May 18, 2024

Deductions allowable to taxpayer

Section 80C allows individuals to avail of deductions from taxable income. This section helps individuals to help in savings investments. These particular sections provide various ways for companies to reduce their tax liabilities. One of the main objectives of 80C is to encourage people to save long-term. This section offers deductions to the investments made in specialised financial instruments. This helps in reducing taxable income. The maximum deduction allowed here is Rs 1.5 lacs. 

There are various eligible investments as well as expenses that qualify for section 80C deductions:

Employee Provident Fund

Contributions made by the individuals towards Employee Provident Fund are allowable for section 80C deductions. This is a retirement savings scheme where both employees and employers can contribute a certain percentage of the employee’s salary. 

Public Provident Fund

Public Provident Fund is a long-term investment plan that the government offers. This investment has a lock-in period of 15 years and also provides tax-free returns. Moreover, the amount invested in the PPF is eligible for deduction under 80C.

Life Insurance Premiums

Life Insurance Premiums are paid to protect the lives of individuals. This can be for self and even for family members, and this particular investment is also eligible for tax deduction under Section 80C of the Income Tax Act.

National Savings certificates

This is a fixed-income investment scheme that the government also offers. The amount that is invested in the NSC scheme is also available for deduction. However, the interest that is credited to that investment is taxable.  

Tax-savings fixed deposit

Many banks offer tax savings fixed deposits. However, these tax savings bank deposits have a lock-in period of 5 years. These investments are also eligible for tax deductions under section 80C.

Sukanya Samriddhi Yojana (SSY)

This government scheme is designed specifically for the welfare of the girl children. Contributions made towards these schemes are also eligible for tax deductions. 

Repayment of Home Loan Principle

The principal amount of the Equated Monthly Installments (EMIs), generally paid for a home loan, is also eligible for deduction under section 80C of the Income Tax Act. However, the deduction only applies to the purchase or the reconstruction of a residential property. 

Tuition fees

The deduction is available for the tuition fees which the parents pay for their children. Tuition fees paid for two children for full time in any educational institution is deductible under Section 80C of the Income Tax Act. 

National Pension System (NPS)

Contributions towards the National Pension Scheme (NPS) Tier I  are also eligible for deduction under section 80C. However, these individuals are eligible for a deduction of Rs 50,000 under section 80 CCD (1B). This is above the limit of 1.5 lacks under section 80C. 

Senior Citizen National Savings Scheme (SCSS)

SCSS is a government scheme that provides regular income and tax savings to senior citizens who are investing their money into this. 

There are various subsections to 80C such as the section 80CCC, section 80CCD(1), Section 80CCD(1B) and Section 80CCD(2). Section 80CCD(2) discusses the employer’s contribution to the NPS fund. Under this section, it is said that up to 10% of the employee’s salary is exempted from tax under this category. 

It has to be understood that the taxpayers are allowed to claim tax deductions while filing for Income Tax returns under section 80C before the end of the Assessment year. Moreover, a person who has paid a life insurance policy to a private insurance aggregator can also claim a deduction under section 80C. Donations made to specific institutions are also eligible for tax deductions under section 80C of the Income Tax Act. However, taxpayers must understand that the total deduction available is Rs 1.5 lakhs. This means that you cannot invest in more than one policy and expect to get a tax exemption of Rs 150,000 for each of these investments. 

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