Section 80C : Deductions for Tax Saving Investments

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 INR 1,50,000.

Deduction under section 80C is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
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Deduction under section 80C is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

Investments Eligible for Section 80C Deduction

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 a minimum INR 500 and maximum INR 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 INR 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, the deduction will be allowed only up to INR 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 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.

Investment in Unit Linked Insurance Plan (ULIP): It 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 deduction u/s 80C

Senior Citizen Savings Scheme (SCSS): Any person who has aged more than 60 years or a person over 55 who has opted for retirement, can invest in a senior citizen savings scheme. Savings under the SCSS scheme will earn interest at 8.6% per annum. This deposit has a lock-in period of 5 years and is eligible for deduction under section 80C.

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Payments Eligible for Section 80C Deduction

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’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.

For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.
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For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.

ITR Form Applicable for Section 80C

The taxpayer can claim deductions u/s 80C while filing ITR if all the above-mentioned conditions are full-filled. Individuals/HUFs can claim 80C in any of the ITR forms, i.e, ITR 1ITR 2ITR 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.

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Supporting Documents

Along with the common documents such as Form 16, you will need to provide these documents:

  • Life Insurance Premium receipts
  • Deferred Annuity receipts
  • NSC Accrued Interest receipts
  • Provident Fund contrition 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.

FAQs

How to claim deductions in ITR?

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.

Who can claim section 80C deductions?

As per income tax act, any Individual or HUF can claim deduction under section 80C. This deduction is not available to corporate assessees

Can I claim the 80C deductions at the time of filing return in case I have not submitted proof to my employer?

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.

NSC ( National Savings Certificate ) – Features, Tax Benefits and Eligibility

NSC is a small savings scheme offered by the Indian Post office. The certificates earn fixed interest, which is currently at 6.8% per anum. You can get a tax deduction on your investment. However, returns earned are taxable at maturity. This article will help you understand the various aspects that you need to consider when investing in NSC.

What is NSC?

NSC is a scheme which encourages small to mid-income investors to invest in savings scheme which will also help them in availing tax benefits and having a risk-free return on investment. This scheme is popular amongst government employees and other salaried taxpayers. However, it does not earn inflation-beating returns like Tax saving Mutual funds.

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What are the Features of NSC?

  • Rate of Interest: The Interest rate offered is 6.8%
  • Minimum and Maximum Investment: There is no maximum limit for investment. The minimum investment amount is INR. 1000/-. Effective from 1.4.2016, NSC can be issued for any amount above INR 100 in one transaction, provided the certificate is issued for an amount rounded off to the nearest 100.
    • One transaction of one (set of) investor(s) should result in only one certificate in e-mode or one entry in the passbook on one day.
    • So the issue of the certificate need not be dependent on the availability of a pre-printed certificate of the appropriate denomination.
    • Earlier, it could only be issued in denominations of INR 100, INR 500, INR 1000, INR 5000 and INR 10000
  • TDS Applicability: There will not be any tax deduction at the source.
  • Loan Against NSC: The savings certificates obtained can be kept as collateral security to get a loan from banks
  • Rate of Return: It guarantees the same rate of return for the entire investment term
  • Types: The NSC VIII issue has a fixed maturity period of 5 years. The NSC IX issued with a fixed maturity period of 10 years had been discontinued w.e.f. 20.12.2015. Transfer of certificates from one person to another can be done only once from the date of issue to the date of maturity
  • Physical and E-Certificate: Effective from 1st April 2016, the National Savings certificate will only be available in electronic mode(e-mode). The existing physical certificates owned by you are to be discontinued

Who is Eligible to Invest in NSC? 

The government launched NSC as a saving scheme for residential individuals. National Savings Certificate aims to offer capital protection, even though the rate of interest is less than tax saving mutual funds or Public Provident Fund, the return is in this scheme is a guarantee.

  • Indian residents can invest
  • Trust and HUF cannot invest
  • NRI’s can also not invest

What are the Tax Benefits of NSC?

Deposits up to INR 1,50,000/- per annum qualifies for IT deduction under section 80C of the Income Tax Act. The interest earned is taxable. But each year the interest considered is reinvested in the NSC. This means that every year you show the interest amount as income and then reinvest that income. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. When the certificates mature it does not receive any tax deduction since the amount is not reinvested. The investor will have to pay tax on the final interest.

What are the Documents Required to Purchase NSC?

You must be KYC compliant to purchase National Savings Certificate.

  • NSC Purchase Form
  • Identity Proof such as PAN Card, Aadhar Card, Senior Citizen ID, Voter ID
  • Address Proof in the form of ELectricity Bill, Passport, Telephone Bill
  • Bank Statement along with a cheque
  • Passport Size Photographs

What is the Premature Withdrawal Procedure of NSC?

Even though NSC has a lock in period of 5 years, premature withdrawals are allowed in the following scenarios:

  • In case of death of the holder or holders (in case of the joint holder)
  • If any court of law orders the withdrawal of the certificate
  • If any Gazetted Government Officer forfeits the certificate

It is important to note that, if the certificates are withdrawn before completion of 1 year, you will not receive the interest amount only the principal amount. If the certificates are withdrawn after the completion of 1 year than the entire contribution as well as interest will be received.

Following documents are necessary for the withdrawal process:

  • NSC Original Certificate
  • NSC Encashment Form
  • Proof of identity
  • Signature of the nominee on the certificate is required
  • In case of a minor, attestation by a guardian is compulsory
  • If there are no nominees, the legal heir can opt for encashment upon submission of form SB84
  • In case of the demise of the account holder, the nominee can encash the certificate by submitting the following forms:
    • Annexure 1: Claim settlement application (registered at a post office)
    • Annexure 2: Claim settlement application (legal evidence)

Comparison with other Tax Saving Schemes

Investment Interest Lock-in Period Risk Profile
NPS 8% to 10% (expected) Till retirement Market-related risks
ELSS 12% to 15% (expected) 3 years Market-related risks
PPF 7.9% (guaranteed) 15 years Risk-free
FD 7% to 9% (guaranteed) 5 years Risk-free
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FAQs

Is the maturity value of NSC taxable?

Interest earned on the maturity of is taxable. During the investment tenure, annual accrued interest is not paid to the investor but instead, it is deemed reinvested. Since it is reinvested, it qualifies for deduction under section 80C thereby making it tax-free. However, when the NSC matures, the interest of the sixth year is not reinvested but paid out to the investor. So this interest amount upon maturity is not taxfree.

Is NSC one time investment?

NSC is a one-time investment. You can invest a minimum of Rs. 100 and there is not an upper limit for investment. Once you invest , then you will receive the maturity amount after 5 years of the lock-in period.

Can HUF invest in NSC?

No. HUFs and Trusts can not invest in NSC. The scheme is specially designed for Government employees, businessmen and other salaried classes.

Is there a lock in period in NSC?

Yes, the lock-in period is equal to the maturity period of the certificates i.e. 5 years. One can redeem it early but only under specific conditions.

Am I allowed to take a loan on the basis of NSC?

Yes, one can take a loan by keeping their certificates as collatral.

Can the nomination be changed in NSC?

Yes, nomination can be canceled or changed at any time by filling Form 3 and paying a nominal fee of INR 5.

ELSS or Equity Linked Savings Scheme – Meaning, Features and Tax Benefits

ELSS stands for Equity Linked Savings Scheme. It is equity-based tax savings mutual funds that qualify for income tax deductions u/s 80C. Investments made up to INR 1.5 lacs under ELSS qualify for tax benefits. It has a lock-in period of 3 years. Any individual who is KYC verified can invest in ELSS. In the case of minors, the guardian has to be KYC verified while investing in the name of the minor. The minor, upon attaining majority should immediately complete the KYC verification process.

What are the Features of ELSS?

  • ELSS funds have the shortest lock-in period of 3 years compared to different tax saving instruments such as NSC which has a lock-in period of 5 years and PPF which has a lock-in period of 15 years.
  • You can start investing with a low starting amount of just INR 500.
  • The returns earned on ELSS funds are also tax-free.
  • You have different plans and AMCs to choose from. For example, you can opt for a systematic investment plan or a one time option as per your convenience.
  • It gives you the benefit of Tax saving as well as Capital Appreciation. With the power of compounding, you can build your wealth.
  • ELSS funds are essentially Equity-based mutual funds. Hence it offers attractive returns compared to other tax saving options available.
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What are the Advantages of Investing in ELSS?

An individual investing in ELSS can have many benefits, some of the major advantages are as follows:

Income Tax Benefits

The amount invested in ELSS, up to INR 1,50,000 can be claimed as a deduction under section 80C. Apart from getting a tax benefit on the sum that is invested, deductions are also available on the capital gains. It is important to note that ELSS comes with a lock-in period of 3 years hence the long capital gains if less than INR 1,00,000 is exempt from tax. If LTCG is more than INR 1,00,000 then excess gains are taxed at 10%

Short Lock in Period

In comparison with other tax saving schemes, the lock-in period in ELSS is the shortest i.e. of 3 years. On the contrary, the lock-in period in PPF is 15 years and 5 years in FD. ELSS’s main advantage is that it is a scheme that offers high return within a shorter lock-in period.

Compounding Benefit and Higher Return

If investing in equity oriented funds it is always advisable to invest for a longer period of time so that one can benefit from compounding effect. The 3 year lock in period in ELSS comes as an added benefit as it allows the individual to reap the benefit of compounding. Investemnets made in ELSS is majorly in equity oriented funds and hence the returns are higher when compared to other saving schemes.

What are the Documents Required to Invest in ELSS Funds?

The investor needs to be KYC verified to start investing in funds. If you are KYC verified, you can start investing right away. If you are not KYC verified, you will have to complete the verification process before you can start investing. The documents required for KYC verification are:

  • Copy of Address Proof
  • Copy of PAN card

What are the ways to invest in ELSS?

There are mainly 3 ways in which you can invest in ELSS:

Growth Option

Under this option the investor will be able to gain the benefit only at the time of redemption. There is no dividend availabe under growth option. However, redeming total gains at the same time helps to appreciate the total NAV and as a result, multiplies the profit.

Dividend Option

Dividend option as the name suggets offers the investors the advantage of recieving dividends at a regualr itervals provided that dividend is declared. Additionaly, the dividend is completely tax free in the hands on the investor.

Dividend Reinvestment Option

Under this option, the dividend amount is invested back to the NAV. Investors choose this option when when the market is observing an upswing and is likely to continue the same way.

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FAQs

Is there any limit for investment in ELSS? 

There is no upper limit for investment into Equity Linked Savings Scheme. However, only Rs. 1,50,000 will be qualified as a deduction under section 80C. The minimum amount you can invest in ELSS is Rs. 500.

Is return on ELSS taxable? 

No. Both principal amount of investment and return on maturity are exempt from tax.

Is there any tax on capital gains from ELSS?

The Long-Term Capital Gains on ELSS are tax-exempt up to Rs 1 lakh, and dividend received is tax-free in the hands of investors.

Is it mandatory to redeem the investment amount after completion of 3 years?

No, there is no maximum investment duration, if an investor is satisfied with the returns he/she can continue with the scheme.

Is SIP as an option available under ELSS?

Yes, while investing one can