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.

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

PPF (Public Provident Fund): Features & Eligibility

Warren Buffett once said, ‘Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.’ Regular and systematic savings is the key to wealth creation. Public Provident Fund is a long term investment option for investors searching for safe financial instruments. It comes with the dual benefit of tax saving and wealth accumulation. PPF is backed by the government and hence scores high on safety.

What are the features?

  • The investments can either be made in 12 instalments or in lump-sum. The minimum number of instalments in a year is 1 and the maximum number of instalments cannot exceed 12.
  • Investments can be made in cash or cheque. In case of cheque, the date of realization of a cheque in Govt. account shall be the date of opening of an account.
  • PPF account gives a benefit of a tax deduction on deposit, assured returns on investments and tax-free withdrawal on maturity.
  • Maturity period is 15 years but the same can be extended within one year of maturity for a further 5 years.
  • An account can be opened for a minor as well. One condition for this is that the maximum investment limit should be the addition of balance in all accounts. There is no facility for opening a joint account.
  • A nominee can be added at any time i.e at the time of opening and also after the opening of an account. An account can be transferred from one post office to another.
  • Premature closure is not allowed before 15 years i.e. you are not allowed to close your PPF account until it matures.
  • Loan facility is available from a 3rd financial year from the year of opening account.
  • Partial withdrawal facility can be availed from 7th financial year onwards

Who can invest in PPF?

An individual can invest in PPF. The minimum investment amount is Rs 500/- and the maximum amount is Rs 1,50,000/- for a year. It is suitable for freelancers and proprietors. Deposits made under PPF qualify for deductions under Sec. 80C and interest earned are tax-free. 

FAQs

Is interest on PPF taxable?

No. The deposits fall under the EEE (Exempt, Exempt, Exempt) tax category. This means that:
– Deposits made under PPF scheme are allowed as deduction under section 80C.
– Interest earned on these deposits in exempt from tax; &
– Amount withdrawn from the PPF account is also exempt from any tax.

How many PPF account can I open?

You can open one PPF account every 15 years. However, at any given time, you can only have one account in your name.

Can I have both EPF and PPF account?

Yes. It is plausible for an Individual to have an EPF and a PPF account at the same time.

Difference between EPF and PPF

Once we enter the professional world, the terms like PF/ EPF or PPF start colliding to our ears. Casually addressed as ‘Employee’s Provident Fund’, exactly what does EPF mean and how is it different than PPF? Which one should you be concerned with as a salaried individual? Here is a difference between EPF and PPF that will help you understand both these investment schemes better.

What is EPF?

Employee Provident Fund, EPF is commonly known as Provident Fund, PF. It is an arrangement for the salaried individuals, where a stipulated part of their salary is deducted and kept in their EPF account. It is mandatory for any company with more than 20 employees by law to register with the Employee’s Provident Fund Organisation (EPFO).

What is PPF?

Public Provident Fund is a scheme open to those who don’t have a regular Salary. One can voluntarily decide to open it and manage it. Mostly, PPF is for the consultants, freelancers, or even the people who don’t have an assured income.

Here are the differences between EPF and PPF

Parameters EPF (Employee Provident Fund) PPF (Public Provident Fund)

Eligibility

Any Individual who is salaried and employed can be eligible to become a member of EPF scheme on the date of joining the employment. 

Any individual can open a PPF account with the assistance of nationalised banks or post offices that handle PPF accounts.

Minimum Investment

Employees who earn a basic salary of up to Rs. 15,000 contribution to EPF is mandatory. Typically 12% of the Basic, DA, and cash value of food allowances has to be contributed to the EPF account.

You need to deposit a minimum of 500/- in order to open the account. The maximum amount you can deposit per annum is 1,50,000.

Rate of Interest

The interest of 8.5% per annum is received by the employee having EPF. The rate is prescribed by the government and revised every year.

You receive the annual interest of 7.10% in a PPF account. This rate is revised periodically by the Central Government.

Lock-in Period

The accumulated amount in the EPF is paid at the time of retirement or resignation. It can be transferred from one account to another in case of a change in jobs. How to transfer EPF Balance? 

The entire amount saved through PPF can be withdrawn after 15 years. One can also extend it to the five years’ period.

Withdrawal

Premature withdrawal in EPF will attract tax subject to certain conditions.

In PPF premature withdrawal is not allowed.

Tax Exemption

If certain conditions are satisfied, then a lump sum amount received is exempt from tax.

The amount received after the maturity period is completely tax-free.

Tax Exemption u/s 80C

Investment in EPF is eligible for tax deduction under section 80C.

Investment in PPF is eligible for deduction under section 80C. And the interest earned on PPF account is completely tax-free.

FAQs

Can I have both EPF and PPF accounts?

Yes. You can have both EPF and PPF accounts on your name. You can also avail tax benefits on both of them.

What is the purpose of EPF and PPF account?

EPF is a retirement benefit plan for salaried individuals. While the PPF account is retirement benefit and old age income security for individuals who are self-employed.

Can I invest more than Rs. 150,000 in my PPF account?

No. The max limit of deposit in PPF account is Rs. 150,000 for a particular financial year. Even though you deposit more than Rs. 150,000 you will not gain interest on it. And the amount exceeding Rs. 150,000 will not even be exempted from tax.