Overview of Deduction under Section 80c
Section 80c under the Income Tax Act is probably one of the best known sections for the layperson. There are many eligible deductions and tax exemptions under Section 80c from home loan payments to fixed deposits and mutual fund investments.
When it comes to income taxes, most people start sweating and running around looking for ways in which they can save on it. One of the most commonly known sections of the Income Tax act is section 80C. If the name sounds familiar then its probably because you declare things like premiums for life and health insurance, investments in mutual funds, investments in pension schemes and fixed deposits under this section. In fact, for the average Joe who does not have a very complicated income setup, Section 80C is one of the most important sections.
Tax Exemption under 80c
As opposed to the deductions for the financial year 2013-14, the limit for maximum deduction under section 80C for 2014-15 and 2015-16 have been changed to Rs. 1.5 lakhs. This means that investments made under 80C up to Rs. 1.5 lakhs will be eligible for tax exemptions. These exemptions are not just limited to investments but also include payments that may be made towards expenses like education fee and home loans.
Eligible Deductions under Section 80C:
So what are the deductions that are eligible for exemption under section 80C? The following is a list of dedications that are included under section 80C.
Home Loan Payments:
When you pay a home loan EMI, there are two major components to it; the principal and the interest. Under section 80C you can claim tax benefits on the principal paid. You can also claim benefits under section 24.
Stamp Duty and Registration Charges for House:
When you buy a house, one of the expenses you incur will be payments for the stamp duty and the registration of the property. Whatever is spent on these expenses is eligible for benefits under section 80C.
All life insurance premium payments, include those paid for unit linked insurance plans, are also eligible for tax benefits under section 80C. Even if your policy covers other family members, you can claim the tax benefits for the premiums paid. The limit for claiming these benefits is Rs. 1.5 lakhs. This means that if you make no other investments but pay Rs. 2 lakh towards a life insurance policy then Rs. 1.5 lakh out of it will be eligible for tax benefits. This benefit will also only apply if the premium is paid by you, not if your wife or husband or parents pay the premium.
When you take a health insurance policy, be it an individual or a family floater policy, the annual premium you pay for the policy is eligible for tax benefits under this section.
Most banks offer tax saving fixed deposits that provide tax benefits on the amount deposited in them. These deposits come with a mandatory lock in period of 5 years and can have a maturity period ranging from 5 years to 10 years. The limit of investment in these deposits is determined by the bank and can range from Rs. 1 lakh to Rs. 1.5 lakhs in a year. It needs to be noted that not all FD investments are eligible. Only the ones made in tax saving FDs are.
Mutual Fund Investments (ELSS):
When you invest in a mutual fund, particularly an equity linked savings scheme or a tax saving mutual fund, the amount invested is eligible for tax exemption under this section. These mutual funds come with a lock in period of 3 years.
There are different provident funds that you can invest in. One is the PPF (Public Provident Fund) with an annual investment limit of Rs. 1.5 lakhs and a maturity period of 15 years. The others are EPF and VPF; EPF are Employee Provident Funds where the employer and the employee contributes towards the PF and VPFs are Voluntary provident funds where the employee can choose to contribute more than the employer towards the PF. Regardless of the type of fund, all contributions made are eligible for tax benefits.
National Savings Certificates:
National savings certificates are an investment that come with maturity period of 5 and 10 years. Investments made in these certificates is also eligible for tax benefits up to Rs. 1.5 lakhs.
Sukanya Samriddhi Account:
This is a special account that was announced by the government in early 2015. It allows parents to open an account for a girl child and deposit money in it, up to Rs. 1.5 lakhs per annum, and earn an interest of 9.1% per annum on it. This account can be opened for two children and can be extended to a third in case there are twins involved.
These are bonds that are issued by infrastructure companies like Infrastructure Development Finance Company and India Infrastructure Finance Company. They offer an interest on the money invested with them and the investments made in the tax saving infrastructure bonds are eligible for tax benefits.
Post Office Time Deposit:
Just like fixed deposits, time deposits held at post office also are eligible for tax benefits under this section. These deposits come with an option of a 5 year time deposit where investments become eligible for benefits. These deposits also offer attractive interest rates in excess of 8% per annum however it can change at any time.
School fee is not cheap these days and for that reason, when you do pay it you can claim tax benefits on the amount that you have paid. The conditions that apply in this investment are that it is available only for two children, the school cannot be outside India and the tuition fee is the only payment that is eligible.
Almost everyone has some sort of a plan in place for the day they retire. If your plan includes investments in a pension fund then the investments made are eligible for deductions under section 80C.
Senior Citizen Saving Scheme:
This is a scheme that can only be invested in by senior citizens and provides quarterly interest payments instead of compounded interest. Under this scheme when an investment is made into the scheme, it becomes eligible for tax benefits under this section.