Section 80C of Income Tax Act
Section 80C For Aam Aadmi
The Section 80C of Income Tax Act is the most popular act in India. It is the most popular avenue of the salaried Individuals. So today let us understand the Section 80C of Income tax act in very detail. So that it can be helpful to you for your Financial planning and Tax Deduction at the end of the financial year.
Section 80C in Layman’s Language -
Without Explaining in the sophisticated law language, let’s understand in the simple language that What is Section 80C? Well, This Section allows Tax Deductions of up to Rs. 1 Lakh by investing in approved instruments and.
Yes, So if you earn Rs.3 Lakhs every year and out of this Rs.1 Lakh if you invest 1 Lakh in certain section 80C approved financial instruments than you won’t have to pay any tax on that Rs. 1 Lakh. Remember that the Maximum limit for Section 80C is Rs.1 Lakh only.
Which are the Financial Products that come under Section 80C?
Qualified Investments for Section 80C Tax Deduction
There are several financial products available in the market which are approved for the Section 80C. Here is a List
01) Provident Fund (PF) & Voluntary Provident Fund -
Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer’s contribution.
While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free .
02) Public Provident Fund (PPF) -
The PPF is the most favourite instrument of Indians. You can Invest Maximum of Rs.70000 every year in PPF and earn 8% annual return. This Rs.70000 invested in PPF is Tax deductible. because PPF comes under Section 80C.
03) National Savings Certificate (NSC) -
NSC is also eligible for Section 80C tax deduction. These are the 6 year lock-in period instruments which give you 8% annual return.
04) Equity Linked Saving Schemes (ELSS) -
Now, these are my favourite. ELSS also known as Equity linked Savings schemes are basically the Equity mutual funds having a 3 year lock in period. You can invest in it and enjoy the benefits of investing in equity as well as tax deduction under 80C. There are many ELSS available in the market from every fund house.
05) Life Insurance Premiums -
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction.
If you are paying premium for more than one insurance policy, all the premiums can be included.
06) Home Loan Principal Repayment -
Your EMI consists of two components, namely principal and interest. The principal component of the EMI qualifies for deduction under Section 80C.
07) Stamp Duty and Registration Charges for Home -
The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C.
However, this can be done only in the year in the year of purchase of the house.
08) Five Year Bank Fixed Deposits -
Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.
09) Child’s Education Expenses -
Well, yes your children’s education expenses are also tax deductible under 80C.
10) Insurance Products -
Almost every kind of Insurance Product is Tax Deductible under 80C such as Health Insurance, Accidental Insurance, ULIPs, Child Insurance and Future Plans, Pension Plans, Retirement Plans and every other thing related to the Insurance.
11) Section 80CCC -
This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C - it maeans that the total deduction available for 80CCC and 80C is Rs. 1 Lakh.
This also means that your investment in pension funds upto Rs. 1 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1 Lakh.
12) Post Office Time Deposit Account -
This is the fixed / term deposits offered by the Department of Posts (Government of India) through the post offices in India.
If the time deposit is opened for a duration of 5 years or more, the amount invested is qualified for deduction under section 80C.
When to Invest in Section 80C Financial Products?
Many people ask me that which is the right time to invest in Section 80C? And many who don’t ask me this question rush to invest in these products in the February or March means at the end of Financial year.
But well, let me tell you that this is a false strategy. You should always invest in 80C instruments with planning. I know several people who simply buy every financial product in the market which is related to 80C. But don’t forget that The Maximum limit for getting 80C deduction is just Rs.1 Lakh.
And the Maximum limit of investing in PPF is Rs.70,000 every year. So if you invest Rs.70,000 every year in PPF than you exhaust 70% of your limit for 80C deduction. So rest money should be for Life Insurance Premiums and ELSS which gives the benefit of investing in Equity.
Many of my friends have invested more than Rs.1 Lakh in 80C instruments. Now, this is insanity. I mean why the hell do you want to invest more than 1 lakh in 80C instruments? Is this because your agent or a broker told you to do this?
Most of the people lack in Financial Planning and that’s why they do such kind of gross mistakes. But after reading this article, you please don’t do such kind of mistake.
Remember, the ideal time to invest in Section 80C Instruments is from the first day of the financial year (From 1st April) and not in the February and March…!!!
If you have any query about Section 80C of Income Tax act than please comment on this post or e-mail me on asav4u@gmail.com
I will be more than happy to answer your queries.
Related Articles for Section 80C -
01) Alternatives of Section 80C Income Tax Act
02) Section 80C of Income Tax Act Home Loan
03) Section 80CCC
04) Section 80CCD
05) Section 80CCE
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