The Indian taxation system is designed so that the higher the income, the higher you need to pay the tax. Though everyone wants to escape from the paying tax, it is the liability of every individual to pay off the tax before the due date. However, you can not escape from the paying tax, but you can avail the tax deductions to reduce your tax burden.
With a view to encouraging savings and investment among taxpayers, the income tax department provides deductions from the taxable income under Chapter VI A. Among numerous such deductions, section 80C is the most popular clause.
What is Section 80C Deduction?
Section 80C of the income tax act is the most popular section that allows taxpayers to reduce their taxable income by acquiring exemptions from income tax through investments. It allows taxpayers to claim a maximum deduction of ₹ 1.5 lahks annually from the total taxable income. Though the investment should be made during the financial year, the taxpayers can claim the deduction at the time of income tax return filing.
Eligibility of section 80C deduction
Tax exemptions under section 80C of the income tax act apply only to individuals and Hindu Undivided families. It is not available for corporate bodies, partnerships, and LLPs.
Deductions under section 80C of the income tax act of India are divided into certain sub-sections. These are –
| Section | Eligible investments for exemptions |
| Section 80C | Payment made towards government-sponsored schemes such as Atal pension yojana, National pension system, etc. |
| Section 80CCC | Payment made for pension plans including mutual funds. |
| Section 80CCD(1) | Payment made towards government-sponsored schemes such as Atal pension yojana, National pension system etc. |
| Section 80CCD(1B) | Up to ₹ 50,000 investments in NPS |
| Section 80CCD(2) | Employees’ contribution towards NPS (up to 10% comprising basic salary and dearness allowance, if any) |
Section 80C deduction list-
The following table will show you the section 80C deduction list. The list includes the investment options considered deductions and can help you save money by reducing your tax burden.
| Investment options | Average interest | Till the investor turns 60 | Risk factor |
| ELSS | 12% to 15% | 3 years | High |
| ULIP | 8% to 10% | 5 years | Moderate |
| NPS | 8% to 10% | Till investor turns 60 | High |
| PPF | 7.10% | 15 years | Low |
| NSC | 7.7% | 5 years | Low |
| SCSS | 8.20% | 5 years | Low |
| Sukanya Samriddhi Yojna | 8.00% | 8 Years | Low |
| Tax Saving Fixed Deposit | Up to 8.40% | 8 years | Low |
Tax Saving Schemes under section 80C of the Income tax act of India-
Equity-linked savings scheme
ELSS gives you an opportunity for income tax saving benefits on the amount you invest into the fund as it falls under section 80C. These investment instruments offer you high returns as your money is invested into equity funds, and alongside, they pose a higher risk as well.
Unit link insurance plan
Besides offering life cover and investment benefits, ULIPS also provides income tax saving benefit up to ₹1.5 lakh on the amount invested. ULIPS can help you avail of tax deduction benefits up to either 10% of the sum assured or an annual premium, whichever is lower.
National pension scheme
As per section 80CCD, which is the sub-section of Section 80C, any contributions made towards the national pension system are tax deductible. However, the amount should not exceed ₹ 1.5 lakhs; however, if you contribute a further ₹ 50000 in NPS other than the section 80C limit of ₹ 1.5 lahks. The total amount is claimable for the deduction.
Public provident fund
Under the public provident fund scheme, you can invest a minimum ₹500 to a maximum ₹1.5 lakh in a given financial year. Your investment amount will be exempted from your taxable income under section 80C. Also, the interest you receive on the investment amount will be tax-free.
National saving certificate
The investment made towards the national savings certificate can be claimed under section 80C deduction. It also allows the eligibility of tax deduction under section 80C on interest earned on the investments but that too up to the limit of ₹1.5 lahks.
Life insurance premium
If you purchase a life insurance policy for yourself, your spouse, or your children, you are eligible for a tax exemption. If you hole more than one policy, you can avail of tax benefits on all of them up to` a limit of ₹ 1.5 lahks. Hindu undivided family members are also eligible for such a deduction.
Tax Saver Fixed Deposits
Tax saver fixed deposits fall under section 80C deduction. Any amount you deposit in a bank for a period of 5 years is eligible for tax deduction up to the limit stated under section 80C
Sukanya Samriddhi yojana
As seems from the name of the scheme, it is a saving scheme for a girl child who is eligible for an 80C deduction. A person can invest for a maximum of two girl children under the age of 10 years.
Besides the scheme described above, specific other investment options can help you reduce your tax burden. They are as follows –
- Repayment of home loan principal amount
- Infrastructure bond
- NABARD rural bond
- Five years post office time deposit scheme
Above all, there are n-number of investment options that government offers you to try your hand at tax savings. Ultimately you have to invest in one or more such schemes. But carefully analyze the risk factor before investing and read the entire document carefully to understand the terms and conditions.
