Section 80C of the Income Tax Act is the most famous income tax deduction for tax saving. 80C deduction limit for current year is Rs 1,50,000. However, ITR filing is mandatory so as to declare the deduction under section 80C.
Deductions under section 80C of the Income Tax Act are applicable only for personal taxpayers and Hindu Undivided Families. Partnership companies, and different companies aren’t eligible to avail of tax exemptions under Section 80C.
In this guide, we’ve defined all the investment options available under the 80C deduction, along with their eligibility standards.
What is Section 80C?
Section 80C of the Income Tax Act, 1961 permits you to avail tax exemptions by strategic investments; this section allows you to get financial growth. By diversifying your investments in options like the Life Insurance Plan, National Savings Certificate (NSC), and Public Provident Fund (PPF), among others, you may declare a deduction under Section 80C as much as ₹ 1.5 lakh as per financial year.
Along with 80C deduction, you can reduce your tax burden. It covered the deductions at 10 % of basic salary with dearness allowance. Further, self-hired individuals can gain from a more flexible deduction limit of 20% in their gross overall salary in the ₹ 1.5 lakh cap of Section 80C.
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How does Section 80C work?
If you’re new to the listing of tax benefits and Section 80 C, let us take a step-by-step look into the way it works. Section 80 C is a hard and fast deduction that you can avail of against your average taxable income for the previous year. It permits individuals to reduce their taxable income by making tax-beneficial investments or incurring certified costs. It allows the deduction of Rs 1.5 lakh from the taxpayer’s basic salary per year.
Assume you need a basic taxable salary of Rs 20,00,000 in the previous year, 2021-22. The Assessment Financial Year might be 2022-23 when you calculate and pay the tax amount on this salary.
The overall tax deduction available under section 80C is Rs 1.5 lakhs (under phase 80C, 80CCC, 80CCD(1), and 80CCD(2)) and an extra amount of Rs 0.5 lakhs under section 80CCD(1B), however, amount to total 2 lakhs.
Deductions List on Investments under Section 80C
There are over a dozen ways that taxpayers may want to use (See: Section 80C umbrella for Assessment Year 2020-21 (FY 2019-20)) to keep tax under Section 80C, which could be categorised under 3 wide heads – savings, investments, and prices. The flexibility of products makes them suitable for all types of taxpayers, relying on their situations, as well as the risks they can take while deploying monies into financial savings and investments.
Here are the various investments you may make to save tax under Section 80C of the Income Tax Act
| Investment options | Minimum lock-in period | Interest rate | Risk associated |
| NPS | Till the age of 60 years | 8% to 10% | High |
| ELSS | 3 years | Ranging between 12% and 15% | High |
| PPF | 15 years | 7.1% | Low |
| SCSS | 5 years | 8.2% | Low |
| NSC | 5 years | 7.7% | Low |
| ULIP | 5 years | Ranging between 8% and 10% | Moderate |
| Fixed Deposit | 5 years | Up to 8.40% | Low |
| Sukanya Samriddhi Yojana | 21 years | 8.00% | Low |
Section 80C – Deductions on Investments
Under Section 80C, here are some tax-saving systems one can opt for to reduce their income tax legal responsibility
| Eligible Investment & Expenses | Max Deduction Limit | Minimum Lock-in Period | Investment Risk |
| National Pension Scheme (NPS) | Rs 2 lakhs | Up to the age of 60 | Low to medium, based on portfolio preference |
| Equity Linked Savings Scheme (ELSS) | Rs 1.5 lakhs | 3 years from the date of purchase of units | High |
| Public Provident Fund (PPF) | Rs 1.5 lakhs | 5 years for partial withdrawal, 15 for full withdrawal | Low |
| Senior Citizen Savings Scheme (SCSS) | Rs 1.5 lakhs | None | Low |
| National Savings Certificate (NSC) | Rs 1.5 lakhs | 5 years, a certificate may be sold to different buyers | Low |
| Unit Linked Insurance Plans (ULIP) | Rs 1.5 lakhs | 5 years | Low to medium, based on portfolio preference |
| Sukanya Sammriddhi Yojana (SSY) | Rs 1.5 lakhs | Till the account holder reaches the age of 21 | Low |
| Tax Saving FD | Rs 1.5 lakhs | None | Low |
| Life Insurance Pension Plans | Rs 1.5 lakhs | NA | Low |
| 5 years Post Office Time Deposit (POTD) | Rs 1.5 lakhs | NA | Low |
| Home Loan Principal Repayment | Rs 1.5 lakhs (Rs 2 lakhs for senior residents) | NA | NA |
| Stamp Duty & Registration Cost for House | Rs 1.5 lakhs | NA | NA |
| Tuition Fee for 2 Children | Rs 1.5 lakhs | NA | NA |
| NHB Deposit Scheme | Rs 1.5 lakhs | NA | Low |
Deduction Limits Under Section 80C, 80CCC, 80CCD(1), 80CCE, 80CCD(1B)
Sec 80CCC and Sec 80CCD offer deductions for the investments in the pension scheme both by yourself or through the corporation’s contribution.
The most deductions under Section 80C, 80CCC, and 80CCD(1) put together is Rs 1.5 lakhs. However, you may declare a further deduction of Rs 50,000 allowed 80CCD(1B) for contributions made to NPS(National Pension Scheme). Thus, the maximum deduction limit is Rs 2 lakhs under Section 80C+80CCC+80CCD(1) + Section 80CCD(1B).
| Sections | Eligible investments for tax deductions | Most Deduction |
| 80C | The investment was made in Equity Linked Saving Schemes, PPF/SPF/RPF, payments were made towards Life Insurance Premiums, the principal sum of a home loan, SSY, NSC, SCSS, etc. | Rs 1,50,000 |
| 80CCC | Payment made towards pension funds | Rs 1,50,000 |
| 80CCD(1) | Payments made towards the Atal Pension Yojana or other pension schemes notified by the government | Employed: 10% of basic salary + DA Self-employed: 20% of gross total income |
| 80CCE | Total deduction under Section 80C, 80CCC, 80CCD(1) | Rs 1,50,000 |
| 80CCD(1B) | Investments in NPS (outside the Rs 1,50,000 limit under Section 80CCE) | Rs 50,000 |
| 80CCD(2) | Employer’s contribution towards NPS (outside the Rs 1,50,000 limit under Section 80CCE) | Central government employer: 14% of basic salary +DA Others: 10% of basic salary +DA |
Section 80C Deductions List
| Investment options | Average Interest | Lock-in period for | Risk factor |
| ELSS funds | 12% – 15% | 3 years | High |
| NPS Scheme | 8% – 10% | Till 60 years of age | High |
| ULIP | 8% – 10% | 5 years | Medium |
| Tax saving FD | Up to 8.40% | 5 years | Low |
| PPF | 7.90% | 15 years | Low |
| Senior citizen savings scheme | 8.60% | 5 years (can be extended for other 3 years) | Low |
| National Savings Certificate | 7.9% | 5 years | Low |
| Sukanya Samriddhi Yojana | 8.50% | Till girl child reaches 21 years of age (partial withdrawal allowed when she reached 18 years) | Low |
Conclusion
Section 80C is one of the most famous of the Income Tax Act sections. This section offers tax deductions for investments, pension plans, and other life-related activities. You can make big tax savings every year if you spend neatly on these categories.
Just like every other deduction created by the authorities, you can not claim a deduction unless you’re eligible to make a claim.
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FAQs
Are 80C and 80CCC the same?
Section 80CCC of the Income Tax Act 1961 presents the situation for a deduction on contribution to a precise pension budget. This phase is a separate phase from 80C. However, for the cause of the total deduction limit under section 80CCE each section has been grouped collectively
What is the most tax exemption under 80C?
Most tax exemptions under phase 80C have been defined under section 80CCE of the Income Tax Act as Rs 1.5 lakhs. The limit may be revised under future Union Budgets by using the Central Government. However, if you are a senior citizen (aged 60 years or above), you may claim as much as Rs 2 lakhs as a deduction under a few heads of section 80C.
Who is eligible for an 80C deduction?
Deduction under phase 80C is only available to Individual and HUF taxpayers. Individual or HUF taxpayers should have a taxable salary to assert the deductions under section 80C.
How does an awful lot have to make investments to keep tax?
Section 80C allows you to invest and declare deductions of as much as Rs 1.5 lakhs. Also, you’ll want to spend money on medical insurance for family and mother and father which allows you an extra deduction of as much as Rs 75,000 (25,000 for family and 50,000 for senior citizen parents). However, even as investing you need to don’t forget your investment needs before following the limit of tax deduction. Many of the 80C investments additionally have tax-free values. So, investing a bit more will most effectively gain you in the future.