Section 80C is the most widely used section for claiming Income Tax Deductions. This Section allows a deduction of Rs. 1,50,000 can not only be used by Salaried Individuals but can be used by all categories of Taxpayers irrespective of the source from which they are earning their income.
A Deduction from the total taxable income is allowed for investments in specific specified instruments, and this deduction can be claimed under Section 80C. The maximum deduction which can be claimed under Section 80C is Rs. 1,50,000.
This Deduction of Rs. 1,50,000 can be claimed either for investment in a single instrument or investments in multiple instruments. The total cumulative deduction that would be allowed would be limited to Rs. 1,50,000 only.
There are several instruments in which a person can invest and claim deduction under Section 80C.
Deduction under Section 80C is also allowed for investments in Equity Linked Mutual Funds. It is pertinent to note here that the deduction is not allowed for all Mutual Funds but only for Equity Linked Mutual Funds, also known as ELSS Funds. The words – Tax Saving are also mentioned on these funds.
These funds can be held either in a Demat Account or Physical Format. You can even purchase these from an agent and mention the Demat Account Number you wish to receive the Mutual Fund Investment. Some online share trading accounts also have the facility of purchasing mutual funds online.
There is a lock-in period of 3 years in these Equity Linked Mutual Funds, and you cannot sell these mutual funds before 3 years from the date of purchase.
The Life Insurance Premium you pay for insuring the life of yourself, your spouse and your children are also allowed to be claimed as a deduction under Section 80C.
However, it is pertinent to note here that the life insurance premium paid for insuring the life of parents is not allowed to be claimed as a deduction.
Whether Salaried or not, Any person can invest in PPF Account and earn fixed interest on the same. The rate of interest on the PPF Account keeps changing after regular intervals and is decided by the Govt. The interest rate on the PPF Account is usually slightly higher than the interest rate on Fixed Deposits.
PPF Accounts are opened for 15 years with a lock-in period of 5 years. You can withdraw a certain amount from PPF Account after the 5th year without any prepayment penalty.
Employee Provident Fund is a retirement benefits scheme and is available only to Salaried Employees. In this scheme, both the employer and the employee invest a certain portion every month and interest is paid at regular intervals on the amount in the EPF Account.
The amount paid as Stamp Duty on the purchase of the house and the amount paid on registration of documents can also be claimed as a deduction in the year of purchase.
Deduction under Section 80C is also allowed for repayment of the principal portion of the Home Loan. Deduction of Interest on Home Loan is not allowed under this Section as it is allowed under Section 24.
National Savings Certificate (popularly referred to as NSC) are fixed income earning instruments issued by the Govt of India. There are 2 types of NSC, i.e. one with a duration of 5 years and the other with 10 years.
Deduction under Section 80C is allowed for investment in any of the above 2 types of NSC.
Deduction under Section 80C is also allowed for investment in a 5-year fixed deposit. It is pertinent to note that it is not allowed for all fixed deposits but only for fixed deposits of more than 5 years.
When making the fixed deposit, you will have to inform your banker that you are making this fixed deposit for tax saving.
Senior Citizen Savings Scheme is a fixed income earning instrument on which interest is paid regularly. Senior Citizen Savings Account can be opened in any post office across India and selected Nationalised and Private Banks branches.
The amount invested in Sukanya Samriddhi Yojana for the welfare of a girl child is allowed as a deduction under Section 80C. The interest paid on the Sukanya Samriddhi Yojana is very lucrative and is also tax-free as no tax is levied on the interest earned on this account.
Deduction under Section 80C is also allowed for payment of School Fees of a maximum of 2 Children. This deduction is allowed in the financial year in which the payment is made and is available for the fees paid for the full-time education of children in India.
Fees paid for part-time courses or coaching classes, or education outside India are not allowed to be claimed as a deduction under Section 80C.
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