Introduction
Navigating the complex landscape of tax deductions can be daunting, especially as tax season approaches. Section 80C of the Income Tax Act comes to the rescue, empowering taxpayers to reduce their total annual income by a maximum of ₹1,50,000. Therefore, In this comprehensive guide, we'll explore various investments and expenses eligible for deductions under Section 80C.
In other words, Understanding Section 80C
1. Key Points
- Section 80C allows a maximum tax deduction of ₹1,50,000.
- Individuals and Hindu Undivided Families (HUFs) are eligible for tax deductions under Section 80C.
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2. However, Investment Activities vs. Payments/Expenses
- Categorizing deductions under two segments for clarity.
For instance, Investment Activities
a. Life Insurance Premiums
- Paying the annual premium for a life insurance policy in your or your family's name.
- Section 80C deduction is valid up to 10% of the sum assured.
- Maturity payouts may be tax-free under Section 10(10D).
b. Public Provident Fund (PPF)
- Claim tax deductions for contributions to your PPF account.
- Features a 15-year lock-in period.
- Compounded interest is added monthly.
c. Employee Provident Fund (EPF)
- Open an EPF account if the organization has 20 or more employees.
- Offers 1% per annum interest with compounding.
d. National Savings Scheme (NSC)
- A fixed-income investment scheme is available at any post office.
- Interest earned qualifies for a tax deduction.
e. Senior Citizens Savings Scheme (SCSS)
- Enjoy a tax deduction for contributions to Senior Citizen's Savings Schemes.
- Withdrawals and maturity amounts are tax-free.
f. Tax Saving 5 years FD
- Fixed deposit schemes with a 5-year lock-in period, offering tax deductions under Section 80C.
- No premature withdrawal is permitted, and interest earned is taxable.
g. Sukanya Samriddhi Yojana
- A scheme for the welfare of the girl child, offering tax benefits under Section 80(C).
- Both investment withdrawals and maturity amounts are tax-free.
h. NABARD Rural Bonds
- Tax-exempt rural bonds from the National Bank for Agriculture and Rural Development.
i. Equity-linked Savings Scheme (ELSS) Funds
- Mutual funds are designed for tax-saving purposes.
- Returns received are taxable, with a three-year lock-in period.
j. Infrastructure Bonds
- Tax deductions are available for infrastructure bonds under Section 80C.
k. Unit-linked Insurance Plans (ULIP)
- A combination of insurance and investment with tax benefits under Section 80C.
Above all, Other Payments Eligible for Deduction under Section 80(C)
a. Home Loan Repayment of the Principal Amount
- Deduct the principal amount paid on a loan used for property purchase or construction.
b. Children’s Tuition Fees
- Claim tax deduction for tuition fees paid for up to two children.
c. Stamp duty and registration fee of the house
- Deduct stamp duty and registration fees paid for a house purchase from taxable income.
In addition, Claiming under Section 80C
- The total amount claimable under Sections 80C, 80CCC, and 80CCD(1) combined is ₹1,50,000.
- An extra ₹50,000 deduction is available for NPS under Section 80CCD(1B).
After that, Investment Duration
- Consider the duration of investment, often overlooked by taxpayers under Sections 80C, 80CCC & 80CCD.
In Conclusion
Similarly, Various investment instruments in the market offer tax benefits under Section 80C of the Income Tax Act. Investors must assess tools based on returns, lock-in periods, liquidity, and risk factors.
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Therefore, Frequently Asked Questions:
- What is the maximum tax exemption under Section 80C?
- Section 80C allows a maximum tax exemption of up to ₹1,50,000 from your total income.
- How long is the lock-in period for Tax Saving 5 years FD?
- Tax Saving 5 years FD comes with a lock-in period of 5 years.
- Can I open a Sukanya Samriddhi Yojana account for my daughter after she turns 10?
- No, parents can open an account for a girl child up to the age of 10.
- Is the interest earned on the National Savings Scheme taxable?
- Yes, the interest earned on the National Savings Scheme is taxable.
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