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Understanding 8 Tax Benefits and Deductions under Section 80C

7 Aug, 2023

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Individual taxpayers in India are eligible for a number of tax perks and deductions under Section 80C of the Income Tax Act, 1961. It is one of the most well-liked parts that offers ways to lower taxable income. Taxpayers may deduct certain specified investments and expenses under Section 80C, up to a maximum of ₹1.5 lakh.


Deductions are permitted under Section 80C for a variety of investments and expenses. Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), Fixed Deposits, Home Loan Principal Payment, Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), National Pension System (NPS), and Senior Citizen Scheme (SSC) are a few examples of popular alternatives. Let’s learn more about them.

Under Section 80C, a contribution made to the Public Provident Fund (PPF) qualifies for a tax benefit. The PPF has a ₹1.5 lakh maximum deposit limit. 


As a result, the investor is eligible to deduct the entire amount of the investment under Section 80C. Voluntary donations made by an employee to the given fund are also eligible for Section 80C deduction.


ELSS is a mutual fund having a three-year lock-in term. In India, it is the only type of mutual fund that is eligible for a tax deduction under Section 80C of the Income Tax Act. 


Due to the fact that ELSS investments are predominantly made in equity markets, returns are longer-term compared to those of other tax-saving programmes. Investments can be made in a lump sum or through the SIP (Systematic Investment Plan) approach.


However, you cannot withdraw your money until the three-year lock-in term is through. The investments could have a significant level of risk because they are done on the stock market. However, if you stick with it, it can be a terrific long-term alternative. 

FD accounts give a tax deduction of up to Rs. 1.5 lakh per year under Section 80C. The interest earned on these fixed deposits is taxable at the individual's applicable income tax slab rates, with a tax rate ranging from 5.5% to 7.75%, with a lock-in term of 5 years. 


FDs offer a secure, low-risk investment choice with a larger interest potential than savings accounts. They permit one-time lump sum deposits and provide deposit amount flexibility. Up to ₹1.5 lakh in tax benefits per year may be claimed under Section 80C. However, premature withdrawal may not be possible.

Section 80C allows a deduction for the principal amount paid on the annual EMI for a house loan. The maximum sum that can be claimed is ₹1.5 lakh. 


However, in order to claim this deduction, the residence must not be sold within five years after its acquisition. If not, your income in the year of the sale will be increased by the earlier deduction you took.

If your girl child is under the age of 10, open a Sukanya Samriddhi Yojana account for her. Enjoy tax advantages under Section 80-C of the Income Tax Act with a deposit ranging from ₹250  to ₹1.5 lakh every year. 


According to Section 10, the account provides tax-free interest. Transfer the account between Post Offices or Banks and use the funds for higher education costs. When maturity happens after 21 years, it secures your child's future and offers significant tax benefits. Learn more here.

The National Savings Certificate is a popular savings scheme that provides attractive tax benefits. It needs a minimum deposit of ₹1000 and subsequent deposits in multiples of ₹100 with a maturity duration of five years. 


There is no maximum deposit amount, so individuals can invest depending to their financial goals. An adult may open the account on their own behalf or on behalf of a minor. The age of ten also marks the beginning of the account opening period for youngsters. 

Up to three persons can have joint accounts of type "A" and "B." By pledging the certificate with banks, a loan facility is made available, which is one of the scheme's main benefits. Additionally, it provides tax advantages, making it a desirable investment choice for people seeking tax savings.

The Central Government launched the National Pension Scheme as a social security programme. Except for members of the military services, personnel from the public, private, and even unorganised sectors are eligible for this pension system. 


The programme encourages participants to make periodic payments to a pension account when they are still employed. The subscribers can withdraw a particular portion of the corpus after retirement. After retirement, as a holder of an NPS account, you will receive the remaining sum as a monthly pension. 

SCSS is a government-backed retirement programme that allows senior citizens in India to invest a lump sum either individually or collectively. It provides consistent income and tax advantages. 


The features include a 5-year maturity period that is extendable by an additional three years, quarterly interest payments, and various deposit methods. Multiple accounts can be created, transfers can be made, and early termination is allowed with relevant fees. 


Age requirements are part of the SCSS eligibility requirements, and NRIs and HUFs are not included. The current interest rate is 8.2% p.a., with quarterly payments. Enjoy security, great profits, and tax deductions of up to Rs.1.5 lakh under Section 80C. Read more here.


It is crucial to remember that the qualifying criteria, conditions, and tax implications for each Section 80C investment instrument or expenditure may differ. 


To ensure compliance and maximize tax benefits depending on individual circumstances, it is important to carefully analyse the precise terms and consult with a tax professional or financial advisor.


To summarize, Section 80C allows Indian taxpayers to lower their taxable income by investing in specific instruments and making qualified expenditures. 


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