Section 80C helps you decrease your tax burden by enabling a deduction from your taxable income in a financial year. Section 80C is the most common answer that you receive for the question: how can I save taxes on your income? Under Section 80C of the Income Tax, 1961, you can claim tax deductions on contributions, payments, and investments in a manner that the Income Tax law specifies. These include a subscription to National Savings Certificate, payment for your life insurance premium, contribution to Public Provident Fund (PPF), ULIP, 5-years tax-saving fixed deposit plans, Sukanya Samriddhi Yojana, or any recognized superannuation fund and provident fund.
In a financial year, the maximum amount that you can claim as a deduction is INR 1.5 lakh. If you wish to make the most of the provision, you have to limit your contribution to specific products that are eligible for deduction under this section. Individuals and HUFs can claim tax deductions under 80C. Companies, LLPs, and partnership firms cannot claim tax deductions under this section. Section 80C includes subsections, 80CCC, 80CCD (1), 80CCD (1b), and 80CCD (2).
The following are the popular payments/investments eligible for deductions under 80C.
Section 80CCC of the Income Tax Act, 1961, enables one to claim deductions of up to INR 1.5 lakhs in a year. You can claim these deductions on your contributions towards specified pension funds. The Life Insurance Corporation (LIC) or any other insurance provider under a pension scheme that IRDAI has approved.
The exemption limit of INR 1.5 lakhs includes any payments to purchase a new policy or for the continuation or renewal of an existing policy. To avail of this exemption, you need to make sure that the policy on which you have your money offers a periodical annuity or a pension. You must consider 80CCC along with 80C and 80CCD (1). The tax deduction that you can claim under all these three sections cannot be beyond INR 1.5 lakhs. A Hindu Undivided Family or HUF is not eligible to seek deduction under this section.
Section 80CCD includes the deductions that are available to individuals on their contributions to the Atal Pension Yojana (APY) or the National Pension Scheme (NPS). There are three subsections in the section, 80CCD (1), 80 CCD (1b), and 80 CCD (2).
This section includes tax deductions that are available for contributions made towards NPS by government employees, private employees, or self-employed individuals. The key provisions of the section are as follows:
The union budget of 2015 added a new amendment as 80CCD (1b). According to the amendment, individuals can claim an additional deduction of up to INR 50,000. This applies to both salaried and self-employed individuals. This amendment increased the maximum deduction limit under 80CCD to INR 2,00,000.
Section 80CCD (2)
Section 80CCD (2) comes into the picture when an employer contributes to the NPS of an employee. The employer’s contribution can be equal to or higher than the employee’s contribution. The section applies to only salaried individuals but not self-employed individuals. Salaried individuals can claim deductions up to 10% of their salary. This amount can either include the basic pay and dearness allowance or can be equal to the employer’s contribution towards the NPS.
Section 80C provides the tax benefit at the investment stage. There are some investments, such as PPF, wherein your investment amount, interest earned, and maturity amount are all tax-free. But, the maturity amount of not all investments under this section is tax-free.
One of the rapidly growing, technology-enabled investment opportunities is P2P lending. In P2P lending, investors earn income in the form of interest on the amount they lend. The fixed maturity peer-to-peer investment plan from LenDenClub offers up to 10–12% annual returns on investment from money lenders. Similar to the interest earned on other instruments such as a fixed deposit, the interest income in P2P lending is also taxable. Lenders’ interest income from peer-to-peer lending comes under “income from other sources” and is added to their taxable income.
If you have a deep understanding of Section 80C, you can save a significant part of your earnings every year. Given the un ty of life, long-term investments such as those that 80C provides are important for you to have a secured future.