TAX DEDUCTION UNDER SECTION 80C

 

TAX DEDUCTION UNDER SECTION 80C

Hi friends our todays todays topic of discuss is tax deduction under section 80C of Indian Income Tax act 1961.

Under Section 80 C of the Income-tax, you can claim deduction up to Rs 150000 in one financial year. Section 80 C offers many options for investors.

·         ELSS fund - Equity Linked Saving Scheme is one of the best options under section 80 C to earn more return with a minimum lock-in period. This investment can generate market returns of 12 to 15 %. Lock in period is only 3 years. Returns and liquidity make this one of the preferred options.

·         PPF is one of the most favorite debt products in India. The Public Provident Fund (PPF) Scheme was started by the National Savings Organization in 1968 to promote small savings and investments. It is mainly used for long term investment. It has 15 years locking period. It gives Compounding Interest benefit. PPF enjoys EEE status. Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act. Interest earned is exempt from income tax and maturity proceeds are also exempt from tax.

·         EPF- Contribution you made in your Employer Provident Fund will be considered under Section 80 C but subject to 150000 caps.

·         Bank FD of 5 yrs term - One can claim a tax deduction up to 1.5 L if he makes a bank FD for 5 yrs. This option is opted out by an investor for the safety of the interest and the principal invested.

·         Insurance premium- The premium paid on your life insurance policies can be deducted under this section.

·         Sukanya Samrudhi Yojana - A Sukanya Samriddhi Account can be opened any time after the birth of a girl till she turns 10, with a minimum deposit of Rs 1,000. A parent can open an account for a maximum of two daughters, but the combined investment in the two accounts cannot exceed Rs 1.5 lakh in a year.

·         Senior Citizen Saving Account - It's for senior citizens who have completed 60 yrs. This is the most suitable option for senior citizen apart from 5 years of bank FD. The interest rate offered by the government is good. Tenure of this product is 5 years and one-time extension is allowed up to 3 years.

·         National Saving Certificate- It is a tax saving investment that can be purchased from any post office by an Indian Resident. Being a fixed return and low-risk Government of India-backed investment, NSC is usually preferred by risk-averse investors or those seeking to diversify their portfolio through a fixed return instrument.

·         Home loan principal repayment - Payment towards principal for the home loan is allowed as a deduction up to 1.5 lacs

·         5-year post office time deposit- The investment under the five-year term deposit qualifies for the benefit of Section 80C of the Income Tax Act, 1961 from April 1, 2007, according to India Post.

·         NABARD rural bonds- Payment done for these bonds are also allowed here but subject to government notification for this kind of bonds.

·         Unit-linked insurance plans- Premium paid for Ulips are also allowed as a deduction under section 80C like the other traditional insurance policies.

·         Payment of tuition fees- Only tuition fees that form part of the total fees paid is allowed for deduction. Fees paid for school, college or the University of India only allowed not oversees school and universities.

Above list is for everyone irrespective of the age category. Now to your specific age category of 20 to 30s. People in this age group just have started their careers no big family responsibility so can have a good investible surplus. These people have aged by their side so if they take wise tax planning decision they can create huge wealth by the time of their retirement. These guys should use full limit of 80 C it means apart from their EPF they should make sure they utilize full 1.5L limit.

For this age group people I recommend the combination of ELSS Funds and PPF. ELSS comes from Equity asset class whereas PPF is the best option in Debt category besides EPF. So a combination of these two financial instruments can make wonder in your portfolio. As you are young you can have 70:30 equity and debt proportion in tax planning. If you are comfortable can have an 80:20 proportion as well.

ELSS can also be planned for short term goals and PPF can be allocated for long term goals as retirement. So have their combination as per your risk profile.

Apart from Section 80 C following are some additional section which helps this age group to claim an exemption for tax purpose

·         80 CCC: Insurance premium

It provides a deduction to an individual for any amount paid or deposited in any annuity plan of LIC or any other insurer. The plan must be for receiving a pension from a fund referred to in Section 10(23AAB). Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.

·         Section 80 CCD : Pension contribution

o    Employee Contribution– is allowed to an individual who makes deposits to his/her pension account. Maximum deduction allowed is 10% of salary (in case the taxpayer is an employee) or 20% of gross total income (in case the taxpayer being self-employed) or Rs 1, 50,000, whichever is less.

o    Deduction for self-contribution to NPS – section 80CCD (1B) A new section 80CCD (1B) has been introduced for an additional deduction of up to Rs 50,000 for the amount deposited by a taxpayer to their NPS account. Contributions to Atal Pension Yojana are also eligible.

o    Employer’s allowed for the employer’s contribution to employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.

o    Deduction for Employer’s contribution to NPS – Section 80CCD(2) will be deduct separately and not included or added in 80C Deduction List , Maximum amount is Rs. 1,50,000.

 

 The tax deduction u/s 80c of INDIAN INCOME TAX ACT 1961 has three part, i) 80c, ii) 80ccc and iii) 80ccd

• 80C — Deduction u/s 80 mainly covered all the major investment like premium paid for life insurence, nsc, contribution to ppf, children tution fees, ulips,elss, suraksa sambridhi account investment, principal paid for home loan, subscription to eligible eauity share and debentures and bond, 5 years fixed deposit etc.
• 80CCC — Dedection u/s 80ccc covered investment in annuty plan in any life insurence company for a pention in fund referred to u/s 10(23AAB)
• 80CCD--Deduction u/s 80ccd is employees contribution to NPS maximum of rs. 1,50,000/-.

TOTAL SUM OF DEDUCTION U/S 80C,80CCC AND 80CCD IS MAXIMUM TO RS.1,50,000/-