Tuesday, March 5, 2013

Income Tax deduction under section 80C in Indian Income Tax

This section has been introduced by the Finance Act 2005.Section 80C replaced the existing Section 88 with more or less the same investment available in Section 88.The new section 80C has become effective from 1st April, 2006.

This section provides deduction from total income in respect of various investments/expenditure of which tax rebate u/s 88 was earlier available. The total deduction under this section alongwith section 80CCC and 80CCD is limited to Rs. 1 lac only.

List of few investments/expenditures that qualified for deduction under section 80C -

Life Insurance Premium - Any amount that we pay towards the life insurance premium for ourself, our spouse or our children is also be included in section 80C deduction. Life insurance premium paid by us for our parents or our in-laws is not eligible for deduction under section 80C.

Equity Linked Savings Scheme (ELSS) - There are some mutual fund (MF) schemes specially created for offering the tax savings and these are called Equity Linked Savings Scheme or ELSS. The investments that we make in ELSS are eligible for deduction under Sec 80C.

Provident Fund and Voluntary Provident Fund - PF is automatically deducted from your salary. In both our employer contribute to it. While employer’s contribution is exempt from tax our contribution is counted towards section 80C investments.

Home Loan Principal Repayment - The EMI that we pay every month consists of two parts Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save significant income tax but that would be under Section 24 of the Income Tax Act.

Public Provident Fund (PPF) - The investment towards the PPF also qualified for deduction under 80C. The normal maturity period of PPF is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 70,000. A point worth noting is that interest rate is assured but not fixed.

National Savings Certificate (NSC) - National Savings Certificate (NSC) is a 6-Yr small savings instrument eligible for section 80C tax benefit.

Pension Funds - This section comes under Sec 80CCC and is eligible for deduction from our income. Section 80CCC investment limit is clubbed with the limit of Section 80C.

Post office Deposit - 10 or 15 year post office deposits is also qualified for deduction under 80C.

NABARD rural bonds - NABARD rural bonds also also entitled for deduction under section 80C.

Unit Linked Plan(ULIP)- Investment towards the ULIP also qualified for deduction under 80C.

Tax-saving fixed deposits: Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for deduction under section 80C.

Senior Citizen Savings Scheme 2004 (SCSS):Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. This is also qualified for deduction under 80C.

Income Tax deduction under section 80G

For latest income tax calculation, please visit the website - www.LoanEMI.net

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