Section 80C of the Indian Income Tax Act is a popular provision that allows individuals and Hindu Undivided Families (HUFs) to reduce their taxable income by making specific investments or expenditures. For the financial year 2024-25 (Assessment Year 2025-26), the maximum deduction available under Section 80C is ₹1.5 lakh.
What is Section 80C?
Section 80C offers tax deductions on certain investments and expenses, encouraging taxpayers to save and invest in specified instruments. By utilizing these deductions, one can effectively lower their taxable income, leading to tax savings.
Key Points:
- Eligibility: Only individuals and HUFs can claim deductions under Section 80C.
- Maximum Deduction: Up to ₹1.5 lakh per financial year.
- Tax Regime Applicability: Deductions under Section 80C are available only under the old tax regime.
List of Eligible Investments and Expenses under Section 80C:
- Public Provident Fund (PPF):
- A long-term savings scheme with a 15-year lock-in period.
- Interest earned is tax-free.
- Maximum investment: ₹1.5 lakh per year.
- Employee Provident Fund (EPF):
- Applicable to salaried individuals.
- Employee’s contribution is eligible for deduction.
- National Savings Certificate (NSC):
- A fixed-income investment with a 5-year lock-in.
- Interest is taxable but deemed reinvested, qualifying for deduction.
- Equity Linked Savings Scheme (ELSS):
- Mutual funds with a 3-year lock-in period.
- Potential for higher returns due to equity exposure.
- Life Insurance Premiums:
- Premiums paid for policies on self, spouse, or children.
- Policies must adhere to specified conditions regarding sum assured and premium amount.
- Sukanya Samriddhi Yojana (SSY):
- Savings scheme for a girl child.
- Interest earned and maturity amount are tax-free.
- Senior Citizens Savings Scheme (SCSS):
- For individuals aged 60 and above.
- 5-year lock-in period, extendable by 3 years.
- 5-Year Tax-Saving Fixed Deposits:
- Offered by banks and post offices.
- Interest earned is taxable.
- Unit Linked Insurance Plans (ULIPs):
- Combines investment and insurance.
- Minimum lock-in period of 5 years.
- Tuition Fees:
- Paid for full-time education of up to two children.
- Applicable for schools, colleges, or universities in India.
- Principal Repayment on Home Loan:
- Only the principal component of EMIs is eligible.
- Interest component qualifies under Section 24(b).
- Stamp Duty and Registration Charges:
- Paid during the purchase of a residential property.
- Claimable in the year of payment.
- Infrastructure Bonds:
- Previously eligible under a separate section; currently, specific bonds notified by the government may qualify.
- National Pension System (NPS):
- Contributions qualify under Section 80CCD(1) within the ₹1.5 lakh limit.
- An additional ₹50,000 deduction is available under Section 80CCD(1B).
Summary Table:
| Investment/Expense | Lock-in Period | Tax Treatment |
|---|---|---|
| Public Provident Fund (PPF) | 15 years | EEE (Exempt-Exempt-Exempt) |
| Employee Provident Fund (EPF) | Until retirement | EEE |
| National Savings Certificate (NSC) | 5 years | Interest taxable |
| Equity Linked Savings Scheme (ELSS) | 3 years | LTCG taxed above ₹1 lakh |
| Life Insurance Premiums | Varies | Tax-free under conditions |
| Sukanya Samriddhi Yojana (SSY) | Until age 21 | EEE |
| Senior Citizens Savings Scheme (SCSS) | 5 years | Interest taxable |
| 5-Year Tax-Saving Fixed Deposits | 5 years | Interest taxable |
| Unit Linked Insurance Plans (ULIPs) | 5 years | Tax-free under conditions |
| Tuition Fees | N/A | Tax deduction available |
| Home Loan Principal Repayment | N/A | Tax deduction available |
| Stamp Duty & Registration Charges | N/A | Tax deduction available |
| Infrastructure Bonds | Varies | As per government notification |
| National Pension System (NPS) | Until retirement | Additional ₹50,000 deduction |
Important Notes:
- Documentation: Ensure to keep receipts, account statements, and other relevant documents as proof of investments and payments.
- Timing: Investments must be made within the financial year (April 1 to March 31) to claim deductions for that year.
- Combined Limit: The combined maximum deduction under Sections 80C, 80CCC, and 80CCD(1) is ₹1.5 lakh. However, an additional ₹50,000 can be claimed under Section 80CCD(1B) for NPS contributions.
Example:
If you invest ₹1.5 lakh in a combination of PPF, ELSS, and life insurance premiums, and an additional ₹50,000 in NPS, you can claim a total deduction of ₹2 lakh (₹1.5 lakh under Section 80C and ₹50,000 under Section 80CCD(1B)).
By strategically planning your investments and expenses under Section 80C, you can effectively reduce your taxable income and save on taxes.
