- What
is deduction?
The
deduction is specified amount which the taxpayer can deduct from his Gross
Total Income. The deduction under section 80C not only encourages savings, but
also assists the taxpayers in meeting their essential expenditures.
- Let’s
know the background of section 80C:
Section
80C of the Income Tax Act allows certain investments and expenditure to be tax exempt.
You can plan your investments well and spread it across the various instruments
specified under this section to avail maximum tax benefit.
Most
of the Income Tax payers try to save tax by investing under Section 80C of the
Income Tax Act. However, it is important to know this Section so that one
can make the best use of the options available for deduction under income tax Act.
- Point
to note:
One
important point to note here is that one cannot only save tax by making
specified investments, but some expenditure which you normally incur can also
give you the tax exemptions, e.g. educational expenses of children.
- Who
are eligible to take deduction u/s 80C?
The
said deduction is available only to any Individual or a Hindu Undivided Family.
- What
are the salient features of section 80C?
1. Under
this section, deduction is available from Gross Total Income.
2. Deduction
is available on the basis of specified qualifying investments, contributions, deposits,
payments (i.e. called as “Gross Qualifying Amount”) made by the taxpayer during
the previous year.
3. The
gross qualifying amount would be allowed as deduction irrespective of the fact
whether (or not) such amount is paid or deposited by the taxpayer out of his
income chargeable to tax.
Let’s
know the qualifying investments to get deduction u/s 80C:
A. Provident
Fund (PF) & Voluntary Provident Fund (VPF): PF
is automatically deducted from your salary. Both you and your employer
contribute to it. While employer’s contribution is exempt from tax, your
contribution (i.e., employee’s contribution) is considered for deduction
section 80C investments. You also have an option to contribute additional
amounts through voluntary contributions (VPF).
B. Public
Provident Fund (PPF): Contribution towards public provided fund is the
qualified deduction under section 80C. PPF is established by the central
government. PPF account can open in any nationalized bank. This is long term
investment as it is matured after 15 years.
C. Life
Insurance Premiums: Any amount that you pay towards life
insurance premium for yourself, your spouse or your children is deductable under
Section 80C. Kindly note that life insurance premium paid by you for your
parents or any other relative (other than spouse and Childers) is not eligible
for deduction under section 80C. If you are paying premium for more than one
insurance policy, you can claim deduction of all insurance policies. It is not
necessary to have the insurance policy from Life Insurance Corporation (LIC), even
insurance bought from private companies which are approved by IRDA is
considered for deduction.
D. Equity
Linked Savings Scheme (ELSS): There are some diversified equity link mutual fund (MF)
specially created for offering you tax savings,. The investments that you make
in ELSS are eligible for deduction under Sec 80C. The lock in period for this
investment is 3 years. Dividend earn on ELSS is exempt from tax.
E. Home
Loan Principal Repayment: The Equated Monthly
Installment (EMI) that you pay every month to repay your home loan consists
of two components i.e. Principal and Interest. The principal component of the
EMI qualifies for deduction under Sec 80C. For interest component you can save
your income tax under Section 24 of the Income Tax Act as loss from house
property.
F. Stamp
Duty and Registration Charges for a home: The
amount you pay as stamp duty when you purchase a house property and the amount
you pay for the registration fees of the house can be claimed as deduction
under section 80C in the year of purchase of the house.
G. National
Savings Certificate (NSC) (VIII Issue): National Savings
Certificate (NSC) is a 5-Yr small savings instrument eligible for section 80C
tax benefit.
H. 5-Yr
bank fixed deposits (FDs): Tax-saving fixed deposits
(FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction. The difference between regular FD
and this FD is that you cannot
break this Fixed Deposit before 5 years tenure. Interest rates for such
a Fixed Deposit are decided by the respective banks. Tax Saving Fixed
Deposit is available only through the banks. Company Fixed Deposits are not
eligible for tax savings through Section 80C. Loan or overdraft facility
in such a Fixed Deposit is not allowed. The interest earned out of such
a Fixed Deposit is fully taxable on an accrual basis.
I. 5-Yr
post office time deposit (POTD) scheme: POTDs are similar to
bank fixed deposits. Although available for varying time duration like one
year, two year, three year and five year, only 5-Yr post-office time deposit
(POTD) – which currently offers 8.40 per cent rate of interest –qualifies for
tax saving under section 80C.
Interest is compounded quarterly but paid annually. The Interest is entirely
taxable.
J. NABARD
rural bonds:Investment
in rural bonds issued by NABARD qualifies for deduction under section 80C.
K. Unit
linked Insurance Plan: Unit linked Saving Schemes. ULIPs cover
Life insurance with benefits of equity investments. They have attracted the
attention of investors and tax-savers not only because they save the tax but
they also perform well to gives good returns in the long-term.
L.
Tuition / school fees paid
for education of children:
§ Who
is Eligible: Deduction for tuition fees u/s. 80C of the
Income Tax Act 1961 is available to Individual Assessee and is not available to
HUF.
§ Deduction
under this section is available on payment basis. Fees may be related to any
period. For example feed paid for April 2015 if Paid in March 2015 will be
eligible for deduction u/s. 80C in A.Y. 2015-16.
§ The
deduction is available for Full Time courses only. No deduction is
available for part time or distance learning courses.
§ The
fees should be paid to university, college, school or other educational
institution. No deduction available for fees paid for private tuition’s, coaching
courses for admission in professional courses or any other type of courses are
not covered as that fee is not paid for FULL time education.
§ University,
college, school or other educational institution must be situated in India
though it can be affiliated to any foreign institutes.
§ Pre-nursery,
play school and nursery class fees is also covered under section 80C.
Must know:
Not allowable Expenses:-
1. Development fees
or donation not eligible.
2.
Transport charges, hostel charges, Mess charges, library fees incurred
for education are not allowed.
3.
Late fees are not eligible for
deduction.
4.
No deduction for part time or distance
learning courses.
6.
No deduction for private tuition fees.
7.
Building fund or any donation etc. not allowed for deduction.
- For how many children, the deduction
is available?
Ø
Deduction
under this section is available for tuition fees paid on two children’s
education. If Assessee has more than two children then he can claim tuition
fees paid of only two children’s. The Deduction is available for any two
children.
Ø
Here
we would like to mention that husband and wife both have a separate limit of
two children each, so practically, they can claim deduction for 2 children
each, thereby covering a maximum of four children in a family.
Important Note:
The
deduction is based on payment, so it is available to the parent who has made
the payment.
- Whether expenses paid
for self-education or education of spouse is allowed as deduction u/s 80C?
No.
Taxpayer cannot claim tax benefit for educational expenditure incurred for self
or spouse.
- What is the maximum limit for
deduction u/s 80C?
The maximum amount deductible
is Rs. 150,000 from the assessment year 2015-16. (Earlier it was Rs.1, 00,000)
- How much is the possible maximum tax saving under section
80C?
Ø
Sec
80C of the Income Tax Act states that qualifying investments, up to a maximum
of Rs. 1.50 Lakh, which are deductible from your income. This means that your income
gets reduced by this investment amount (up to Rs. 1.50 Lakh).
Ø
This
benefit is available to everyone, irrespective of their income levels. Thus, if
you are in the highest tax slab of 30%, and you invest the full Rs. 1.50
Lakh, you save tax of Rs. 45,000.
