A Guide to deduction under section 80C

Savings play an important role in the economic development of any country. To boost saving habits, an incentive in the form of a deduction out of one's taxable income has been allowed. To use those savings, various schemes have been framed and if the assesses deposits those savings in these approved schemes, a deduction shall be allowed.

Who can claim deductions u/s 80C?

(i) An Individual
(ii) A Hindu Undivided Family (HUF)

Rate of deduction

Total amount deposited in various approved savings schemes or ₹1,50,000 p.a. w.e, is less shall be allowed as deduction. This limit of 1,50,000 also includes the amount of deduction allowable to the assessee u/s 80CCC and 80CCD.

Qualifying amount for deduction under section 80C

Amount saved and deposited by the employee or assessee in following savings schemes shall qualify for deduction u/s 80C.

(i) Deposits made in Provident Funds

• Deposits in Statutory Provident Fund :Amount deposited by the employee in this fund during the previous year fully qualifies for deduction.
• Deposits in Recognised Provident Fund : Amount deposited during the previous year fully qualifies for deduction.
• Deposits made by the employee in Unrecognised Provident Fund : Since this fund is not recognised by the Commissioner of Income Tax, so any amount saved and deposited by the employee in the fund will not qualify for any deduction.
• Deposits made in Public Provident Fund. This Provident Fund account can be opened in the name of an individual (salaried or non-salaried), his/her spouse or children and amount deposited by the assessee during the previous year in any of these accounts shall qualify for deduction under section 80C.

(ii) Payment of Life Insurance Premium

Actual amount of premium deposited by the assessee or on his behalf by his employer or 20% of sum assured (10% for policy issued on or after 1-4-2012) w.e. is less shall qualify for deduction. Life insurance policies can be obtained in the name of the assessee, spouse and children and in of HUF in the name of any or all the co-parceners of the HUF. The children means all the sons and daughters of the assessee whether minor or major, whether dependent upon assessee or are independent or may be married or unmarried. It also includes step or adopted children.

Moreover,in case an individual is suffering from some disability or an ailment given in section 8DDB. premium paid upto 15% of actual capital sum assured on policies issued on or after 1-4-2013 shall be eligible for deduction under section 80C.The Life Insurance Policy cannot be surrendered unless premium has been paid for 2 years on such policy.

(iii) Amount deducted out of Govt. employees salary towards deferred annuity:

In case any amount has been deducted out of salary of Government employee for securing a famed annuity for him or making a provision for his spouse or children, the amount so deducted t not exceeding 20% of his salary will qualify for deduction u/s 80C.

(iv) Payment made towards Group Insurance

Any amount deducted and deposited by employer towards employee's group insurance shall fully qualify for deduction.

(v) Deposits made in Approved Superannuation Fund

Amount deposited during the previous year shall fully qualify for deduction.

(vi) Payment for deferred annuity

Any payment made by the assessee to effect or keep in force contract for a non-commutable deferred annuity will qualify for deduction u/s 80C.

(vii) Deposits made in Unit Linked Insurance Plan (ULIP)

Any amount deposited by the assessee in Unit Linked Insurance Plan of UTI or LIC mutual fund shall fully qualify for deduction. Amount can be deposited in the name of assessee, spouse and children. However, in case of H.U.F. contribution may be made in the name of any member of H.U.F. Lock-in-period. The participation in ULIP cannot be ceased unless contributions have been paid for 5 years.

(vii) Amount invested in National Savings Certificates-VIII or IX issues

Amount invested in National Savings Certificates-VIII or IX issue fully qualifies for deduction u/s 80C. Interest accrued on these certificates purchased earlier is deemed to be re-invested, hence such interest also fully qualifies for deduction every year.

(ix) Amount invested in National Saving Scheme (NSS)-1992

Any amount invested in NSS-1992 fully qualifies for deduction.

(x) Amount invested in notified Pension Fund set up by Mutual Funds or UTI

Any amount invested by an individual in notified funds set-up by Mutual Funds or UTI shall fully qualify for deduction u/s 80C.

(xi) Amount deposited with National Housing Bank

Any amount deposited as subscription to Home Loan Account Scheme of the National Housing bank or contribution to any notified pension fund set up by the National Housing Bank will fully qualify for deduction u/s 80C.

(xii) Amount deposited with an authority engaged in Housing Development or Town or Rural Development

There are approved authorities which are engaged in the field of Housing, Town, Cities and Rural development and any amount deposited with these authorities shall fully qualify for deduction u/s 80C.

(xiii) Any subscription in deposit scheme of Central Government

Any subscription to any such security of the Central Govt. or any such deposit scheme as Central Govt. may notify in Official Gazette, specifying in this behalf, will qualify for deduction u/s 80C

(xiv) Deposit in Sukanya Samriddhi Account

Any amount paid or deposited as a subscription in the name of a girl child of the individual or in the name of any girl child for whom such individual is the legal guardian will qualify for this deduction under section 80C.

(xv) Term Deposits with Banks

Term deposits with certain banks of not less than 5 years duration and as per scheme

by Central Govt. shall also qualify for deduction u/s 80C.

(xvi) Repayment of Housing loan for purchase/construction

Any amount repaid under housing loan taken from Govt.., LIC, Bank, HDFC, HUDCO or other housing finance institutions or employer. [Not from friends or relatives] OR

Amount repaid as full price or installment of price approved agency shall qualify up to actual amount repaid.

The amount repaid must not include interest on loan or ground rent but shall include stamp duty and registration charges.

Lock-in-period. The house acquired cannot be transferred before the expiry of 5 years from the end of the financial year in which the possession is obtained by assessee.

(xvii) Payment of Tuition Fees of two Children

Any amount paid as tuition fees (excluding any payment towards any development fees or donation or payment of similar nature) whether at the time of admission or thereafter to :

(a) any school, college or university or other educational institution situated in India,

(b) for the purpose of full time education of any two children of the individual. The amount, which shall qualify under this section, shall not exceed actual amount paid as tuition fee for two children only.

Other deductions include

(xviii) Amount invested in Equity Shares or Debentures in an eligible issue

(xix) Amount paid as subscription to any units of any mutual fund In case such unit scheme of mutual funds is notified by CBDT, the amount so invested shall qualify for deduction u/s 80C, The amount so invested in on which deduction is claimed shall not qualify for exemption of capital gain SARA or u/s 54EB or u/s 54EC

(xx) Subscription to Bonds of NABARD Any subscription to bonds issued by the National Bank of Agriculture and Rural Development