Understanding The Income Tax Section 80 C

The Income Tax Act of 1961 contains a tax deduction provision known as Section 80C. One of the most popular tax laws assists individuals and HUFs in lowering their taxable income by taking into account certain expenses, savings, and investments made in specific financial products. 

People are encouraged to invest in financial products by the government in order to help guarantee their future and save money on taxes, thanks to a number of tax-saving measures and financial product introductions. Making wise financial decisions early in life and deciding on a long-term investment can help to guarantee the highest possible returns. 

This article provides information on the categories, lists, and details of the 80C deduction.

Types of Deductions Under Section 80C 

The Income Tax Act's Section 80C is based on two categories of financial transactions: savings and investments, as well as expenses. Spending activities determine expenses, while financial items purchased to invest in capital appreciation or preserve money for the future are considered savings and investments. 

Two types of financial transactions are the foundation of Section 80C of the Income Tax Act: investments and savings, as well as expenses. Expenses are determined by spending activities, whereas savings and investments are assets acquired to invest in capital appreciation or save money for the future.

What Does Section 80C Cover?

Individuals and HUFs can deduct certain costs, savings, and investments from their taxes under Section 80C of the Income Tax Act during a fiscal year. This is a detailed explanation of the 80C deduction's contents.

1. Savings and Investments

The various financial instruments listed below offer tax savings along with investment and savings advantages. The following is the list of 80C deductions:

Life Insurance

Subject to specific requirements, the premiums paid for life insurance policies for oneself, one's spouse, and any dependent children issued by an insurer recognized by the Insurance Regulatory and Development Authority of India are deductible under Section 80C. You can save tax up to Rs 46,800* when you purchase a guaranteed* returns savings plan or a term insurance plan.

Public Provident Fund (PPF)

A long-term investing option is the Public Provident Fund (PPF), where investors must consistently deposit a set amount into their PPF account on a monthly basis. The maturity benefit is the total amount of money accumulated plus interest.

₹500 is the lowest and ₹1.5 lakhs is the highest amount that can be invested annually. The policy lasts for fifteen years. It is a secure, non-market-linked government-backed program. Section 80C of the Income Tax Act would provide for a tax deduction on the yearly contribution made into the PPF account.

Employees Provident Fund (EPF)

The Employee Provident Fund (EPF) is a retirement plan that was established by the government. It is intended to assist employees and requires employers to contribute 12% of base pay and dearness allowance separately. Following retirement, the Employee Provident Fund Organization (EPFO) will settle the accrued funds and interest. Under section 80C, the employer's deduction of 12% of the employee's base wage and dearness allowance shall be allowed. 

Equity Linked Savings Scheme (ELSS)

A mutual fund program called ELSS assists people in making investments in financial assets for returns that are correlated with the market. Under Section 80C, an investment made in an ELSS with a three-year lock-in term is eligible for a deduction. 

Bank Fixed Deposit

Fixed deposit solutions are provided by banks to people looking for secure ways to save money. Under Section 80C of the Income Tax Act, savings made in these fixed deposits with a five-year lock-in term are deductible from taxes. 

Plan for Unit-Linked Insurance (ULIP)

If a ULIP plan is acquired after April 1, 2012, the premium paid may be tax deductible under Section 80C up to 10% of the sum assured, and up to 20% of the total promised if purchased before April 1, 2012. It is nevertheless subject to the ₹1.5 lakh maximum deduction allowed by Section 80C. Additionally, according to the restrictions and limitations, the increased premium will be eligible for the tax benefit if the investor chooses to top up their ULIP investment.

Sukanya Samriddhi Yojana (SSY)

A savings program called Sukanya Samriddhi Yojana is available to female children in households. For female children under the age of ten, this account can be opened by the parent or guardian. A maximum of Rs. 1.5 lakh can be deposited in this program in a financial year, with a minimum investment of Rs. 1000. A family may receive benefits for up to two children. Section 80C of the Income Tax Act allows for a tax deduction for the funds invested in the SSY.  

The SCSS, or Senior Citizens Savings Scheme

Senior citizens can save money for their retirement through the SCSS. The system has a five-year policy tenure. Investments placed into the SCSS are eligible for the Income Tax Act's 80C tax deduction. Investors in this scheme are eligible for a tax deduction of up to Rs 1.5 lakh if they are above 60. 

2. Expenses

Section 80C allows for a tax deduction for the following costs.

Home Loan Principal Repayment

The 80C deduction is applicable to the amount you pay toward the principal of your house loan. To be eligible for the incentives, the house's construction must be finished.

Furthermore, the property loses its eligibility for the deduction benefit if it is transferred within five years of being in possession. Additionally, the money that was previously claimed as a tax deduction will be subject to taxes in the year of transfer.

Stamp Duty and Registration Charges

There is a tax deduction available for stamp duty and registration fees paid when buying a new home. When the building is finished and the taxpayer has the house in their legal possession, they can claim the deduction. 

Tuition Fees for Children

The 80C tax deduction will apply to the parent's tuition payments for the education of two of their children. A couple can claim the tax deduction benefit for up to four children's schooling if both parents file taxes. It covers tuition costs, graduation, and full-time post-graduate courses offered by connected educational institutions.

Conclusion

The 80C deduction list has a maximum limit of ₹1.5 Lakh. The maximum 80C deduction is ₹1.5 Lakh for all investments and costs combined; it does not apply to individual purchases or contributions to particular goods. Consequently, the maximum deduction under section 80C can be claimed for the relevant costs spent as well as the contribution made to savings and investment choices up to a total of ₹1.5 Lakh.