Most of Indian Tax Payers enjoy the benefit of 80C deduction. If you are not familiar with the provisions of section 80C of Income-tax Act, 1961, then you are on the right webpage. I am here to explain you in details about section 80C deduction.
Generally, we invest or expend some money in LIC, PPF, ELSS etc. for our future benefit. Section 80C offers you to claim such expenditure as a deduction to reduce your tax liability. Thus, the section 80C opens various investment options to the taxpayers (Individual or HUF) which not only generate handsome returns for them but can also be claimed as deduction while calculating total taxable income.
With the help of this guidelines you may make your Tax Planning for any assessment year under section 80C of the Income Tax Act, 1961. It describes about various tax saving investments and expenses to be made for claiming deduction under section 80C. Accordingly, you will come to know how much tax saving can be done through section 80C.
Who is Eligible for Section 80C Deduction?
There are only two assessees who are eligible for claiming deduction under section 80C of the Income-tax Act, 1961. The first one is individual and the second one is Hindu Undivided Family (HUF). That means, 80C Deduction is available for resident individuals or non-resident individuals or Hindu undivided family.
In other words, Partnership Firm, Local Authority, Domestic Company, Foreign Company, Co-operative Society, Association of Person, Body of Individual and any other artificial juridical person shall not be eligible for claiming deduction under section 80C of IT Act, 1961.
Income Tax Benefit of Section 80C for Assessment Year 2017-18
The deduction under section 80C would be available to eligible person irrespective of their income levels. In fact, those assessees whose total taxable income fall under higher income tax brackets can save @30.9% i.e. up to ₹46350 income tax.
Hence, if you are individual (resident or non-resident) or HUF, then you may save up to ₹46,350 as income tax benefit for each assessment year. This is because the maximum deduction under this section is limited to ₹1,50,000.
From the following table you will understand the exact income tax benefit from the section 80C.
Income Tax Benefit of Section 80C
Tax Saving Up to
₹2,50,000 to ₹5,00,000
₹5,00,000 to ₹10,00,000
Limit of 80C Tax Deduction for Assessment Year 2017-18
The amount of deduction under section 80C has been increased from ₹1,00,000 to ₹1,50,000 by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015. In other words, you may claim deduction up to ₹1.5 Lakh u/s 80C from financial year 2014-15 relating to assessment year 2015-16.
As per sub-section (1) of section 80C:
In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, in accordance with and subject to the provisions of this section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums referred to in sub-section (2), as does not exceed one hundred and fifty thousand rupees.
Investment/ Contributions/ Expenditure allowed as 80C Deduction
Both the assessees may deduct the aggregate of the amount paid or deposited in the previous year in respect of life insurance premium, deferred annuity, contribution to provident funds, subscription to deposit schemes, equity shares or debentures etc.
Accordingly, not only the investments and subscriptions but also the expenditure made during the previous year would qualify under this section. However, the aggregate amount of deduction made under section 80C shall not exceed One Lakh Fifty Thousand Rupees. Therefore, you may invest up to ₹1,50,000 in a financial year 2016-17 and save tax up to ₹46350 in assessment year 2017-18 under Section 80C of the Income Tax Act.
The following are the investments/contributions/expenditures eligible for deduction u/s 80C:
1) Life Insurance Premiums [80C(2)(i)]:
Most of tax payers pay premium of Life Insurance Policy made for their own life or the life of his/her family members securing the payment of specified sum on the stipulated date of maturity. Such premium amounts, irrespective of one or more insurance policies, shall be included in section 80C deduction.
In case of individuals, the deduction u/s 80C shall be allowed for any sum paid or deposited in the previous year towards Life Insurance Premium (LIP) for their own life or the life of wife or husband and on the life of any child (minor or major) of such individuals.
Thus, the LIP paid for the life of mother, father, brothers and sisters etc. is not eligible for deduction u/s 80C. However, in the case of a Hindu undivided family, the premium paid for the life of any HUF member shall be deducted under section 80C.
Note that insurance shall also include a policy of insurance for the benefit of a minor with the object of enabling the minor, after he has attained majority to secure insurance on his own life by adopting the policy and on his being alive on a date (after such adoption) specified in the policy in this behalf.
Policies issued on or after 1.4.2012:
As inserted by the Finance Act, 2012, w.e.f. 1-4-2013, the deduction under section 80C shall apply only to so much of any premium or other payment made on an insurance policy, other than a contract for a deferred annuity, issued on or after the 1st day of April, 2012 shall be restricted to the 10% of the actual sum assured.
However, earlier to the above amendment i.e. in respect of policies issued before 31-03-2012, the annual premium on insurance policies up to 20% of the actual capital sum assured was allowed as qualifying amount for 80C deduction.
Policies issued on or after 1.4.2013:
In accordance with the new proviso inserted in sub-section (3A) of section 80C by the Finance Act, 2013, w.e.f. 1-4-2014, following further benefits has been given for the premium paid in respect of a life insurance policy issued on or after 1st day of April, 2013:
Where the insurance policy is on life of any person, who is—
(a) A person with disability or a person with severe disability as referred to in section 80U, or
(b) Suffering from disease or ailment as specified in the rules made under section 80DDB,
the amount of LIP would qualify for deduction to the extent of 15% of the actual capital sum assured.
Thus, in respect of other policies, the deduction of premium paid would continue to be restricted to 10% of the actual capital sum assured.
Actual Capital Sum Assured in relation to a life insurance policy shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy.
Note that the actual sum assured does not include
(i) The value of any premium agreed to be returned; or
(ii) Any benefit by way of bonus or otherwise over and above the sum actually assured, which is to be or may be received under the policy by any person.
2) LIC Annuity Plan [80C(2)(xii)]:
The deduction shall also be available u/s 80C if you have made contribution to any approved annuity plan of the Life Insurance Corporation (LIC) viz. i) New Jeevan Dhara, ii) New Jeevan Dhara I, iii) New Jeevan Akshay and iv) New Jeevan Akshay I, II and III or any other insurer (Tata AIG Easy Retire Annuity Plan of Tata AIG Life Insurance Company Ltd.) as the Central Government may, by notification in the Official Gazette, specify in this behalf.
However, such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity.
3) Deferred Annuity Plan [80C(2)(ii)]:
Premium paid in previous year to effect or to keep in force a contract for a deferred annuity (except LIC Annuity Plan as discussed above) on the life of yourself, your spouse or your children. However, such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity;
The best part of this annuity pan is that such contract for a deferred annuity need not necessarily be with an insurance company and therefore such a contract can be entered into with any person.
4) Deferred Annuity Plan for Govt. Employees [80C(2)(iii)]:
Any amount deducted from the salary of a Government employee by or on behalf of the Government for the purpose of securing to him a deferred annuity or making provision for his spouse or children.
However, the sum so deducted does not exceed one-fifth of the salary i.e. the excess amount, if any, over 20% of the salary is to be ignored for the purpose of 80C deduction.
5) Provident Funds [80C(2)(iv) to (vii)]:
The deduction under section 80C shall be made for a contribution by an individual to any provident fund to which the Provident Funds Act, 1925 applies or any provident fund set up by the Central Government i.e. the Public Provident Fund (PPF) established under the Public Provident Fund
Scheme, 1968 or a contribution by an employee to a Recognised Provident Fund (RPF) or an approved superannuation fund.
Actually, the Provident Fund is deducted directly from the salary of employees by their employers and such deducted amount deposited to a retirement account along with their employer’s contribution. The contribution made by employees is taken into account for 80C deduction whereas employer’s contribution is exempt from tax.
6) Govt. Deposit Schemes [80C(2)(viii)]:
As subscription to any such security of the Central Government or any such deposit scheme as that Government may, by notification in the Official Gazette, specify in this behalf.
Accordingly, the Central Government specifies the ‘Sukanya Samriddhi Account’ for the purposes of this clause vide Notification No. S.O. 210(E) dated 21st January, 2015.
7) Subscription to NSC[80C(2)(ix)]:
You can purchase any savings certificate defined under in clause (c) of section 2 of the Government Savings Certificates Act, 1959 and notified by the CG i.e. National Savings Certificate (VIII Issue), specify in this behalf.
8) Unit-linked Insurance Plan [80C(2)(x)]:
As a contribution in the name of yourself or husband or wife or any children for participation in the Unit-linked Insurance Plan, 1971 specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
9) LIC Mutual Fund [80C(2)(xi)]:
As a contribution in the name of you or your spouse or your children for participation in any such unit-linked insurance plan of the LIC Mutual Fund referred to in clause (23D) of section 10.
10) Subscription of Units of Mutual Fund [80C(2)(xiii)]:
Subscription to any units of any Mutual Fund referred in section 10(23D) or from the Administrator or the specified company under any plan formulated in accordance with such scheme as notified by the Central Government.
11) Contribution to Pension Fund of Mutual Fund [80C(2)(xiv)]:
Contribution to any pension fund set up by any Mutual Fund referred to in clause (23D) of section 10 or by the Administrator or the specified company, as the CG may, by notification in the Official Gazette, specify in this behalf.
12) NHB Term Deposit [80C(2)(xv)]:
Subscription to any deposit scheme or contribution to any pension fund set up by the National Housing Bank (NHB) i.e., NHB SUVRIDDHI (Tax Saving) Term Deposit Scheme, 2008. You are required to deposit a minimum of ₹10,000 under this scheme and higher in multiples thereof per financial year.
13) Deposit Scheme for Housing Purpose [80C(2)(xvi)]:
Subscription to any deposit scheme of a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes or any authority constituted in India either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both as notified by the CG.
Note that the Central Government vide Notification No.2/2007 dated 11.1.2007 has already specified the Public Deposit Scheme of Housing and Urban Development Corporation Ltd. (HUDCO) for the purpose of deduction under section 80C.
14) Tuition Fees [80C(2)(xvii)]:
Amount paid as tuition fees whether at the time of admission or thereafter to any university, college, school or other educational institution situated within India for the purpose of full-time education.
Note that this benefit is only for the amount of tuition fees for full-time education and shall not include any payment towards development fees or donation or payment of similar nature and payment made for education to any institution situated outside India.
15) Repayment of Housing Loan [80C(2)(xviii)]:
If you had made a payment for the purposes of purchase or construction of a new residential house property. The income from such property must be chargeable to tax under the head “Income from house property”.
Such payments for the purpose of deduction under section 80C shall include the amount paid towards or by way of any instalment or part payment of the amount due or repayment of the amount borrowed by the assessee from:
- the Central Government or any State Government; or
- any bank, including a co-operative bank; or
- the Life Insurance Corporation, or the National Housing Bank; or
- any public company formed and registered in India; or
- any company in which the public are substantially interested; or
- any co-operative society engaged in the business of financing the construction of houses.
Further, the payment made for the stamp duty, registration fee and other expenses for the purpose of transfer of house property to the assessee can also be claimed as deduction under section 80C in the year of purchase of new residential house property.
However, such payment shall not include any payment towards or by way of the admission fee, cost of share and initial deposit for becoming shareholder or member or the cost of any addition or alteration to, or renovation or repair of the house property or any expenditure in respect of which deduction is allowable under the provisions of section 24.
16) Subscription to Equity or Debenture [80C(2)(xix):
Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form (i.e. Rule 20 and Form No. 59).
Eligible Issue of Capital means an issue made by an Indian public company or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in of section 80-IA(4).
17) Subscription to Mutual Fund Units [80C(2)(xx)]:
Subscription to any units of any mutual fund referred to section 10(23D) and approved by the Board on an application made by such mutual fund in the prescribed form (See rule 20A and Form No. 59A):
Provided the amount of subscription to such units is subscribed only in the Eligible Issue of Capital (as discussed above) of any company.
18) Term Deposit [80C(2)(xxi)]:
Any amount paid for term deposit for a fixed period of not less than five years with a scheduled bank and which is in accordance with a scheme framed and notified by the Central Government.
Scheduled bank means the State Bank of India (SBI) or its subsidiary bank or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934.
19) Subscription to Bond [80C(2)(xxii)]:
Subscription to bonds issued by the National Bank for Agriculture and Rural Development.
20) Senior Citizens Savings Scheme[80C(2)(xxiii)]:
Amount deposited in account under the Senior Citizens Savings Scheme Rules, 2004.
21) Post Office Time Deposit[80C(2)(xxiv)]:
You may open 1 year, 2 Year, 3 Year or 5 Year time deposit account under the Post Office Time Deposit Rules, 1981. But, only 5-year post-office time deposit account shall qualify for deduction under section 80C.