Section 80C Deductions for Saving Income Tax

This article discusses Section 80C Deductions or deductions from gross total income for saving Income Tax. Maximum Deduction of Rs. 1.5 Lakh can be claimed under Section 80C of the Income Tax Act. Update if any proposed by Budget 2021 has been taken care of in this article.

1. Life Insurance Premium:

• You will get a deduction of any amount that is paid as a premium for a Life Insurance Policy. The deduction is available if the premium is paid for your Spouse or Children as well. Please note that the premium paid for Parents is not eligible for Deduction.
• Even HUF can claim a deduction for Life Insurance done for its members.
• Also, it is a myth that Insurance should be from Life Insurance Corporation. Please note that Life Insurance from any private player is also eligible for deduction u/s 80C.
• Payment cannot be made in cash.

2. Provident Fund

• The deduction is available for payment made to Employees Provident Fund or Voluntary Provident Fund.
• Interest earned from the Provident fund is exempt from Income Tax. But, recently Budget 2021 has proposed that interest on Employee Contributions to provident fund over Rs. 2.5 Lakh should be taxed.

3. Unit Linked Insurance Plans (ULIPs)

• ULIPs are like insurance only. They have two types of investments. One promises Fixed gain and the other fluctuates with the performance of Equity in which they are invested.
• Section 80C deduction is however applicable on investment in ULIP.

4. Equity Linked Saving Scheme (ELSS)

• The deduction is available for investment under ELSS.
• ELSS has the lowest lock-in period as compared to other 80C investment options.
• There are many kinds of ELSS options available in the market, like Axis Mutual Fund, ICICI Prudential Mutual Fund, etc.
• You can make payment through SIP (Systematic Investment Plan) in these Schemes.
• You can stop the SIP if you think that the ELSS is not performing well. However, the Lock-in of 3 years shall remain for the amount already invested through SIP.

5. Payment of School Fees or Collage or Unversity Fees.

• The deduction is available for Tuition Fees paid for School/College or university. However, no deduction is available for any kind of donation or development fees paid to these institutions.
• Deduction for Fees of up to 2 children is allowed.
• No deduction is allowed for tuition fees paid for a spouse.

6. Payment for the principal amount of Home Loan

• The deduction is available for the Principal portion of the Home Loan if the Property purchased is not sold for 5 years.

7. Payment of Stamp Duty for Purchase of Property.

• The deduction is available for payment made for stamp duty and registration charges on the purchase or construction of house property.

8. National Saving Certificates

• NSE or National Saving Certificate can be opened with the post office.
• The Certificate earns fixed interest income. The deduction is available for investment in NSC. However, interest income earned is still taxable.

9. Fixed Deposits

• The deduction is available for Tax saving Fixed deposits made with the bank.
• These fixed deposits come with a lock-in period of five years. Interest earned on these Fixed deposits is taxable under the Income Tax Act.

10. Sukanya Samridhi Scheme

• The deduction available for a special account opened of a girl child until she turns 21 years.
• The minimum amount of investment is up to Rs. 1000.
• Premature deposits for Marriage or Education of girl child are allowed when she attains age of 18 years.
• Interest income from this investment is also exempt from tax.

11. Senior citizen saving scheme

• The deduction is available for special accounts opened for senior citizens for Age above 60 years.
• Minimum investment of Rs. 1000 is required. A maximum investment of Rs. 15 Lakh can be made.
• Citizens having an age of 55 years or more who have opted for a voluntary retirement scheme can also avail the benefit of this scheme.
• Interest income from this scheme is taxable under Income Tax.