Deduction Under Section 80C - Everything You Need to Know!

As a citizen, you know that you must pay income tax on the total amount of money you bring in over a fiscal year from all sources. However, did you know that by using certain tax-saving products, you can reduce your taxable income?

The Indian Income Tax Act 1961 has several income tax deductions and exclusions that you may use to reduce your taxable income, in addition to the rules for determining your tax due.

A tax deduction provides people with a way to reduce their tax obligation. Several tools available in the nation enable people to reduce their tax obligations. However, many people choose the income tax deduction provided by Section 80C of the Income Tax Act, 1961, when it comes to tax-saving alternatives in India.

Individuals and members of Hindu Undivided Family (HUFs) are eligible for a tax deduction of up to Rs1.5 lakhs under Section 80C of the Income Tax Act. People may use the tax deductions to lower their overall gross income and minimise their tax liability.

For instance, if you invest in a term insurance policy, you can save up to ₹1,50,000 in taxes under Section 80C.

The following requirements must be satisfied to be qualified for a tax deduction under Section 80C:

• You have to be a single taxpayer. These deductions are not available to other taxpayers, including corporations, partnerships, and organisations.
• Under section 80C of the Income Tax Act, you are entitled to deductions whether you are an Indian resident or non-resident.
• Your investment must be placed in a pension plan that pays an annuity at maturity to be eligible for these deductions.
• Only the financial year you made the investment contributions are eligible for deductions under this provision.
• The Insurance Regulatory and Development Authority of India must approve the pension plan that is chosen and bought to qualify for 80C deductions (IRDAI).
• The total of your net taxable income cannot be more than the amount claimed as a deduction each year under section 80C.

There are several options available to taxpayers under Section 80C for tax savings. These may be divided into three general groups, which are as follows:

• Investment plans
• Savings plans
• Expense

All different sorts of taxpayers may use them because of the diversity and flexibility of the service, depending on factors including age, family status, risk-taking prowess, and other factors.

The 80C investment plans are so well-liked that people automatically choose them as their first choice for tax-saving measures. As a result, the tax-saving route has become quite popular among those who want to save money on taxes. Under Section 80C, both individual taxpayers and HUFs are eligible for deductions.

Two subsections make up Section 80C; both Sections 80CCC and 80CCD. Retirement and pension programmes fall under Sections 80CCC and 80CCD. Tax deductions under these two subsections are permissible up to the 80C limit of ₹1.5 lakh.

Note that there is a lock-in period for each tax-saving option. Most of them have a lock-in duration of five years. The greatest lock-in is seen in PPF and NPS until the taxpayer turns 60. However, there is no lock-in period for EPF. EPF is reliant on the taxpayer's employment. These products provide liquidity if the investor wants to leave the position early. There are, however, consequences for leaving early.

The tax-deductible savings alternatives under Section 80C operate according to the Fixed Interest principle. All of these securities, in other words, provide a set interest return on the money that is parked. The interest for PPF, NSC, and SSY is declared every three months. Every year, the interest rate for EPF and infrastructure bonds is released.

The tuition for a taxpayer's child's schooling is deductible. However, HUFs cannot make a claim; only individual investors may. There's an additional restriction - taxpayers may claim only the tuition for the education of two children.

The deduction only applies to the tuition amount and excludes any other costs or fees. As a result, prices for coaching classes, capitation fees, and independent study are disregarded. Only kids are eligible for the discount - the cost of tuition for a taxpayer's spouse and siblings is not deductible. This deduction is a blessing for taxpayers, given the rising cost of schooling. Most significantly, a deduction may only be used once. In other words, a parent may only submit a single claim for a child's tuition price.

Section 80C established the allowable deductions, while Subsections of Section 80C offer additional clarity to taxpayers.

• Section 80CCC - Annuity Insurance Plan
  
  Section 80C allows for a deduction for paid life insurance premiums, whereas Section 80CCC provides a deduction for amounts in an annuity insurance plan. The pension, surrender claim, and interest are all taxable in the year of receipt under the annuity plan. The total deduction for 80C and 80CCC cannot exceed ₹1.5 lakh.


• Section 80CCD - Pension Fund Contribution
  
  The money placed in the pension fund may be deducted. A 10% salary deduction will be permitted if the taxpayer is an employee. If the taxpayer is self-employed, they may deduct 20% of total gross income up to ₹1.5 lakh.
  
  Investment in NPS allows investors to enjoy a higher tax break than the ₹1.5 lakh limit under Section 80C. As a result, a total of ₹1.5 lakh plus an extra ₹50000 may be claimed as a deduction.
  
  The employer's payment to the NPS may be deducted. The amount donated cannot exceed 10% of the employee's base pay + dearness allowance.


• Section 80CCF - Long-Term Infrastructure Bond Investment
  
  This clause provides a tax deduction for government-issued long-term infrastructure bond investments. Individual taxpayers and HUFs may invest up to ₹20000 each.


• Section 80CCG - Notified Government Equity Schemes
  
  Individual taxpayers may claim a deduction for contributions to government-notified equity plans up to ₹25000. The deduction claimed will be restricted to 50% of the amount invested.

The total income tax savings you may obtain under Section 80C is limited to ₹1.5 lakh. As previously stated, the regulations encompass a variety of fund alternatives that provide insurance and investment advantages. The most notable aspect of saving tax under section 80C is that it permits you to invest the whole ₹1.5 lakh in one investment or diversify across many assets.

There is no optimal strategy to take advantage of Section 80C deductions since it depends on an individual's requirements. That is why it is essential to choose the appropriate instruments. Your financial objectives and risk tolerance should inform your decision.

It is considerably simpler to reduce your taxable income if you thoroughly grasp all the tax deductions available to taxpayers under the Income Tax Act. The goal is to prepare ahead of time and begin investing as soon as possible. With the above list, you may quickly identify how your money is spent, calculate the amount, and claim deductions for whatever falls into the above categories.