Section 80C allows individuals and HUFs to claim deductions for certain investments and expenses which are specifically mentioned under the Income Tax Act. The maximum limit for deduction under section 80C is Rs. 1,50,000.
Investments eligible for 80C deductions
Contribution to ELSS: When you invest in Equity Linked Saving Scheme or a tax saving mutual fund then you are allowed a deduction under section 80C. Investment in ELSS funds comes with a lock-in period of 3 years.
Investment in Public Provident Fund: It is backed by Government and carries a fixed interest rate (8.0% p.a. subject to change). You can invest minimum Rs. 500 and maximum Rs. 1,50,000 in a financial year. 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.
Contribution to Employees Provident Fund: Employees contribution to Provident fund is also eligible for deduction under section 80C. This contribution amounts to 12% of the salary. At present, the interest rate in EPF contribution is 8.8%
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 under section 80C up to Rs. 1,50,000.
Investment in National Savings Certificate (NSC): NSC is a scheme run by Indian Post and carries an interest rate of 8.1%. Although there is no upper limit for Investment in NSC, deduction will be allowed only up to Rs. 1,50,000 under section 80C
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 deposits is 5 years and you can not withdraw money before its maturity.
Investment in Sukankya Samridhhi Savings Scheme: The scheme was launched for the betterment of girl child in India. Deposits in this scheme will earn interest @ 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.
Investment in Unit Linked Insurance Plan (ULIP): ULIPs are a mix of insurance and investment. Since the investment portion is dependent on market performance, there are no fixed returns. Any investment under ULIP is allowed as deduction u/s 80C
Senior Citizen Savings Scheme (SCSS): Any person who is aged more then 60 years or a person over 55 who has opted for retirement, can invest in a senior citizen savings scheme. Savings under SCSS scheme will earn an interest @ 8.6% per annum. This deposit has a loc in period of 5 years and is eligible for deduction under section 80C.
Payments eligible for 80C deductions:
Life insurance Premium: Any amount paid as life insurance premium for self, spouse or children is allowed as deduction under section 80C. The premium amount has to be lower than 10% of the sum assured.
Home loan repayment: Repayment of principal amount towards a home loan taken for construction or purchase of residential house property, is allowed as deduction under section 80C. Even stamp duty expenses, registration expenses and transfer expenses are also allowed as deduction.
Children 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.
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 where medical insurance premium will go under section 80D.
As per income tax act, any Individual or HUF can claim deduction under section 80C. This deduction is not available to 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.