Section 80C of the Income Tax Act, 1961, offers individuals and Hindu Undivided Families (HUFs) a valuable tool to save taxes by claiming deductions on various investments and contributions. With a maximum limit of Rs. 1.5 lakh per year, this section encourages long-term financial planning and provides numerous options to cater to diverse financial goals.
80C Investments are commonly viewed as Tax Saving Tool but rather it should be viewed as Investment Tool Coupled with Tax Saving Tool and individuals should invest on basis of their financial goals and their willingness to take low or high risk. If we look at 80C Investments , it caters to fulfillment of various long-term goals that you should try to achieve over period of years like :
Term Insurance : Family Safety in case of uncertain events.
NPS / Provident Fund : Retirement Planning Investment Schemes.
Tax Saver Fixed Deposit : Mid-Term Sustainable Saving Habit for 5 Years with low risk appetite.
ELSS Mutual Fund: Participating in Equity Market with mid-risk appetite through Mutual Fund House with lock-in of 3 Years.
Repayment of Housing Loan : Goal of Having Own House.
Sukanya Scheme - Long-term planning for bright future of Daughters.
Section 80C Common investments or expenditures for which the deduction under Section 80C is allowed are as under:
1. Life Insurance Premium:
● For individuals, premiums paid on policies covering the assessee, spouse, and children are eligible.
● HUFs can claim deductions for premiums paid on policies covering any HUF member.
2. Deferred Annuity Contracts:
● Individuals can claim deductions on annuity contracts for themselves, their spouse, and children.
● HUFs can claim deductions for annuity contracts on the life of any HUF member.
3. Deferred Annuity for Government Servants:
Government employees can claim deductions for sums deducted from their salary for securing a deferred annuity or providing for their spouse and children.
4. EPF and PPF Contributions:
● Individuals can claim deductions for contributions to the Employees' Provident Fund (EPF) and Public Provident Fund (PPF).
● HUFs can claim deductions for contributions made by any of its members.
5. Recognised Provident Fund and Superannuation Fund Contributions:
● Employees can claim deductions for contributions deducted and paid to recognised provident funds and approved superannuation funds.
6.Sukanya Samriddhi Account:
● Individuals can claim deductions for deposits made in Sukanya Samriddhi Accounts for themselves, their daughters, or daughters for whom they are legal guardians.
7. National Savings Certificates:
● Individuals can claim deductions for subscriptions to notified savings certificates.
8. Unit-Linked Insurance Plans (ULIPs):
● Deductions are available for contributions to ULIPs in the name of the individual, spouse, or children for individuals, and any member for HUFs.
9. Home Loan and National Housing Bank Schemes:
● Individuals can claim deductions for payments related to the purchase or construction of residential properties and subscriptions to specified deposit schemes.
10. Tuition Fees:
● Individuals can claim deductions for tuition fees paid for the full-time education of up to two children.
11. Annuity Plans from LIC and Other Insurers:
● Individuals can claim deductions for sums paid towards notified annuity plans.
12. Mutual Fund Investments:
● Deductions are available for subscriptions to notified mutual funds under Section 10(23D) i.e Equity Linked Saving Scheme (ELSS) Mutual Funds.
13. Term Deposits and Bonds:
● Tax Saver Fixed Deposits with Bank for Five Years with Banks or Post Office
14. Pension Scheme Contributions (Section 80CCD):
● Central Government employees can claim deductions for contributions to specified pension schemes.
14. Repayment of Housing Loan
● Repayment of Principal of the Housing Loans is allowed as 80C Deduction and interest on housing loan is allowed seprately over and above 80C deduction u/s 24 (limit of interest deduction is Rs 2 Lakhs)
Please note: The deduction limit of Rs. 1,50,000 under Section 80C applies only to individuals and Hindu Undivided Families (HUFs) who have opted out of the new tax regime introduced in the Union Budget 2020. This means if you choose the new tax regime under Section 115BAC(1A), you will not be eligible to claim deductions under Section 80C.
Therefore, it is crucial to understand that claiming the deduction under Section 80C comes with the caveat of opting out of the potentially lower tax rates offered by the new tax regime. Carefully consider your expected income and tax liability before making this decision.
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Conclusion:
Understanding the diverse options available under Section 80C allows individuals and HUFs to make informed decisions regarding their investments and expenditures. It is crucial to carefully evaluate each option based on personal financial goals and constraints to maximize tax savings while building a robust financial portfolio. Always consult with a financial advisor to tailor your tax planning strategy to your unique circumstances.