Section 80C of Income Tax Act: Deductions under 80C (Updated 2021-22)
Introduction to Section 80C
The Government provides individuals with various exemptions and deductions under various sections of the Income Tax Act. These deductions and exemptions help individuals lower their taxable income and thus save tax. In this article, we will understand the various deductions provided by the Government under Section 80C of the Income Tax Act. We will also understand the various deductions provided under some other sections of the IT Act.
How much can be saved under Section 80C?
An individual can avail of a deduction from taxable income for certain investments and expenditures made under Section 80C of the Income Tax Act. The maximum deduction that an individual can avail in a financial year is the amount invested or Rs. 1,50,000, whichever is lower.
Tax savings under Section 80C
|Income slab||Tax rate||Section 80C deduction||Tax saving||4% cess||Total tax saving|
|Rs. 2,50,000 – Rs. 5,00,000||5%||Rs. 1,50,000||Rs. 7,500||Rs. 300||Rs. 7,800|
|Rs. 5,00,001 – Rs. 10,00,000||20%||Rs. 1,50,000||Rs. 30,000||Rs. 1,200||Rs. 31,200|
|Above Rs. 10,00,000||30%||Rs. 1,50,000||Rs. 45,000||Rs. 1,800||Rs. 46,800|
Note: The income slabs, tax rates, deductions are as per Budget 2021.
As seen in the above table:
- An individual belonging to the 30% tax bracket can get net tax savings of Rs. 46,800 in a financial year
- An individual belonging to the 20% tax bracket can get net tax savings of Rs. 31,200 and
- An individual belonging to the 10% tax bracket can get net tax savings of Rs. 7,800.
Investments under Section 80C of the Income Tax Act
An individual can claim deduction under Sec 80C for the following:
- Contribution towards Employee Provident Fund (EPF)
- Contribution towards Public Provident Fund (PPF)
- Contribution towards an approved superannuation fund
- Subscription to National Savings Certificate (NSC)
- Investment in an Equity Linked Savings Scheme (ELSS) offered by a mutual fund house. The ELSS has a lock-in period of three years.
- 5-year fixed deposit in a bank or a post office
- Tuition fees paid to any university, college, or school for full-time education of two children
- Payment made towards stamp duty and registration during the purchase of a house.
- Investment in Senior Citizen Savings Scheme (SCSS)
- Investment in Sukanya Samriddhi Account (SSA)
- Payment made towards principal repayment of a home loan EMI. To avail the deduction under Section 80C, the individual should not sell the house before the expiry of five years from the end of the financial year in which possession of such property has been obtained.
- Payment of life insurance premium for self, spouse, and children. The premium should not be in excess of 10% of the sum assured. To avail of the deduction under Section 80 C, in the case of a unit-linked insurance plan (ULIP), the individual should pay the premium for five years. The individual should pay the premium for three years for other life insurance policies.
- Contribution to an annuity plan
Investments under other sections
Apart from Section 80C, an individual can claim a deduction from taxable income for investments or expenses under other sections of the Income Tax Act. Some of these include:
- An individual can contribute to a pension scheme such as the National Pension Scheme (NPS) and avail of a deduction from taxable income. For salaried employees, the maximum deduction allowed in a financial year is 10% of salary or Rs. 1,50,000, whichever is less. A self-employed individual can avail a maximum deduction of 20% of income or Rs. 1,50,000, whichever is less.
Section 80CCE allows a maximum aggregate deduction of Rs. 1,50,000 in a financial year for investments made under Section 80CCD(1), Section 80CCC and Section 80C (discussed in the earlier section).
- An individual can avail an additional deduction of a maximum of Rs. 50,000 for a contribution towards NPS under this section. The deduction is over and above the deduction of Rs. 1,50,000 allowed under Section 80CCE.
- An individual can avail an additional deduction for the contribution made by an employer to an employee's NPS account. The maximum deduction allowed is 14% of salary for Central Government employees and 10% for other employees.
- An individual can avail of a deduction for health insurance premium paid for self, spouse, and children. The maximum deduction allowed is the actual premium paid or Rs. 25,000, whichever is lower. If the individual or spouse or both, for whom the premium is paid are senior citizens, the maximum deduction allowed is Rs. 50,000.
- An additional deduction can be availed for health insurance premium paid for parents. The maximum deduction allowed is the actual premium paid or Rs. 25,000, whichever is lower. If one or both parents are senior citizens, the maximum deduction allowed is Rs. 50,000.
How to claim deductions under Section 80C?
An individual can claim deductions under Section 80C by investing in one of the financial products mentioned in the earlier part of this article. A self-employed individual must maintain a record/proof of the investment/s for claiming the deduction. A self-employed person can claim the deduction while filing the Income Tax Returns (ITR).
A salaried person must submit a copy of the investment receipt/s to the employer for claiming deduction under Section 80C. If they fail to submit the investment proof/s, they can still claim the deduction at the time of filing the Income Tax Returns (ITR).
When to claim deductions under Section 80C
The deductions are applicable for a financial year that starts on 1st April and ends on 31st March. An individual can make the investment at the start of the financial year, submit the proof to the employer, and claim the deduction. An employee can make a declaration to the employer at the start of the financial year, invest later, and still claim the deduction.
Form 16 and its importance
Form 16 is a document issued by the employer to the employee. It has the following:
- Salary paid to the employee during the financial year,
- The tax deducted (TDS) on the salary paid
- Details of the TDS deposited with the Government
- Break-up of the exemptions and deductions availed by the employee
Based on details mentioned in your Form 16, you can file your Income Tax Return (ITR) with the Income Tax Department.
To start investing in ELSS mutual funds under 80C and other mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.
To read more on similar topics, click here