As the ITR filing deadline is near, i.e., 31st July 2023, It is important to understand the eligible investments under Section 80C of the Income Tax Act 1961, to Save Tax and Maximize deductions. In this article, we will look into the details of the eligible investments under 80C, which will help file your ITR, also providing you with a clear understanding of the options available. The Maximum Deduction that can be availed under Section 80C is 1.5 Lakh every year from the Taxpayer’s Total Income.
Let’s explore each Investment along with examples to help you make informed investment decisions.
Life Insurance Premiums
Investing in life insurance policies not only provides financial security to your loved ones but also offers tax benefits. Premiums paid towards life insurance policies qualify for 80C deductions. It is important to note that the maximum deduction limit is up to Rs. 1.5 lakh per financial year.HUF can also claim deductions on the premium amount.
Example: Suppose you pay an annual premium of Rs. 25,000 for your life insurance policy. You can claim the entire amount as a deduction under Section 80C.
Employee Provident Fund (EPF)
Employee Provident Fund is a retirement savings scheme offered by employers. A portion of your salary is deducted every month and contributed to the EPF account. The contribution made towards EPF is eligible for tax benefits under Section 80C. The maximum deduction limit for EPF is also Rs. 1.5 lakh per financial year.
Example: If your annual EPF contribution amounts to Rs. 50,000, you can claim the entire amount as a deduction under Section 80C.
Public Provident Fund (PPF)
PPF is a popular long-term savings scheme backed by the government, you can start investing in PPF as low as 500 to 1.5 lakh maximum limit in a financial year. It offers attractive interest rates and tax benefits. Contributions made towards PPF accounts are eligible for deductions under Section 80C. Also note that, The interest you receive on your PPF is tax-free. Investments made to a PPF account have a lock-in period of 15 years. However, individuals can make a partial withdrawal from the PPF account after 5 years from the date of opening the account.
Example: Suppose you deposit Rs. 1 lakh in your PPF account during the financial year. You can claim the entire amount as a deduction under Section 80C.
National Savings Certificates (NSC)
NSC is a government-backed savings instrument that provides fixed returns. NSC investments are eligible for tax deductions under Section 80C. The interest earned on NSC is reinvested, making it eligible for cumulative interest exemption.
Example: If you invest Rs. 1 lakh in NSC, you can claim the entire amount as a deduction under Section 80C.
Tax-saving Fixed Deposits (FD)
Several banks offer tax-saving fixed deposits with a lock-in period of five years. The principal amount invested in these fixed deposits is eligible for deductions under Section 80C. However, the interest earned on tax-saving fixed deposits is taxable.
Example: Let’s say you invest Rs. 50000 in a tax-saving fixed deposit. You can claim the entire investment amount as a deduction under Section 80C.
Equity-linked Saving Schemes (ELSS)
ELSS is a type of mutual fund that invests primarily in equities. It offers the potential for higher returns compared to other 80C investments. ELSS investments have a lock-in period of three years and qualify for tax benefits under Section 80C.
Example: Suppose you invest Rs. 1.5 lakh in an ELSS scheme. You can claim the entire investment amount as a deduction under Section 80C.
Tuition Fees for Children’s Education
The tuition fees paid for the education of your children, including school, college, or university, can be claimed as deductions under Section 80C. However, this deduction is only applicable to full-time courses.
Example: If you pay Rs. 50,000 as tuition fees for your child’s education, you can claim the entire amount as a deduction under Section 80C.
Principal Repayment of Home Loan
If you have taken a home loan, the principal repayment component is eligible for deductions under Section 80C. The interest component, however, falls under a separate deduction category. The maximum deduction for principal repayment under 80C is Rs. 1.5 lakh.
Example: Suppose your annual principal repayment for a home loan is Rs. 2 lakh. You can claim the maximum deduction limit of Rs. 1.5 lakh under Section 80C.
National Pension Scheme (NPS)
Under Section 80CCD of the Income Tax Act, a subclass of Section 80C, Contributions made towards the National Pension System are tax deductible. The Combined deduction allowed under Sections 80C and 80CCD (1), however, is limited to Rs. 1.5 lakh.
The total amount can be deducted under Section 80CCD (1B) if you contribute an extra Rs. 50,000 under the NPS (over and above the Rs. 1.5 lakh Section 80C limit).
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a girl child saving scheme and it is also eligible for 80C deduction of the Income Tax Act. The age of the Girl child applicable for the scheme should be under 10 years of age and Maximum 2 Girl childs can open an account in Sukanya Samriddhi Yojana and claim deductions under 80C.
Conclusion
Understanding the eligible investments under 80C in 2023 is essential for effective tax planning. By exploring each category and studying the examples provided, you can make informed investment decisions that align with your financial goals. Investments made under Section 80C give taxpayers a lot of relief. Consider your personal and family circumstances while choosing the best income tax saving strategies to take advantage of Section 80C benefits.
Remember to consult with a financial advisor or tax expert to ensure you maximize your deductions while staying compliant with the latest tax regulations.
