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Paying income tax on the income that you earn is mandatory if you have earned income above the basic exemption limits in a financial year. The tax rate depends on your income level (a.k.a. income tax slab) . Moreover, to reduce the burden of taxation, the Income Tax Act has also specified various tax-saving avenues. These tax saving investments help in lowering your tax liability. Chapter VIA of the Income Tax Act contains a list of deductions under Section 80C and others which help you to cut down on your tax outgo. Some of these deductions allow you tax-free expenses while other deductions deal with tax-saving investment avenues. Tax-saving investment avenues are the best way to lower taxes while, at the same time, to create savings.
When it comes to tax-saving investment avenues, Section 80C tops the charts. It is a favourite among every investor as it allows a range of investment options and expenses to be eligible for deduction from your taxable income. Some of the popular options for claiming deduction under Section 80C include the following –
The maximum deduction which can be claimed under Section 80C, combining all the eligible options is INR 1.5 lakhs. What if you want to save additional tax?
If you are looking for additional tax saving, Section 80CCD of the Income Tax Act comes into the picture. This section lets you reduce up to INR 50,000 of your taxable income over and above the tax-free limit that you get under Section 80C. Thus, if you choose to invest in the avenue under Section 80CCD, you can claim a total deduction of INR 2 lakhs, INR 1.5 lakhs through Section 80C and INR 50,000 through Section 80CCD. Let’s understand how –
Section 80CCD allows deductions from your gross total income if you invest in the National Pension Scheme or the Atal Pension Yojana scheme. Whether the investment is made by you or your employer, deduction on the investment done can be claimed under this section.
Both the National Pension Scheme and Atal Pension Yojana are retirement oriented investment schemes launched by the Government of India. Both the schemes provide pension income after the specified time period.
Here are some of the features of National Pension Scheme –
Here are the salient features of Atal Pension Yojana for you to know –
Now that you know which deductions are eligible for Section 80CCD and the features of these deductions, let’s understand how to claim such deductions. Let’s understand 2 sub-sections under Section 80CCD i.e., 80CCD(1) and 80CCD(2),these sub-sections in details –
This sub-section is applicable to both self-employed as well as salaried individuals to claim deductions on the contributions made towards the New Pension Scheme or the Atal Pension Yojana. In case of an employee, the employee can be a Government employee or a private-sector employee. If the tax-payer is between the ages of 18 years and 60 years, contributions made towards both the schemes would be allowed as a deduction under Section 80CCD (1). If the tax-payer is a salaried employee, the maximum deduction allowed under this section would be limited to 10% of the salary which means basic salary and dearness allowance. In case of self-employed individuals, the maximum available deduction is 20% of the gross total income of the financial year earned by the tax-payer. However, section 80CCE states that the total amount of deduction under section 80C, 80CCC and 80CCD(1) cannot exceed INR 1.5 lakhs. Moreover, an additional deduction of INR 50,000, over and above INR 1.5 lakhs can be claimed under Section 80CCD (1B). Thus, the total deduction available under Section 80CCD (1B) including Section 80C would be INR 2 lakhs in a financial year.
This Section is applicable for salaried employees where their employer is also contributing to the National Pension Scheme. The employer can make contributions towards National Pension Scheme besides contribution to EPF. The limit of deduction allowed would be lower of the contributions made by the employer or 14% of the salary (in case the employer is CG)/10% of Salary (in case of other employer). This deduction is available over and above the deduction under Section 80 CCD (1).
So, understand the deduction available under Section 80CCD so that you can lower your tax liability further and also create a retirement corpus in the process.
Yes, you can surrender your NPS account provided some conditions are fulfilled.
No, the benefits are not tax-free. Both these scheme allow pension income which is taxable in the hands of the annuitant as income from salary.
The accumulated corpus of the National Pension Scheme can be reinvested in any pension plan. Such a reinvestment would not attract any tax. Only the pension payments which would be later paid would be taxable.
The maximum deduction that can be claimed by an assessee depends on the basis of investments and expenditures made by an assessee subject to fulfillment of conditions as applicable. However, an assessee can claim upto INR 2 lakhs after availing the benefits under section 80C and 80CCD(1B) of the Income Tax Act, 1961.
A proof of joining the scheme and making the contributions would be required to avail deductions under Section 80CCD.
It depends upon terms of your policy.If it allows claiming deduction under section 80D then you can do the same.
No, assessee can not claim tax exemption for the same.
Only assesses parents are considered for the tax benefits.
Yes. An assessee can claim deduction u/s 80C with respect to insurance premium but it does not include premium paid for the Parents of the assessee.
Yes. Only an individual making the payment can claim a deduction of LIC policy (i.e father ).
Yes, an individual can claim tax benefit under Section 80C.
Yes, assessee can take multiple LIC policy for the purpose of deduction u/s 80C.The maximum amount of deduction available under section 80C is INR 1.50 lakhs.
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