Income tax is something that we cannot ignore. If your income is more than a certain amount, then you have to pay income tax to the government as per the existing Income tax slabs. But aren’t there any ways to save tax? Can we not do anything to save income tax? How to save income tax is one question that can really get us into thinking.
Of course there are ways in which you can save income tax. To inculcate the habit of savings among people, the Government has introduced certain provisions where you can save taxes. These tax deductions reduce the taxable income by decreasing the overall tax liability and thereby decreasing your income tax. In this article I have tried to cover the ways and means of saving Income tax under Section 80C of Income Tax Act, 1961.
There are a number of ways to claim income tax deduction under section 80. The simplest and the most widely used way to save income tax is section 80C of the Income tax Act. In this article we will give you an insight of Section 80C and the ways and means saving tax through this section.
As per Section 80C, if an individual or Hindu Undivided Family (HUFs) invests in or spends on specific instruments and avenues, then you can get a tax deduction upto INR 1,50,000 per financial year. This deduction is not available to partnerships, companies and corporate bodies.
This deduction can be claimed only from the income in the financial year in which the specific expenditure or investment is made. By claiming this deduction, you can reduce your taxable income and thereby reduce the total tax payable. For example, if your gross total income is Rs. 10 lakhs and you have claimed a deduction of Rs.1.5 lakhs under Section 80C, then your taxable income becomes Rs.8.5 Lakhs.
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Table of Contents
- 1 How to save Income Tax under Section 80C?
- 1.1 Provident Fund and Voluntary Provident Fund
- 1.2 Public provident Fund (PPF)
- 1.3 National Savings Certificate (NSCs)
- 1.4 Equity Linked Savings Scheme (ELSS)
- 1.5 5 year bank deposits
- 1.6 Home loan Principal repayment
- 1.7 Stamp Duty and Registration charges for purchase of house
- 1.8 Life Insurance Premiums
- 1.9 Sukanya Samriddhi Account
- 1.10 Senior Citizen Savings Scheme (SCSS)
- 1.11 NABARD Rural Bonds
- 1.12 Payment of Tuition Fees
- 2 Tax deductions under Section 80CCC and 80CCD – contribution towards NPS
How to save Income Tax under Section 80C?
Section 80C includes the following investments avenues.
Provident Fund and Voluntary Provident Fund
This is the provident fund amount directly deducted from your salary by your employer. The deducted amount goes to your retirement account along with your employer’s contribution. The employer’s contribution is exempt from tax while your contribution can be taken as an 80C investment. You can also contribute an additional amount through voluntary contributions (VPF).
Public provident Fund (PPF)
You can also open a public provident fund account (PPF) with a nationalized bank or post office. The amount invested in PPF for the financial year can be claimed under section 80C. The current rate of interest is 8%. This interest is tax free.
National Savings Certificate (NSCs)
These are 6-year small savings instruments having a rate of interest of 8% and compounded half-yearly. In the case of NSC, the interest accrued every year is liable to tax. But this interest can also be reinvested and thus eligible for 80C deduction.
Equity Linked Savings Scheme (ELSS)
Mutual funds especially created as tax savings fund are known as ELSS. These schemes invest your money in equities and is locked in for 3 years.
5 year bank deposits
There are a certain fixed deposits in bank that are created for tax savings purpose. These deposits have a lock-in period of 5 years.
Home loan Principal repayment
If you have availed a home loan and are paying EMI, then your EMI has two components – the principal and interest. The principal component of your housing loan qualifies for Section 80C.
The interest amount can also save you a considerable amount of income tax. The interest amount will come under section 21 and section 80EE of Income Tax Act.
Stamp Duty and Registration charges for purchase of house
If you are buying a house, then the amount you pay as stamp duty and the amount paid fdor the registration of documents to purchase the house can be claimed as a deduction under section 80C. However, this deduction can be claimed only on the year of purchase of the house.
Life Insurance Premiums
The amount that you pay as life insurance premium for yourself, your spouse and your children can be claimed as a deduction under section 80C. If you are paying more than one premiums, all the premiums can be added. Even insurance bought from private companies (registered under IRDAI) can be considered in this case.
Sukanya Samriddhi Account
In this scheme, you can open an account on behalf of your minor girl child till the age of 10 years. Any deposit you make under the Sukanya Samriddhi Scheme can be claimed for deduction under section 80C. you can open this account for 2 girls and in case of twins, you can open for 3 girls.
Senior Citizen Savings Scheme (SCSS)
This scheme, just as the name suggests is meant only for senior citizens. Any individual of 60 years or above can open an account under this scheme. Any investment made under this scheme is eligible under section 80C subject to the limit under this section.
NABARD Rural Bonds
These bonds are issued by NABARD and qualify for deduction under section 80C. however, the availability of these bonds depend on the government notifying about the same
Payment of Tuition Fees
The amount of tuition fees you pay for your children’s education can also be claimed under section 80C. This fees however excludes development fees and donation amount. This fees are to be paid to school, college or university in India only.
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Tax deductions under Section 80CCC and 80CCD – contribution towards NPS
You can claim tax deductions under section 80CCC and 80CCD if you have contributed towards any Pension Funds. If you have contributed any amount towards any insurance scheme to receive pension, then you can claim income tax deduction under section 80CCC.
Your contribution made to National Pension Scheme (NPS) is allowed as deduction under section 80CCD(1). Please note that the total deduction claimed under 80C and 80CCD(1) cannot exceed Rs.1.50 lakhs.
You can also contribute an additional amount of Rs.50000 towards NPS (over and above the limit of Rs.150000) and this amount can be claimed as deduction under section 80CCD(1B). Thus you can claim deduction of Rs.150000 and Rs.50000 under two different sections of Income Tax Act. Both these deductions are allowed under Tier-1 account of NPS.
Any amount contributed towards Atal Pension Yojana (APY) scheme is also eligible for deduction under section 80CCD(1).
So these are the avenues in which you can save income tax under section 80C. If you have any questions, just comment below and let us know. We will be happy to help. And for more financial and motivational updates, subscribe to our newsletter.