Section 80C of the Income Tax Act

What is Section 80C of the Income Tax Act?

Section 80C is a provision under the Income Tax Act, 1961 that allows individual taxpayers and HUFs in India to reduce taxable income by making eligible investments or expenses. Taxpayers can claim up to ₹1.5 lakhs per financial year, reducing their tax liability. You can use an income tax calculator to easily determine your potential tax savings under Section 80C.

NOTE:

• To claim Section 80C deductions, make your tax-saving investments within the financial year.

• Filing your Income Tax Return (ITR) is mandatory to avail of these deductions.

Deduction Amount of Section 80C of the Income Tax Act

• The maximum deduction allowed under Section 80C is ₹1.5 lakh in a financial year.

• This ₹1.5 lakh limit is part of the overall cap specified under Section 80CCE.

• Section 80CCE provides a combined deduction limit of ₹1.5 lakh, which includes deductions under Section 80C, Section 80CCC, and Section 80CCD(1).

• Section 80C deduction limit covers popular investment options like PPF, EPF, NSC, life insurance premiums, tax-saving FDs, etc.

• This deduction reduces your taxable income, providing significant tax savings.

Section 80C Deductions under Old and New Tax Regime for FY 2024-25 (AY 2025-26)

Section 80C deductions are applicable differently under the old and new tax regimes as per the following:

Impact of Section 80C on Your Tax Liability as per Tax Regime

Below is a concise comparison illustrating how Section 80C deductions affect tax liability under both regimes.

Result: Choosing the old tax regime allows taxpayers to leverage Section 80C deductions effectively.  In contrast, you have to give up these deductions if you choose the new regime and result in a higher tax liability.

Eligibility Criteria to Claim Section 80C Deductions

You must fulfil the following eligibility conditions to avail of deductions under Section 80C of the Income Tax Act, 1961:

1. Individual Taxpayers:

   • Section 80C is applicable to both resident and Non-Resident Indian (NRI) individuals. 

   • It includes salaried employees, self-employed professionals, and business owners.

2. Hindu Undivided Families (HUFs):

   • HUFs can claim Section 80C deductions for investments or expenses made from the HUF’s income. 

   • The Karta (head of the HUF) can file the claim on behalf of the family.

3. Taxable Income Required:

   • Only those with taxable income can claim Section 80C deductions to reduce their tax liability.

   • Investments must be in eligible financial instruments like PPF, NSC, life insurance premiums, etc.

4. No Restriction by Age or Gender:

   • Section 80C deductions are available to all eligible taxpayers irrespective of age or gender.

   • Senior citizens and women can claim deductions.

List of Ineligible Taxpayers to Claim Section 80C Deductions

Certain entities are not eligible for deductions under Section 80C:

• Corporate Bodies

• Partnership firms

• Trusts

• Companies

Top 14 Investment Options for Section 80C Deductions

The premium paid to the following best investment plans are eligible for deductions under Section 80 C of the Income Tax Act, 1961:

Details of the Investment Options for Section 80C Benefits

Learn the key details mentioned below of the various investment options available to gain the benefits under Section 80C:

1. Unit Linked Insurance Plan(ULIP)

   • A Unit Linked Insurance Plan (ULIP) combines both investment and insurance benefits.

   • It offers market-linked returns based on fund choice.

   • Premiums qualify for up to ₹1.5 lakh deduction under Section 80C.

   • Tax-free maturity amount for annual premiums below ₹2.5 lakhs under Section 10(10D).

2. Capital Guarantee Plan

   • Capital Guarantee Solutions are the best investment plans that ensures that your invested capital remains secure in addition to providing you with high returns from market-linked investments.

   • They provide moderate returns with low risk.

   • Suitable for conservative investors seeking safety with potential returns.

   • Eligible for deduction of up to ₹1.5 lakhs from taxable income under Section 80C.

3. Pension Plans

   • A pension plan helps build a retirement corpus.

   • It offers regular payouts post-retirement.

   • Contributions up to ₹1.5 lakh qualify for Section 80C deduction.

   • Helps in long-term financial for your retirement planning.

4. Child Plans

   • Child Plans help you secure funds for a child’s education or future needs.

   • Provides financial support even in the policyholder’s absence.

   • Premiums qualify for deductions of up to ₹1.5 lakhs under Section 80C.

   • Tax free maturity benefits under Section 10(10D) of the Income Tax Act.

5. Life Insurance Premiums

   • Premiums paid to a life insurance plan offer financial security to the family.

   • Provides deduction of up to ₹1.5 lakh from taxable income for premiums paid.

   • Maturity proceeds are tax-free under certain conditions.

6. Equity Linked Savings Scheme (ELSS)

   • Equity Linked Savings Scheme is a tax-saving mutual fund that offers market-linked returns.

   • Has a lock-in period of 3 years.

   • It has potential for high returns due to equity exposure.

   • Investments up to ₹1.5 lakh are tax-deductible under Section 80C of the Income Tax Act.

   

7. Public Provident Fund (PPF)

   • A Public Provident Fund (PPF) is a risk-free investment with government backing.

   • Has a lock-in period of 15 years.

   • Offers a tax-free interest at attractive PPF interest rates.

   • Contributions to PPF accounts qualify for up to ₹1.5 lakh deduction from taxable income under Section 80C.

8. Employee Provident Fund (EPF)

   • Employee Provident Fund (EPF) is a retirement-focused savings for salaried employees.

   • A mandatory retirement savings scheme for salaried employees.

   • Employer and employee contributions qualify for tax benefits under Section 80C.

   • It offers tax-free maturity proceeds if held for 5 years.

9. National Savings Certificate (NSC)

   • National Savings Certificate is a fixed-income investment with a 5-year lock-in.

   • Interest is taxable but reinvested interest qualifies under 80C.

   • It is safe and low-risk investment option backed by the government.

10. Sukanya Samriddhi Yojana (SSY)

    • Sukanya Samriddhi Yojana (SSY) is a government initiative designed for girl child savings.

    • It offers safe, tax-free returns at attractive SSY interest rates.

    • Contributions qualify for tax deduction under Section 80C.

11. Senior Citizen Saving Scheme (SCSS)

    • Senior Citizen Savings Scheme (SCSS) is a government retirement scheme specially for senior citizens, with a 5-year tenure.

    • It offers higher interest rates than many options.

    • Contributions up to ₹1.5 lakh are eligible under Section 80C.

12. Tax Saving FDs

    • The tax-saving Fixed Deposits (FDs) offer a fixed return with a 5-year lock-in.

    • The interest earned is taxable.

    • Investments up to ₹1.5 lakh qualify for tax benefits under Section 80C.

13. Government Notified Securities/Deposits

    • Government-notified securities are government issued investment instruments that provide fixed returns.

    • Includes bonds, treasury bills, and other government-backed instruments.

    • The principal amount is eligible for deduction under Section 80C.

    • Interest earned is subject to tax as per the individual's income tax slab.

14. Pension Fund Contributions

    • Pension Fund Contributions to the specific pension funds like LIC annuity plans qualify for these deductions under Section 10 (23AAB).

    • These contributions are designed to provide a steady income post-retirement.

    • Contributions made can be claimed as a Section 80C deduction, with a limit of ₹1.5 lakh per year.

    • Pension payouts at retirement age are taxable as per income tax slab in the year of receipt of matured pension fund.

Specific Tax-Saving Options for Section 80C Deductions

Following are some of the specific schemes and expenses that can help you claim up to ₹1.5 lakhs p.a. of deductions under Section 80C: 

1. NABARD Rural Bonds:

   • Investments in NABARD Rural Bonds qualify for tax deductions under Section 80C.

   • The maximum deduction available is ₹1.5 lakh per financial year.

   • Funds raised are used for rural development and agricultural projects.

   • The interest earned on these bonds is taxable as per the individual's income tax slab.

2. Infrastructure Bonds

   • Investments in government-approved infrastructure bonds are eligible for deductions of up to ₹1.5 lakhs under Section 80C.

   • An additional deduction of up to ₹20,000 can be claimed under Section 80CCF for investments in infrastructure bonds, which is separate from the Section 80C limit.

   • Interest earned on these bonds is taxable as per the investor's income tax slab.

3. NHB Bonds

   • Investments in NHB (National Housing Bank) bonds qualify for deductions under Section 80C.

   • The maximum deduction available is ₹1.5 lakh per financial year.

   • Contributions up to ₹1.5 lakh are eligible for deductions under Section 80C.

   • NHB bonds are considered safe investments backed by a government entity.

   • Interest income is subject to taxation based on the individual's income tax bracket.

4. Repayment of Home Loan Principal Amount

   • The principal repayment portion of home loan EMIs is eligible for deduction under Section 80C.

   • Home loan principal repayments can contribute to the overall limit of ₹1.5 lakh per financial year.

   • The property must not be sold within five years of possession; otherwise, deductions claimed will be reversed.

   • The home loan should be taken for acquiring, constructing, or improving a residential property that is either self-occupied or let out.

5. Registration Charges and Stamp Duty for a Home/Property

   • One-time expenses on registration charges and stamp duty for property purchase qualify for deduction.

   • Deduction is capped at ₹1.5 lakh under Section 80C and can be claimed in the year these expenses are incurred.

   • The property must be residential and can be self-occupied or rented.

   • Provides financial relief for home buyers in addition to other home loan-related benefits.

6. Tuition Fees for Children

   • Tuition fees paid for up to two children’s education in recognized schools, colleges, or universities qualify.

   • Deduction is limited to the actual tuition fees paid, capped at ₹1.5 lakh under Section 80C.

   • Covers only tuition fees, excluding other expenses like donations, development fees, or transport charges.

   • Applicable for full-time courses in India, providing relief for educational expenses.

List of Other Deductions Under Section 80 of the Income Tax Act

The following sections under Section 80C of the Income Tax Act are also popular to claim deductions on your taxable income: 

Summing It Up

Section 80C of the Income Tax Act provides numerous options to save taxes and plan for long-term financial security. By strategically investing in eligible instruments, taxpayers can maximize their deductions and reduce their tax liability. However, it is crucial to select the right investment based on risk tolerance, time horizon, and financial goals.