gross total income of `10,00,000 as taxable income in P.Y. 2015-16 (Assessment Year will be 2016-17 when you will estimate and pay the tax on this income). If you invest `100,000 of this income in any or multiple activities listed under section 80C, your total taxable income will be reduced to `900,000 for the P.Y.
How to avail tax deductions under Section 80C?
Activities under section 80C can be divided into two parts:
- Investment Activities: You park your money in an investment for some time and then get it back.
- Spending Activities: You spend your money on the activities listed under section 80C.
| Investments | Nature of Investment |
|---|---|
| Fixed Income Products | |
| Provident Fund (EPF/VPF) | Retirement |
| Public Provident Fund (PPF) | Retirement/Long Term Fixed Income |
| National Saving Certificate (NSC) | Long Term Fixed Income |
| Tax Saving 5 years FD from Banks | Long Term Debt |
| 5 years Post Office Time Deposit (POTD) | Long Term Debt |
| Senior Citizen Saving Scheme(SCSS) | Long Term Debt |
| NHB deposit scheme | Long Term Debt |
| Market-Linked Products | |
| Life Insurance Premium (Participating Endowment Plans) | Life Insurance + Investment |
| New Pension Scheme (NPS) (u/s 80CCD) Atal Pension Yojana | Retirement Plan |
| Equity Linked Savings Scheme (ELSS) | Equity Mutual Fund |
| Pension Plans from Insurance Companies | Retirement Annuity |
| Unit Linked Insurance Plan (ULIP) | Life Insurance + Investment |
| Spending Activities | |
| Tuition fee for 2 children | Full-time Education cost |
| Stamp duty and registration cost of the House | Only at the time of purchase of house |
| Home Loan Principal Payment | Purchase of house on loan |
Table 1: Investments & other venues for Deduction u/s 80C, 80CCC & 80CCD
How much can be claimed u/s 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.
| *80CCD (1) & 80CCD(2) |
|---|
| Deductible in the year contribution is made, up to 10% of the salary |
| Additional Deduction of ` 50,000 over and above 80C limit |
Table 2: Deductions on Contribution to NPS Schemes
Note that, the deduction of `50,000 is available on NPS over and above `150,000 deduction available U/S 80C, 80CCC & 80CCD(1).
How long should you stay invested?
This is an important obligation often ignored by taxpayers while investing under section 80C, 80CCC & 80CCD. Different investment instruments have different time limits which you must followed to avoid reversal of the deduction:
| Investment | Minimum Holding Period |
|---|---|
| Unit Linked Insurance Plan | 5 years |
| Term Life Insurance Plan | 2 years |
| Repayment of Home Loan Principal/ Cost of purchase or construction of residential house | 5 years |
| Deposit in Senior Citizen Saving Scheme | 5 years |
| Time Deposit in Post Office/Bank | 5 years |
| Equity Linked Savings Scheme (ELSS) | 3 years |
| PPF | 6 years |
| NPS | Till Retirement |
Table 3: Minimum Holding Period for Various Instruments u/s 80C
Thus, you can reduce your total taxable income up to `200,000 by fully utilizing sections 80C, 80CCC and 80CCD.
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Unlike traditional products, Unit Linked insurance products are subject to market risk, which affect the Net Asset Values & the customer shall be responsible for his/her decision. The names of the Company, Product names or fund options do not indicate their quality or future guidance on returns. Funds do not offer guaranteed or assured returns.
Tax benefit of `54,600 is calculated at highest tax slab rate of 31.2% (including Cess) on life insurance premium u/s 80C of `1,50,000 and health premium u/s 80D of `25,000. Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D) and other provisions of the Income Tax Act, 1961.Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
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ADVT No - W/II/1090/2016-17
