Income Tax Deductions Under Section 80C Simplified

Income tax

Again it is that time of the year where you need to file your Income Tax Return. I know many of us have had a dreadful experience identifying the sections & sub-sections under which you could avail tax benefits. 

The provisions offered under Income Tax are cited under Income Tax Act.1961 and is applicable to every citizen of India.Section 80C is the most widely used across all taxpayer base for income tax deductions. Here is the simplified guide to identify deductions available under 80C.

Let's first take a look at the tax slabs for AY 2018-2019

For individuals below 60 years of age :

Taxable incomeTax Rate
INR 0 to INR 2,50,000Nil
INR 2,50,000 to INR 5,00,0005%
INR 5,00,000 to INR 10,00,00020%
Above INR 10,00,00030%
For individuals between 60 to 80 years of age :
Taxable incomeTax Rate
INR 0 to INR 3,00,000Nil
INR 3,00,000 to INR 5,00,0005%
INR 5,00,000 to INR 10,00,00020%
Above INR 10,00,00030%
For individuals above 80 years of age :
Taxable incomeTax Rate
INR 0 to INR 5,00,000Nil
INR 5,00,000 to INR 10,00,00020%
Above INR 10,00,00030%

What is Section 80C?

Section 80C comprises of multiple investments and expenses that are eligible for tax deductions. A taxpayer can claim maximum tax deductions of Rs 1.5 lakhs. 

Employee Provident Fund & Voluntary Provident Fund

A salaried individual can avail rebate on their contribution made in favor of the Employee Provident Fund account. The maximum permissible amount to avail a tax rebate is up to Rs 1.5 lakh. The monthly contribution by the employee is 12% of the monthly salary and is deducted by the employer and is deposited along with employee contribution. An employee can also contribute a higher sum of money towards voluntary provident fund, which is also exempted under 80C. For an individual taxpayer, only employee's share can be claimed as a deduction under 80C of the Income tax act.

Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A. Employee can voluntarily increase his own contribution up to 100% of Basic Pay + D.A.

Withdrawal: An individual cannot withdraw his/her PF balance for as long as he/she continues to work except in special circumstances(construction, marriage/education of children etc.). In case the individual is unemployed for more than 2 months then he/she can withdraw the entire balance.

Rate of Interest: The rate of interest varies each year & is declared post approval by the labour & finance ministry. The current ROI for 2017-2018 is 8.55%.

Public Provident Fund

Investments made in PPF are eligible for tax exemption under section 80C. The PPF has a term of 15 years and after maturity the withdrawal is tax-free

Investment Limit: You can invest a minimum of Rs 500 and maximum of Rs. 1.5 lakh in a financial year

Withdrawal: Maturity period of a PPF account is 15 years, but can be further extended by 5 years cycle. Partial withdrawals are allowed after 7 years.

Rate of Interest: From Jan 1, 2018, the rate of interest accrued on PPF investments is 7.6% p.a. The rate of interest is advised quarterly by the central government.

Equity Linked Saving Scheme (ELSS)

Investment made under ELSS are open ended equity mutual funds. ELSS enables investor to accumulate wealth over a long period of time and historically has given handsome returns. Detailed analysis on ELSS funds taxation is also covered in the article - Mutual Fund Taxation in India - How are mutual fund gains taxed?

Investment Limit: You can invest with a minimum of Rs. 500 & there is no maximum limit on the same. However, you can avail only upto Rs. 1.5 lakh exemption under 80C.

Withdrawal: There is a lock-in period of 3 years for ELSS funds. If you are investing through the SIP route, please note each SIP transaction will be locked till 3 years from the date of transaction.

Rate of Interest: The return is linked to stock market movements. This is suitable for investors with some risk appetite. The risk can be mitigated with long term investment horizon. 

National Pension Scheme (NPS)

National Pension System is a government endorsed pension scheme focused on unorganized sector & working professionals. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). 

NPS has different variants which the investor can opt for as per risk profile category they opt.
The investments done in NPS are entitled to tax exemptions under Section 80C. Apart from this, one can invest Rs. 50,000 additionally under the subsection 80CCD (1B)

You can find detailed FAQ on -

National Savings Certificate (NSC)

NSCs are offered at selected post office branches.

Investment Limit: Minimum investment amount is Rs. 500 & there is no upper cap on the investment.

Withdrawal: NSC comes with a lock in period of 5 and 10 years.

Rate of Interest: NSC rates are revised by the central government on quarterly basis. The current applicable rate of interest is 7.6%

Sukanya Samriddhi Scheme

The scheme offers Tax Benefit under Triple E regimen (Principal, Interest and Outflow) all are tax exempted. Sukanya Samriddhi Scheme is an exclusive product offered to only girl child aged 10 years or less.

Investment Limit: Minimum Investment is Rs. 100 & maximum allowed is Rs. 1.5 Lakh in a financial year.

Withdrawal: The maturity tenure of the account is 21 years from the account opening date and the payment needs to be made each year till 14 years from the account opening date.

Rate of Interest: Current rate of interest in 8.1% compounded annually.

Senior Citizens Savings Scheme

The Senior Citizens Savings Scheme is for investors who are more than 60 years.

Investment Limit: There shall be only one deposit in the account in multiple of one thousand rupees not exceeding Rupees Fifteen lakhs.

Withdrawal: Maturity period is 5 years The account can be extended for 3 more years after maturity. 

Rate of Interest: The deposit made under these rules shall bear interest @ 8.60% p.a. from the date of deposit payable at the end of each calendar quarter.

Tax Saving Fixed Deposit (FD)

Fixed deposit is offered by all commercialized banks. Tax saving FD's are same as regular FD's, but with a lock in period of 5 years.

Investment Limit: Minimum investment amount is Rs. 1000, there is no upper limit.

Withdrawal: Lock in period of 5 years

Rate of Interest: These are revised from time to time by banks. You can check these details on the bank website.

Unit Linked Insurance Plan (ULIP)

This is an investment+insurance combo. A fraction of the investment amount is capped for the insurance cover and the remaining amount is invested in stock markets

Investment Limit: No investment limit, but the deduction will be only upto 1.5 lakhs

Withdrawal: Partial withdrawal are allowed after 5 years.

Rate of Interest: Since the returns are linked to the equity markets, returns can be variable.

*Please note the rate of interest & policies of different investment instruments mentioned in the article are as on date 29th June, 2018 & are revised periodically. Please check the policies & investment returns through the financial advisors while making your investment decisions.

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