Tax-Saving Instruments Under Section 80C

Tax deduction refers to the process of reducing the tax liability of an individual with the help of certain payments and investments made during the financial year. To provide relief to Indian taxpayers, the Income Tax Act of 1961 has a few sections which deal primarily with tax deductions. Section 80C is the most extensive of these sections, offering a multitude of ways for the taxpayer to reap the benefits of tax deductions. These tax deductions may not be applicable for those who have opted for the new tax regime with its new income tax slab rates. However, those who are continuing with the old tax regime can claim these deductions when filing their returns. Let’s take a look at the major tax-saving instruments under Section 80C.

  • Life insurance 

Along with securing the future of your loved ones in your absence, life insurance also offers the benefits of tax deductions. The premium that you pay for a life insurance policy is eligible for tax deductions up to a maximum of Rs 1,50,000. For the benefit to be applicable, the policy premiums paid should be for self, spouse, dependent children, and any other member of a HUF (Hindu Undivided Family).

Note that this tax deduction may be reversed if the policyholder surrenders a life insurance product, such as ULIPs, before the end of the five-year lock-in period.

  • ELSS (Equity-Linked Savings Scheme) 

ELSS is also called tax-saving mutual funds because it offers the best tax-saving benefits as compared to other mutual funds schemes. The investment amount is eligible for tax deduction under Section 80C up to a maximum of Rs 1.5 lakhs.

You can use an income tax calculator to know how and how much your ELSS investment can help in reducing your tax outgo.

  • Public Provident Fund (PPF) 

According to Section 80C of the Income Tax Act, 1961, the contribution made by an individual to the Public Provident Fund is eligible for tax deductions up to a limit of Rs 1.5 lakhs. The maximum contribution that one can make to the PPF is also Rs 1.5 lakhs. So, if you have not been able to or do not wish to invest in any other instruments but still wish to save tax, contributing to the PPF would be a wise choice.

  • Repayment of the principal amount of a home loan

If you have taken a home loan and have made repayment/s on the same during the financial year, then the principal portion of that repayment is eligible for a tax deduction. This benefit is only applicable if the construction of the property has been completed. If the owner transfers the property to someone else within five years of its possession, then this benefit may get reversed. The amount previously claimed as a deduction would be taxable from the year of transfer of the property.

An income tax calculator can help you create a tax-saving plan where you can maximise the tax benefits on your home loan principal repayment.

  • Employee Provident Fund 

Those who earn a minimum of Rs 25,000 can contribute 12% of their total income (plus DA) to the Employee Provident Fund. A similar contribution is made by the employer of the individual as well. The contribution made by the employee to the EPF is eligible for tax deductions under Section 80C. However, the portion of the contribution made by the employer cannot be claimed for deduction.

  • Senior Citizens Savings Scheme 

Those individuals who are over the age of 60 years can invest in the Senior Citizens Savings Scheme and can claim for tax deductions against the invested amount under Section 80C. Note that this scheme has a duration of five years and can be opted for by people over 55 years too as long as they have opted for the Voluntary Retirement Scheme.

There are several sub-sections, such as Section 80CCC, 80CCD, and 80CCG, which may provide additional deductions.

Important things to remember about 80C tax deductions: 

  • The new tax regime introduced in Budget 2020 allows for reduced new income tax slab rates but has restricted the application of 80C deductions. So, do consider the benefits of each regime thoroughly before going ahead.
  • The instruments and their benefits mentioned here are subject to amendments in tax laws. Terms and conditions related to the product as well as the specific tax sub-section may apply.
  • There are seven types of ITR forms and submitting the wrong one can turn problematic. So, when filing your returns, ensure to choose the right ITR form to save your time and your taxes.

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