Deductions under section 80C of Income tax Act for FY 2019-20

What are the deductions under section 80C of the Income-tax Act 1961?

Deductions under section 80C are relevant for every person filing an ITR. Section 80C of the income tax act describes the deduction which helps to reduce the tax liability. This section contains two options specifically investment and payment options which have been discussed in detail. 

Who can avail of the deductions under section 80C of the Income-tax Act?

This benefit of claiming the deduction is available to individuals and HUF. 

What is the time limit to make investments?

Although, this deduction is claimed at the filing of Income Tax Return the investment in prescribed alternatives has to be done during the relevant financial year. But in abnormal situations like COVID 19, the government has extended the time limit of various such benefits for the ease of persons. The time limit of making an investment under this section is thereby increased up to 31st July 2020 for the previous year 19-20. 

SCOPE

Section 80C prescribes two types of options in order to reduce tax liability

What are the various investment options under section 80C?

• Public Provident Fund (PPF):

Eligibility: In the case of an individual, the beneficiary can be himself, spouse, any child of such an individual. For example, if Mr. A contributes towards PPF then he can make such investments in the name of his wife or his children and claim a deduction at the time of filing his return.

Similarly, in the case of HUF, beneficiaries can be its members.

Lock-in Period: Maturity tenure is 15 years but part of the money can be withdrawn after 5 years. 

Taxability: PPF is EEE rated i.e investments done, returns earned and its withdrawal thereafter is exempt from tax. 

Sukanya Samriddhi Yojana (SSY)

This scheme was launched on 22 Jan 2015 by the Prime Minister. 

Eligibility: Resident individual parents having up to 2 girl children can open this account (in case of twins, it can extend up to third child) with an age limit of 10 years. 

Investment limit: Minimum deposit is Rs 250/- and the maximum is 1,50,000/- p.a. 

Lock-in Period:  It has a lock-in of 15 years. It means the amount is to be deposited up to a period of 15 years and can be withdrawn only after completion of 21 years.

Taxability: EEE rated

Mutual Funds (Equity Linked Saving Scheme):

Subscription to any units of UTI or pension fund of mutual funds specified u/s 10(23D) or from an administrator or of the specified company.

Investment: Minimum investment of Rs 500 is required and there is no upper cap. 

Lock-in Period: Minimum 3 years. 

Taxability: If any Long term capital gain arises on withdrawal then it is exempt up to Rs 1 lakh and dividend received is fully exempt. 

For e.g. Mr. A invested an amount of Rs 4.5 Lakhs in MF for 5 years and received Rs 50000 as a dividend. On maturity, the amount accumulates to 6 Lakhs (say) excluding dividend than in such a case Mr. A has a long term capital gain of Rs 1.5 lakh (6lakh – 4.5lakhs). Of this 1.5 lakh, only Rs 50000 will be taxable. Also, the dividend of Rs 50000 is fully exempt. However, for the purpose of section 80C, a deduction of Rs 1.5 lakhs can be claimed. 

5-year Tax Saving FDR 

These are the schemes offered by banks and post offices. This is the most common criterion to claim deductions if you have idle accumulated cash.   

Lock-In Period: there is a lock-in period of 5 years. 

Taxability: Although there is a deduction on the amount invested withdrawals including interest are taxable. However, interest earned is exempt upto a certain limit on a case to case basis.  

National Saving Certificates (NSC)

It is an investment for risk-averse individuals. 

Eligibility: Only Individuals are eligible for this investment. HUF is not eligible. This account can be transferred to another only in the following cases:

a)     On the death

b)     On the order of a court

c)       On pledging

In case of a joint account, to the surviving individual.

Investment: Minimum limit of Rs 100 has been prescribed with no upper limit. 

Lock-in Period: 5 years 

Taxability: Interest earned is chargeable to tax. Here interest accrued is deemed to be reinvested. 

Senior Citizen Saving Scheme:

Eligibility: Only “Resident” senior citizens can invest. Individuals above the age of 60 are eligible for this scheme. However, individuals above the age of 55 opting voluntarily are also eligible to apply. 

Investment: No minimum investment limit but on the higher side, the investment amount shall not exceed Rs 15 lakhs or the amount received on retirement (whichever is higher). 

Lock-in Period: 5 years

Tax Benefit: Investment is eligible to tax deduction but tax benefit on interest can be taken up to Rs 50000.   

• Unit Linked Insurance Plan (ULIP)

These plans provide more returns in the long term and can be used as tax savings investment.

Eligibility: In the case of an individual, the beneficiary can be himself, spouse, any child of such an individual.

For example, if Mr. A contributes towards ULIP then he can make such investments in the name of his wife or his children and claim a deduction at the time of filing his return.

Similarly, in the case of HUF, beneficiaries can be its members.

Investment: Premium should not exceed 10% of the sum assured. 

• National Pension Scheme (NPS)

Section 80C and 80CCD(1) cumulatively provide tax benefit of Rs 1.5 lakh for the NPS contributions.

Eligibility: Individual between 18-60 years of age

Investment: Minimum of cumulative investment of Rs 6000/- is to be done. 

Lock-in Period: To retirement.  

1. B) PAYMENT OPTIONS UNDER SECTION 80C

• Life Insurance Premium (LIP):

The premium must be for the Life insurance policy taken in the name of:

In case of Individual: Himself, spouse, children

In case of HUF: any member of HUF

Taxability: Annual premium up to 10% of sum assured is allowed.

Tuition Fees:

Admission fees or any other fees paid to any university, college, school in india upto two children of individual. It needs to be paid for full time education. 

Principal Repayment of Housing Loan:

Only repayments towards Principal amount of loan EMIs are allowed as deduction. However, interest component can also save tax but that is available u/s 24 of IT Act. Also, there is a lockin period of 5 years i.e if the property is sold within a period of 5 years from the end of the financial year of possession then all deduction allowed shall become taxable on that year itself. 

Provident Fund: 

Any contribution including the voluntary contribution made by an employee is allowed for the purpose of this section. 

EPF Deduction:

Employees’ contribution in EPF is deductible under section 80C upto a maximum limit of Rs. 1,50,000/-. If the balance in EPF is withdrawn after 5 years then the whole amount including interest is exempt.

Deferred annuity plan

The beneficiary under this plan can be an individual himself, spouse, or any child. The only condition to claim this deduction is that there should be no provision of receiving cash in lieu of annuity. And, if you’re a government employee and any sum is deducted from your salary under a deferred annuity plan, then the deduction is restricted to only 1/5th of your salary.

Stamp Duty & Registration Charges

The deduction is allowed on these major expenditures only in the year in which they are paid. These might look smaller in amount but can save tax.  

These were the deductions under section 80C of the Income-tax Act. Pls, post any question or confusion to make this write up more useful. Time limit to invest is extended for current year.