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Section 80 C – Income Tax Deductions under Sec 80C

Updated on: Apr 4th, 2024

9 min read

Budget 2021 update: In case the employee’s PF contribution was deducted but not deposited by the employer, it will not be allowed as a deduction for the employer.

Section 80 C: Best Tax Saving Investment option under Sec 80C

Section 80C :Investment in ELSS Fund or Tax Saving Mutual Fund is considered as the best tax saving option. These funds are specially designed to give you dual benefit of saving taxes and getting higher returns on investment.

Invest in ELSS and save upto Rs 46,800 in taxes

Lowest locking period of 3 years

Delivered historically higher returns than FD, PPF or NPS

Interest earned is partially taxable

Invest in Tax Saving Funds

Other Investment Options under Sec 80C

Tax Saving Fixed deposits

PPF – Public Provident Fund

EPF – Employee provident fund

NPS – National Pension System

NSC – National Savings Certificate

ULIP – Unit linked Insurance Plans

Payments for saving taxes under Sec 80C

LIC – Life Insurance Premium

Children Tution Fees

Repayment of Home Loan

Investments in Tax Saving FDs

Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh.

Eligibility : Can be opened by Resident Indian individuals.

Liquidity: Fixed Deposits have lock-in period of 5 years.

Rate of Interest : FD interest rate across different banks ranges from 5.5% to 7.75%

Investment Limit: Minimum investment limit is Rs 1000.

Tax Treatment : Interest earned in taxable.

Investments in PPF (Public Provident Fund)

PPF are long term investments backed by government of India. Deposits made in a PPF account are eligible for tax deductions under Section 80C.

Eligibility : Can be opened by Resident Indian individuals, salaried and non-salaried individuals. A HUF cannot open a PPF account.

Liquidity: PPF account have lock-in period of 15 years, but can be further extended by 5 years. Partial withdrawals are allowed after 7 years.

Rate of Interest : Current interest rate is 7.1% p.a.

Investment Limit: Minimum and maximum investment limit is Rs 500 and Rs 1.5 lakh respectively.

Tax Treatment : Interest earned is tax-free.

Investments in EPF (Employee Provident Fund)

EPF is a retirement benefit scheme that is available to all salaried employees. This amounts to 12% of basic salary + DA, that is deducted by an employer and deposited in the EPF or other recognised provident funds.

Eligibility : Can be opened by employee with basic salary greater than 15,000 /month.

Liquidity: Can withdraw PF balance after 2 months of leaving job and does not take up employment within two months with an employer covered by PF Act.

Rate of Interest : Interest rate on the EPF is 8.5% for the financial year 2020-21.

Investment Limit: Both employer and employee have to contribute a minimum 12% of Basic Pay + D.A.

Tax Treatment :Entire PF balance (including interest) is tax-free, if withdrawn after continuous service of 5 years. However, if EPF /VPF contribution is above Rs. 2.5 lakh in any year, the interest earned on such excess contribution is now taxable, however, the limit is increased to Rs 5 lakh where the employer has not contributed to the fund (i.e. for government employees).

Investments in NPS (National Pension System)

Eligibility : Can be opened by every Indian citizen between the age of 18 and 60.

Liquidity: Partial withdrawals are allowed after 10 years but under special conditions.

Rate of Returns : Returns rate on the NPS varies between 12% – 14%.

Investment Limit: No limit on maximum contribution.

Tax Treatment : Employer contributions are tax-free, subject to 10% of the basic salary and dearness allowance (14% in case of Central/state government employees).

Investments in ULIP (Unit linked Insurance Plans)

Eligibility : An investor can buy ULIP for self or spouse or child.

Liquidity: Interest rate varies as it is market linked.

Rate of Returns : Return rate on the ULIP varies between 12% – 14%.

Investment Limit: No limit on maximum contribution.

Tax Treatment : Investment and withdrawals & maturity amount are tax-free. But if the annual premium exceeds Rs 2.5 lakh in any year during the term of the policy, then proceeds of such ULIPs shall be taxable.

Investments in Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana/Scheme is one of the most popular schemes by the Government of India. The scheme is aimed at the betterment of girl child in the country

Eligibility : Parents/guardians can open an account in the name of a girl child till she attains the age of 10 years

Liquidity: Up to 50% of the deposit amount can be prematurely withdrawn once the girl reaches the age of 18 years

Rate of Interest : Interest rate on Sukanya Samriddhi Yojana is 7.6%

Investment Limit: Investment is limited to maximum Rs.1,50,000 in a financial year

Tax Treatment : Investment and withdrawals & maturity amount are tax-free

Invest in Tax Saving Funds

Best investment under sec 80c Lowest lock-in of 3 years

Get 2x better returns than FD/PPF

Invested Amount: Rs 1.5 Lakh

FD/PPF Rs 1.85 Lakh

ELSS Funds Rs 2.5 Lakh

Save on Taxes

Payments eligible for tax saving deductions under Section 80C

Payments in LIC – Life Insurance Premium

The annual premium paid for life insurance in the name of the taxpayer or the taxpayer’s wife and children is an eligible tax-saving payment under Section 80C. The deduction is valid only if the premium is less than 10% of the sum assured.

Payments in Children’s tution fees

The tuition fee paid for the education of two children is eligible for tax deduction under Section 80C of up to Rs 1.5 lakh. The fee can be paid to any school, college, university or educational institute situated in India. The fees have to be for a full-time course only.

Repayment of Home Loan

The repayment of the principal of a loan taken to buy or construct a residential property is eligible for tax deductions under Section 80C. This deduction is also applicable on stamp duty, registration fees and transfer expenses.

Invest in ELSS and Save upto 46,800 in taxes

Lowest lock-in of 3 years
Option to invest monthly
Interest earned are tax-free
Higher Interest rates than NPS

Invest in ELSS funds

FAQs (Frequently Asked Questions)

What is Tax Saving FD? Does this come under Sec 80C?

Tax-saving FDs are like regular fixed deposits but come with a lock-in period of 5 years and tax break under Section 80C on investments of up to Rs 1.5 lakh. Different banks offer different interest on the tax-saving FDs, which range from 7-9%. The returns are guaranteed and the FDs offer 100% capital protection. But upon maturity, the interest is added to the investor’s taxable income.

When is the best time to invest in SIP?

There is no specific date that can be said to be the best date for a SIP. However, the beginning of the month can be a good time for SIPs as you receive your salary at that time and would have enough money to invest.

Is investment in ULIP comes under Sec 80C? When can I withdraw?

ULIPs are a mix of insurance and investment. A part of the invested amount in ULIPs is used to provide insurance and the rest of the amount is invested in the stock markets. Investments of up to Rs 1.5 lakh in ULIPs are eligible for tax breaks under Section 80C. ULIPs don’t offer guaranteed returns because they are an equity market-linked product. The disadvantage of ULIPs is that they don’t offer clarity on where the investments are made and how much of the invested amount is deducted for commissions and expenses.

What is NSC – National Savings Certificate? Does this come under Sec 80C?

NSCs are eligible for tax breaks for the financial year in which they are purchased. Investments of up to Rs 1.5 lakh in NSCs can be made to save taxes under Section 80C. NSCs can be bought from designated post offices and come with a lock-in period of 5 years. The interest is compounded annually but is taxable. The current interest rate for FY 2018-19 on NSC is 8.0%

What is EPF? Does this come under Sec 80C?

An employee’s contribution to the Employee Provident Fund (EPF) account also earns a tax break under Section 80C of up to Rs 1.5 lakh. This amounts to 12% of salary that is deducted by an employer and deposited in the EPF or other recognised provident funds. The current interest rate on the EPF is 8.5% p.a.

What is NPS – National Pension System? Does this come under Sec 80C?

The NPS is a pension scheme that has been started by the Indian Government to allow the unorganised sector and working professionals to have a pension after retirement. Investments of up to Rs 1.5 lakh can be used to avail tax deductions under Section 80C. An additional Rs 50,000 can also be invested in the NPS for tax deductions under Section 80CCD(1B). The NPS offers different plans that the subscriber can choose as per their risk profile. But the highest exposure to equity is capped at 50%. An option to change designated pension fund managers is also allowed. However, a major disadvantage of the NPS is that the proceeds upon maturity are taxable. Furthermore, there is no guarantee of the returns that can be earned from the NPS.

Is investment in Sukanya Samriddhi Yojana comes under Sec 80C? When can i withdraw?

Deposits of up to Rs 1.5 lakh can be added to a Sukanya Samriddhi Yojana account for tax saving under Section 80C. The current interest rate for FY2016-17 on Sukanya Samriddhi Yojana deposits has been set at 8.6%. Deposits in this scheme have to be made for a girl child by the parent or guardian. The interest is compounded annually and is fully exempt from tax. The receipts upon maturity are also tax-free. The Sukanya Samriddhi Yojana account matures 21 years after opening the account. A partial withdrawal of up to 50% of the previous year’s balance is allowed after the account holder turns 18.

What is Senior Citizens Savings Scheme (SCSS)? Does this come under Sec 80C?

The SCSS is a scheme exclusively for anyone who is over 60 years old or someone over 55 who have opted for retirement. The scheme has a maturity period of 5 years and gives 8.6% per annum. Investments of up to Rs 1.5 lakh in SCSS can be made to save taxes under Section 80C.

Why ELSS is considered the best tax saving option?

stands for Equity Linked Savings Scheme. These are tax-saving mutual funds that invest at least 65% of their assets in the stock markets. Investments of up to Rs 1.5 lakh in ELSS funds can earn a tax break under Section 80C. The advantage of ELSS funds is that they come with the lowest lock-in among all tax-saving investments – just 3 years. ELSS funds are best placed to help you earn inflation-beating returns over the long-term because of their equity exposure. Even though these tax-saving mutual funds don’t offer guaranteed returns, the best-performing ones have generated 12-15% returns over the long-term through the power of compounding interest. Additionally, since ELSS funds are equity-oriented funds, all gains on investments held for over one year are levied 10% LTCG tax for the investor. You can invest in a diversified portfolio of ELSS funds through our investment platform.

What do you mean by 80C deduction under chapter VI A?

Income tax department allows reducing of the taxable income of the taxpayer in case the taxpayer makes certain investments or eligible expenditures allowed under Chapter VI A. 80C allows deduction for investment made in PPF , EPF, LIC premium , Equity linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanya smriddhi yojana (SSY) , National saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc.

How much tax can be saved under 80C?

A maximum deduction allowed is Rs 1.5 lakh under 80C. Hence if you fall in the 30% tax bracket, then you can save taxes upto Rs 46800 including cess (31.2% on Rs 1.5 lakh). Accordingly if you belong in the 20% tax bracket then tax of Rs 31200 can be saved. (20.8% of Rs 1,5 lakh)

What is section 80c, 80ccc, 80ccd?

80C allows deduction for PPF, EPF, LIC , ELSS, NSC, repayment of home loan, tution fees etc. 80CCC allows deduction for any amount paid towards the annuity plan of LIC or any other insurer. 80CCD allows deduction for pension contributions made by employee, employer contribution or voluntary self contribution. Overall limit of deduction allowed in section 80C is Rs 1.5 lakh plus additional Rs 50,000 for self contribution to NPS or Atal pension yojana.

How to calculate deduction u/s 80c?

For section 80C- The amount of eligible investment or expenditure as specified is fully allowed for deduction subject to the limit of Rs 1.5 lakh. The limit of Rs 1.5 lakh deduction of Section 80C includes 80CCC (contribution towards pension plan) and 80CCD (1), 80CCD (1b) and 80CCD (2). Section 80CCCD (1) is a contribution towards the National pension scheme by the employee or self employed and is limited to 10% of salary (basisc + DA) or 20% of gross total income for self employed. Section 80CCD (1b) provides additional deduction of Rs 50,000 for contributions towards NPS , Atal pension Yojana etc. This deduction is over and above Rs 1.5 lakh. Hence total of deduction including 80C and 80CCD (1b) can be maximum Rs 2 lakh for a single year. Section 80CCD (2) is deduction allowed to salaried for contributions made by their employer for NPS , this is also allowed at 10 % of salary (basic +DA) . However it is important to note that there is no upper limit in 80CCD (2) Hence for investment in 80C only , the limit is Rs 1.5 Lakh. For investment together in 80C, 80CCD (1) and 80CCD (1b), one may invest upto Rs 2 lakh in total. Whereas, a salaried employee can avail more deduction without restriction of limit of Rs 2 lakh under section 80CCD (2) if the employer contributes towards NPS account subject to 10% of salary. Further please note that per Budget 2020, any contribution towards EPF, NPS and superannuation will be added to the salary as “perquisites” and taxable under salaries in the hands of employees.

What is the difference between 80c and 80ccc?

80CCC is a subsection to 80C. Hence the deduction limit of section 80CCC is a part of the overall limit allowed in section 80C. i,e of Rs 1.5 lakh.

Which SIP is tax free under section 80c?

80C allows deduction upto Rs 1.5 lakh for investment made in ELSS (equity linked savings scheme). You can also start SIP for ELSS mutual funds for which deduction upto Rs 1.5 lakh will be available u/s 80C.

How to declare mutual funds in 80c?

80C allows deduction for ELSS mutual funds only upto Rs 1.5 lakh. Hence any investment made in ELSS mutual funds can be claimed as deduction under 80C.

What is the tuition fee under 80c?

A taxpayer can claim deduction for the tuition fees paid for 2 children under the limit of Rs 1.5 lakh.

How to save tax other than section 80C?

Apart from 80C, various other provisions allow deductions to taxpayer as follows :

80D- for medical insurance premium for self, spouse & dependent parents.
Section 80EE – Deduction for interest payment of home loan for first home owners
Section 24- Interest deduction for housing loan upto Rs 2 lakh
Section 80EEB- interest deduction for vehicle loan for purchase of electric vehicle
80G- donations to charitable institutions.
80GG-if your income does not include HRA component, you can claim rent deduction under 80GG
Section 80TTA- deduction upto Rs 10,000 for interest received in saving bank account.
Section 54 -54F – Capital gain exemption for capital gains.

ULIP & NSC, which is more beneficial for deduction u/s 80c?

ULIP offers a combination of life insurance and investments benefits.Some portion of the ULIP premium goes towards insurance and the remaining goes towards equity. Hence the return is not fixed and depends on the market. Whereas NSC is a fixed income saving allowed by the government for tax deduction. Both ULIP and NSC serve different purposes, for example if you are looking for a more secure low risk investment then NSC is a better option whereas if you are looking for higher return with moderately higher risk than ULIP would be a better investment.

Which insurance comes under 80c?

Life insurance policy premium paid is allowed for deduction under section 80C annually.

What is a term deposit under section 80c?

80 allows deduction for tax saving term deposits for a tenor of 5 years. Every bank offers tax saving FDs which can be made for availing this deduction.

What is section 80c to 80u?

Chapter VI A of income tax act allows reduction of taxable income by making investments and eligible expenditure into specified instruments. Section 80C to 80U specify the instruments / expenditures which are eligible for such deduction.

What is 80c and 10 (10d)?

Section 80C allows for deduction of premium paid towards life insurance upto a limit of Rs 1.5 lakh whereas section 10 (10d) exempts the money received at the time of claim of the insurance policy provided premium paid for the insurance is less than 10% of sum insured.

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Quick Summary

In Budget 2021 update, unpaid PF contributions by employer can't be deducted. Section 80C offers tax-saving investment options including ELSS funds, which provide higher returns than FDs, with a 3-year lock-in period. Other options include PPF, EPF, NPS, NSC, ULIP, and Sukanya Samriddhi Yojana. Tax-saving FDs come with a 5-year lock-in, interest is taxable. Investment and deductions under section 80C are detailed.