Investments Guide which Qualifies for Deduction u/s. 80C
Individual and HUFs who are filing their Income Tax Returns vis a vis who are paying taxes can enjoy benefits of exemption u/s 80C. There are various savings in specified modes of investments available as a deduction from the Gross Total Income. This deduction is allowable only to individuals and HUFs while other entities such as company, Association of Person, Firm etc are not allowed the benefit under section 80C. Aggregate deduction allowed under this section is limited to Rs. 1,50,000. The limit of Rs. 1,50,000 is after clubbing two section viz. Section 80C, 80CCC and Section 80CCD(1). This deduction will help in saving taxes varying as per the slab rate.
The following savings in specified modes of investments are allowed as deduction under section 80C as well as Section 80CCC:
Life Insurance Premium:
Any amount paid by way of Life Insurance Policy by an individual for personal life of an Individual, for spouse or children, for member of an HUF in case of an HUF is allowed as a deduction under section 80C. In case where an individual pays LIC premium for his / her parents or in laws will not be allowed as deduction. Deduction will be allowed for Life Policy as well as Endowment Policy. The section does not restrict paying LIC premium only for Insurance contract with Life Insurance Corporation of India. In case where more then one LIC premiums are paid, all the premiums can be claimed as deduction.
Public Provident Fund (PPF):
When a contribution is made to any Public Provident Fund (PPF) which is set up by the Central Government and notified in his behalf is allowed as a deduction to the individual for himself / herself, spouse or children or by HUF for its member. Maximum allowable contribution will be Rs. 1,50,000 per year. Contribution to PPF is to be kept in a lock in period of 6 years which means, amount paid in this year will be in a lock in period of six years and will be allowed to withdraw in the seventh year. Even the interest earned on PPF is not chargeable to tax. In addition to the above benefits, withdrawal of PDF is also tax free.
Mutual Funds / Equity Linked Savings Scheme (ELSS):
Investment made in Equity Linked Savings Scheme (ELSS) is allowed as a deduction u/s 80C. ELSS is nothing but Mutual Fund scheme which is generally held for a lock in period of 3 years. Such mutual funds are tax saving funds. They are linked to various equity shares. Even the capital appreciation and return received on such Mutual Funds are exempted from tax i.e. they are tax free in nature. ELSS works on a basis of higher risk higher return basis.
Provident Fund (PF) is an amount deducted from the salary of the employee as well as the amount contributed by the employer. The amount contributed by the employer is allowed as expense while calculating his total income. In case of contribution of the employee, the same is allowed as a deduction under section 80C. These are normal Provident Funds. In case you want to contribute ore towards Provident Fund, Voluntary Provident Funds (VPFs) are the best options.
Repayment of principal portion of Home Loan:
Every repayment of loan is made up of principal as well as interest. When an assessee has borrowed Housing Loan and is making repayment of the same, the portion of principal amount in the repayment made by the asseessee is an eligible deduction under section 80C. The interest portion is not allowed as a deduction under this head but same can be claimed as deduction u/s 24 of the Income Tax Act subject to limits specified in the provisions of Section 24.
Expenses of Stamp Duty and Registration Charges paid on purchase or construction of house:
Stamp Duty, registration fees and other expenses paid by the assessee in relation to purchase or construction of a house will be allowed as a deduction from gross total income u/s 80C. The same will be allowed as deduction in the year in which such expenses are paid.
Investment in National Savings Certificate:
When an assessee subscribes for any Savings Certificates under the Government Savings Certificates Act, 1959 notified by the Central Government in the Official Gazette, amount paid on such subscription is allowed to be claimed as a deduction under section 80C. One of such Certificates is National Savings Certificate (NSC). Such certificates can be purchased from a post office. Deduction under section 80C for investment made in NSC is allowed even if the investment is made in the name of assessee himself, a minor, a trust or two adults jointly.
Investment in Infrastructure Bonds:
Investment when made by the assessee in the bonds issued by the government for development of Infrastructure is allowed as a deduction under section 80C. Such bonds are known as Infrastructure Bonds or Infra Bonds.
Investment in Term Deposit:
AN amount deposited by assessee with the scheduled bank or any other bank with a lock in period of 5 years or more, qualifies as an eligible investment for availing deduction under Section 80C. Term Deposits are also known as Fixed Deposits.
5 Year Post Office Time Deposit Scheme:
Similar to the above, if an assessee deposits an amount as investment for a period of 5 years under the Five Year Post Office Time Deposit Scheme, then such amount will be allowed to be deducted from the gross total income of the assessee u/s 80C. Deduction will be allowed for the accounts opened on or after 8th December, 2007. Interest earned on such scheme is taxable under the head Income from other sources.
Unit Linked Insurance Plan:
Unit Linked Insurance Plan, generally narrated as ULIP, is a kind of investment containing two benefits at a time namely, Life Insurance as well as return on equity investment. Investment made in ULIP is allowed as a deduction under section 80C whereas it also provides the benefit od capital appreciation on equity investments. Unit-linked insurance plan (ULIP) of LIC Mutual Fund i.e. Dhanraksha plan of LIC Mutual Fund, notified annuity plan of LIC i.e. Jeevan Dhara, Jeevan Akshay New Jeevan Dhara ,etc, Unit-Linked Insurance Plan (ULIP) of Unit Trust of India are some of the options available for making investment in ULIP. Such plans prove as tax savers for various assesses. Thus investment in ULIP seems lucrative.
NABARD Rural Bonds:
As we all know that National Bank for Agriculture and Rural Development (NABARD) is the bank established with the purpose of development of agriculture as well as Rural areas in the country. For collecting money from public, it has issued two kinds of bonds which are named as NABARD Rural Bonds and Bhavishya Nirman Bonds. These Bonds have helped collect money for the required development. Thus the Central Government have notified that deposits made in bonds issued by the National Bank for Agriculture and Rural Development, as the Central Government may, by notification in the Official Gazette, specify in this behalf, shall be eligible for deduction under Section 80C. Thus any investment in NABARD Rural Bonds is eligible for Section 80C deduction benefit.
Senior Citizens Savings Scheme 2004 (SCSS):
When investment is made by Senior Citizens under the Senior Citizens Savings Scheme 2004 (SCSS), it will be allowed as deduction under section 80C. A separate account is to be opened under this scheme which can be closed after a period of five years and which can be held at the option of the assessee for more three years after the completion of five years. In case the account is closed before five years, some of the benefits will be lost as per the contract conditions. Under this scheme, interest will be paid quarterly to the account holder. It is a bit different from a normal bank account where the interest is compounded which will result in loss of interest on interest. Other major thing to be noted is the interest earned on this scheme will be chargeable to tax under the head Income from Other Sources. The benefit of this scheme will be available to following class of people:
- Individual who is of the age 60 and above;
- In case where individual has retired under Voluntary Retirement Scheme / Special Voluntary Retirement Scheme, his age should be 55 years or above;
- Where an assessee is a retired personnel of Defence Services (excluding Civil Defence Employees) to which no age limit applies.
The age limit of the asseessee described above should be on the date of opening of account. It means in case where an assessee is required to be of the age 60 years, he may have attained the age of 60 years or more on the date of opening the account under Senior Citizens Savings Scheme 2004.
The tuition fees paid for the education of Child / Children to any educational institute being university, college, School etc in India for availing full time is eligible for deduction under section 80C. Remember that tuition fees paid for self is not allowed as a deduction. As the cost of education has increased very much, exemption under section 80C is expected to be extended from an amount of Rs. 1,50,000.
Investment in Sukanya Samriddhi Account:
Investment made to Sukanya Samriddhi Account is allowed as a deduction under section 80C. Sukanya Samriddhi Scheme Account is the scheme for saving a girl child and making her educated. This scheme is announced under the ‘Beti Bachao Beti Padhao’ movement. Small deposits are to be invested in such account. Such deposits provide interest @ 9.1 %. The interest so earned is taxable as per the provisions of Income Tax Act. This scheme may resultantly help in giving birth to Girl Childs and also providing them with better education.
Contribution to Pension Funds:
Investment made by an assessee in any pension fund in the previous year will be allowed as a deduction from the gross total income of the assessee under section 80CCC. This deduction is different as compared to deductions allowable under section 80C but the limit of deduction of Rs. 1,50,000 will be in aggregate of deductions allowed under section 80C, 80CCC and 80CCD(1).
Almost all the deductions allowable under section 80C and 80CCC are discussed above. But always remember that deduction in aggregate under sections 80C, 80CCC and 80CCD(1) is limited to an amount of Rs. 1,50,000. So plan and invest your hard earned money. Put your eggs in the best nests along with availing the deduction benefit from your Gross Total Income under the said sections. This will be helpful in saving a huge amount of your tax cost.