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What is section 80C of the income tax act?

Section 80C is an income tax deduction which helps you reduce the tax outgo. It covers specified investment and payment options which can reduce your taxable income upto Rs 1.5 lakhs. Although, the deduction is claimed at the time of filing your income tax return the investment is required to be made during the relevant financial year.
For example: For the FY 2019-20 i.e AY 2020-21 you need to invest in the specified options under section 80C between 1st April 2019 to 31st March 2020. The benefit for which will be claimed at the time of filing your income tax return in July 2020.


Who can invest in Section 80C?

Individuals and HUF can save their taxes by investing in different tax saving options available under section 80C.


What are the different investment options under section 80C?

There are many investment options under section 80C with different eligibility criteria and benefits. Let’s understand them:

  • Public Provident Fund (PPF) : It’s the safest investment option under 80C.
    Eligibility : You can make investments in the name of:

    In case of a Resident Individual: Self
    Spouse or
    Any child of such individual
    In case of HUF: Any member of HUF

    Amount of Investment : The minimum deposit limit is Rs. 500 and limit for maximum deposit is Rs 1,50,000 during a year.

    Lock-in-Period : The PPF account matures after 15 years but part of the money can be withdrawn after 5 years.

    Taxability : It’s EEE rated which means its tax exempt at the time of investment, returns and withdrawals.

  • Sukanya Samriddhi Yojana(SSY) Account : In lines with the Beti Bachao, Beti Padhao campaign, this scheme was launched on 22nd January 2015 by Prime Minister Narendra Modi.

    Eligibility : Resident Individual parents having a girl child can invest in this scheme till the age of 10.

    Amount of Investment : The minimum limit of deposit under this account is Rs 250 annually and the maximum limit is Rs 1,50,000.

    Lock-in-Period : The amount is required to be deposited for 15 years. After 21 years, this account will mature.

    Taxability : It’s EEE rated.

  • Mutual Funds (Equity Linked Saving Scheme) : If you like to take some risks & invest in the stock market then ELSS can be a good option for you. For 80C you can invest in units of UTI or mutual funds specified u/s 10(23D) of Income Tax India, 1961.

    Amount of Investment : You can start investing from Rs 500 and there is no upper limit prescribed.

    Lock-in-Period : 3 years.

    Taxability : The investment is exempt under section 80C upto Rs 1.5 lakhs and the long term gains on withdrawals are exempt upto Rs 1 lakh. The dividends received (if any) will be exempt in the hands of the receiver.

  • 5 Year Tax Saving FDR : Almost everyone invests in FDR’s but did you know that you can claim a deduction for it too. Yes, income tax deduction is available on 5 year FD done with bank or post offices.

    Amount you can invest : There is a restriction or limit on the amount you can invest in fixed deposits.

    Lock in Period : 5 Years. If you break the FD before completion of the lock-in period then deduction taken will be added back to your income.

    Taxability : The amount invested is eligible for deduction under section 80C but the withdrawals and interest are taxable. Senior citizens can claim tax benefit of upto Rs 50,000 on the interest amount earned u/s 80TTB.

    If you have a good amount of idle cash accumulated then making a Fixed Deposit will be beneficial for you.

  • National Saving Certificate (NSC) : Investments in National Savings Certificate are considered very secure.

    Eligibility : Only individuals can buy a NSC, HUFs are not allowed to do so.

    Amount you can invest : The minimum investment amount is Rs 100, there is no cap on the highest ceiling.

    Lock in period : 5 Years

    Tax benefit : The investment is tax deductible under section 80C and the interest earned is chargeable to tax under the head “Income from other sources”

    One interesting thing about NSC is that when interest is accrued, it is deemed to be re-invested in NSC. This gives you an extra tax benefit on the reinvested interest amount.

  • Senior Citizen Saving Scheme : SCSS (Senior Citizen Saving Scheme) is one of the most lucrative investment options to invest the lump sum money received at the time of retirement by resident senior citizens in India.

    Eligibility : Only “Resident” senior citizens can invest. HUF and Non resident cannot invest funds in this category

    Amount you can invest : There is no minimum investment limit but on higher side the investment amount shall not exceed Rs 15 lakhs or the amount received on retirement (whichever is higher)

    Lock in Period : 5 Years

    Tax Benefit : Investment is tax deductible u/s 80C. On interest income tax benefit upto Rs 50,000 can be taken u/s 80TTB. One of the best things about this scheme is that it can be foreclosed after 1 year.

  • Unit Linked Insurance Plan (ULIP) : This is a life insurance policy cum investment option. ULIP provides risk cover along with investment options in large no. of qualified investments such as stocks, mutual funds or bonds. In most ULIPs, the minimum life cover offered is 10 times of annual premium with an option to select higher life cover.

    Eligibility : You can make investments in the name of:

    In case of an Individual: Individual,
    Spouse or
    Any child of such individual
    In case of HUF: Any member of HUF

    Amount you can invest : There is no such limit for making investment in the ULIP but the premium should not be more than 10% of the sum assured for taking the benefit of tax under section 80C.

    Lock in Period : Minimum 5 years

    Tax Benefit : On investment: Upto Rs 1.5 lakh

    On Maturity : Exempt if premium paid is less than or equal to 10% of sum assured

  • National Pension Scheme (NPS) : The investment in NPS has manifold tax benefits. Section 80C and 80CCD(1) cumulatively provide tax benefit of Rs 1.5 lakh for the NPS contributions.

    Eligibility : Individual aged 18-60 years

    Amount you can invest : There is no limit on the amount that can be invested but minimum deposit of Rs 6000/- cumulatively is required in a year.

    Lock in Period : Till retirement

    Tax Benefit : On investment Upto Rs 1.5 lakh

    On Returns : Exempt Partially


What are the different payment options under section 80C?

  • Life Insurance Premium (LIP) : Under section 80C deduction is allowed in respect of life insurance premium. The premium must be for the Life insurance policy taken in the name of:

    In case of an Individual: Individual,
    Spouse or
    Any child of such individual
    In case of HUF: Any member of HUF

    There are different percentages of deductions on the premium, depending upon when you took the insurance. Refer to the below table for more clarity.

    Life Insurance Premium Deduction

  • Children's Tuition Fees : You can claim a deduction for the payment of tuition fees of your children to any university, college, school or any other educational institution situated within India for the purpose of education. However, the deduction would not be allowed for payment towards development fees or donation or payment of similar nature. There are certain conditions which need to be kept in mind if you are looking to claim this benefit.

    1. Deduction is available for 2 children only.
    2. It needs to be paid for full-time education only.
    3. It should be paid to any university, college, school or other educational institution situated within India.
  • Principal Repayment of Housing Loan : You can claim a deduction of principal repayment of your housing loan taken for purchase or construction of residential house property.

    This deduction is available for both individuals and HUF.
    But keep in mind that if you sell/transfer such house property before expiry of 5 years from the end of the financial year in which possession was taken, then the deduction availed in the earlier years will become taxable.

  • Provident Fund If you're an employee, then you can claim a deduction in respect of your contribution towards your Statutory Provident Fund or Recognized Provident Fund Account.

  • EPF Deduction Employees’ contribution to Provident Fund: Under this scheme, employers and employees both contribute a certain amount of salary in this fund. Employees’ contribution in EPF is deductible under section 80C upto a maximum limit of Rs. 1,50,000/-. If the balance in EPF is withdrawn after 5 years then the whole amount including interest is exempt.

  • Deferred Annuity Plan You can claim a deduction in respect of payment made by you under Deferred Annuity Plan. This annuity may be in your name, your spouse's name or in the name of any of your child. But to claim deduction under this annuity plan, there should be no provision of receiving cash in lieu of annuity. And, if you're a government employee and any sum is deducted from your salary under deferred annuity plan, then deduction is restricted to only 1/5th of your salary.

  • Stamp Duty & Registration Charges Deduction While purchasing or constructing a new house, you must have paid stamp duty & registration charges. These charges may look small as compared to the price of the house but they do make a dent to one’s pocket. Sec 80C allows you to take the deduction in respect of these charges as well.


Other 80C Options

  • Contribution towards Approved Superannuation Fund.
  • Subscription to any deposit scheme/pension fund of National Housing Bank (NHB)
  • Subscription to bonds issued by National Bank for Agriculture and Rural Development (NABARD)
  • Deposit in an account under the Senior Citizen Savings Scheme.
  • Subscription to notified deposit scheme of:
  • Public Sector Housing Finance Company
  • Housing Development Authority of cities, towns and villages
  • Contribution towards annuity plans of LIC like Jeevan Dhara, Jeevan Akshay etc. or any other insurer as approved by the Central Government.
  • Subscription to equity shares or debentures of Public Company or any Public financial institution forming part of an eligible issue of capital approved by Board where proceeds are utilized for infrastructure company.

It is important to note that no matter what method you use to claim a deduction,
TOTAL AMOUNT OF DEDUCTION U/S 80C CANNOT EXCEED Rs 1,50,000.


Tax Saving Investment Options under section 80C

80C Investment Option Lock In Period Return Risk Taxability
PPF 15 Years 7.9% Risk Free Interest: Exempt Withdrawal : Exempt
SSY 21 Years 8.4% Risk Free Interest: Exempt Withdrawal : Exempt
ELSS 3 Years 10-15% (approx) Risky Dividend is exempt
FD 5 Years 7-8% (approx) Risk Free Interest is taxable
NSC 5 Years 7.9% Risk Free Interest is taxable
SCSS 5 Years 8.6% Risk Free Interest is Taxable
ULIP 5 Years 8-10% (approx) Risky Returns are taxfree subject to certain conditions taxable
NPS Till Retirement 8-10% (approx) Risk Return : Partially exempt
Note:
  • The interest /return rates are subject to periodical changes. In case of post office saving schemes like PPF, SSY, SCSS, NSC, FD etc the interest rates are announced quarterly and the above rates have been updated as per Q3 of FY 2019-20.
  • The tax benefit on investment amount in all of the above cases is based upon the amount invested or Rs 1.5lakh (whichever is lower) in aggregate for all options.

Frequently Asked Questions

Q- Can you claim a deduction of Section 80c under Section 44ADA?

Yes, even in case your income has been reported under section 44ADA, still there is no restriction on 80C deduction.


Q- Does the Provident Fund come under section 80C for tax exemption?

Yes, Provident Fund is covered under section 80C deduction.


Q- Do recurring deposits come under section 80C tax deduction?

No, the recurring deposit is not covered in 80C deduction and even interest on this is taxable.


Q- How do I save income tax under section 80C and what is the maximum amount?

In case you have invested the money or done expenditure on the specified options u/s 80C, then you can claim the benefits of the same at the time of filing ITR. The threshold limit for investment is Rs 1.5 Lakhs for section 80C.


Q- Is Section 80C eligible if we are filing taxes under 44AD?

Yes, there is no restriction for claiming benefit under section 80C if income is disclosed under section 44AD of the income tax act.


Q- Is term insurance exempted under section 80C or section 80D?

The term insurance is covered in section 80C as well as section 80D.


Q- Does investing in NPS come under section 80C?

Normally, Term Insurance is covered under section 80C. However, this depends on the scheme of issuing company. Like, if your term insurance plan has an inbuilt or add-on cover in the form of Critical Illness Rider, Surgical Care Rider, Hospital Care Rider, etc. one can avail tax benefits u/s 80D also. This is always mentioned on the policy issued by the Issuer Company.


Q- How can we save income tax beyond Rs 1.5 lacs as I have already invested in PPF, LIC, NPS?

For saving taxes beyond the threshold of Rs 1.5lakhs, you can check other tax deductions like

  • Medical insurance or preventive health checkup under section 80D or
  • Interest repayment on education loan under section 80E.

Q- Can I claim deduction under section 80C for home loan principal repayment of an under-construction house in India?

Deduction for principal repayment of the house comes under the purview of section 80C.However, it can only be claimed if construction is already completed.


Q- What is the senior citizen saving scheme (SSC) and whether deduction of SSC can be claimed u/s 80C?

This scheme is for senior citizens for savings for their retirement. Investment in SSC is eligible for deduction u/s 80C upto Rs. 1,50,000/-


Q- When can I withdraw money from Sukanya Samriddhi Yojana?

After 21 years of opening the account, you can withdraw money. However, a partial withdrawal of up to 50% of the previous year’s balance is allowed after the account holder turns 18.


Q- When should I invest in SIP to claim deduction u/s 80C ?

You can invest any time during the relevant financial year.


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CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.