The Income Tax Act allows taxpayers to reduce their total tax liability by making certain investments/ expenses. The government is promoting investment in certain sectors by attaching a taxation benefit to it. Section 80C is one such deduction that allows individuals and HUFs to claim deductions for investments and expenses that are specifically mentioned under the Income Tax Act. Section 80C includes subsections- 80CCC and 80CCD. The maximum limit for deduction under section 80C including subsections is INR 1,50,000 except for NPS tier I investment under section 80CCD(1B).
Investments Eligible for Section 80C Deduction
Here is the list of investment options eligible for claiming deduction under section 80C only if opted for Old Tax Regime:
1. Contribution to ELSS:
Investment in Equity Linked Saving Scheme or a tax-saving mutual fund attracts a deduction under section 80C. Investment in ELSS funds comes with a lock-in period of 3 years and higher deliverable returns compared to FD, PPF, or NPS.
2. Contribution to Employees Provident Fund:
Employees’ contribution to the Provident fund is eligible for deduction under section 80C. This contribution amounts to 12% of the salary. At present, the interest rate in EPF contribution is 8.1% p.a. Previously this investment fell under the EEE category, but in Budget 2021 the taxability of interest was changed. If Employee’s contribution in a year is more than INR 2,50,000 (non-government employees) and INR 5,00,000 (government employees), then interest on such additional contribution will be taxable.
3. Investment in Public Provident Fund:
It is backed by Government and carries a fixed interest rate (7.1% p.a.). A resident Individual can invest a minimum of INR 500 and a maximum of INR 1,50,000 in a financial year. There is a lock-in period of 15 years which is further extendable by 5 years for investment in PPF. Withdrawals can be made partially after the completion of 7 years.
Any investment in Public Provident Fund (PPF) is allowed as a deduction under this section. PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category. Of which all three things including deposit, interest, and withdrawal amount are eligible for tax exemption.
4. Investment in Pension Fund by UTI:
Any amount invested by an individual in a pension fund set up by a mutual fund or UTI is allowed as a deduction here.
5. Investment in National Savings Certificate (NSC):
This scheme is run by Indian Post and carries an interest rate of 7%. Although there is no upper limit for investment in NSC, the maximum deduction available is INR 1.5 Lakhs. The lock-in period is of 5 years and interest earned from this investment is taxable.
6. Investment in Tax Saving Fixed Deposit:
Different banks and financial institutions offer term deposits which are created for tax saving under section 80C. The lock-in period of such tax-saving fixed deposits is 5 years.
7. Investment in Sukanya Samridhhi Savings Scheme:
Sukanya Samridhhi savings scheme was launched for the betterment of girl children in India. Deposits in this scheme will earn interest at 8.6% per annum and will be eligible for deduction under this section. The maturity period of the deposit will be 21 years from the date of opening the account.
8. Investment in Unit Linked Insurance Plan (ULIP):
ULIP is a mix of insurance and investment. Since the investment portion is dependent on market performance, there are no fixed returns. Any investment made under this is allowed as a deduction u/s 80C.
9. Senior Citizen Savings Scheme (SCSS):
Any individual who has aged more than 60 years or is over 55 years and has opted for retirement, can invest in a senior citizen savings scheme. Savings under the SCSS scheme will earn interest at 8.0% per annum. This deposit has a lock-in period of 5 years and is eligible for deduction under section 80C.
Payments Eligible for Section 80C Deduction
Life insurance Premium: Any amount paid as a life insurance premium for self, spouse, or children is allowed as a deduction under section 80C. The deduction for the premium amount is allowed to be up to 10% of the sum assured.
Home loan repayment: Repayment of the principle amount towards a home loan taken for construction or purchase of residential house property, is allowed as a deduction under section 80C. Even stamp duty expenses, registration expenses, and transfer expenses are also allowed as deductions.
Children’s tuition fees: Tuition fees paid for up to two children is allowed as a deduction under section 80C. The fees could be paid to any school, college, university, or educational institution in India. The fees have to be for a full-time course. Fees paid for private coaching is not eligible for deduction.
ITR Form Applicable for Section 80C
The taxpayer can claim deductions u/s 80C while filing ITR if all the above-mentioned conditions are fulfilled. Individuals/HUFs can claim 80C in any of the ITR forms, i.e, ITR 1, ITR 2, ITR 3, and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.
No documents are to be submitted for filing an ITR. In the case of Salaried individuals along with the common documents such as Form 16, you will need to provide these documents to the employer.
- Life Insurance Premium receipts
- Deferred Annuity receipts
- NSC Accrued Interest receipts
- Provident Fund contribution receipts
- Receipt of Term Deposit for 5 years or more with a scheduled bank
- Receipt of Public Provident Fund contribution
- Receipt of Senior citizen saving scheme deposit
- Receipt of Contribution made to a superannuation fund
- Receipt of Tuition fees
- Receipt of Investment in Debentures / Shares of Companies as approved by CBDT, etc.
You have to claim section-wise deductions while filing your income tax return. In every ITR, there is a separate section for Chapter VI-A Deductions where you can enter all your deductions against respective sections. for eg., life insurance premium, ELSS, PPF, etc will go to section 80C whereas medical insurance premium will go under section 80D.
As per the income tax act, any Individual or HUF can claim a deduction under section 80C. This deduction is not available to partnership firms or corporate assessees.
Proof of investments is submitted to the employer before the end of a Financial Year (FY) so that the employer considers these investments while determining your taxable income and the tax deduction that needs to be made. However, if you miss submitting these proofs to your employer, the claim for such investments made can be done at the time of filing your return of income as long as these investments have been made before the end of the relevant FY.