Section 80C of Income Tax Act: Deductions permitted under the section has the largest revenue implication for the government's income tax collection.
Income Tax: Deductions permitted under section 80C of Income Tax Act have cost the government over Rs 75,000 crore in the year ended March 2019. Income Tax Act allows deduction of certain investments and expenses incurred by taxpayers while calculating their tax liabilities under the Act. Although, the Union government permits deductions, exemptions and rebates under 27 different sections and sub-sections, the deductions permitted under section 80C are the most widely used and they have the largest revenue implication for the government’s finances.
In the financial year 2018-19, the cumulative tax implication of five deductions permitted under section 80C of the Income Tax Act was Rs 75,245 crore, which was over 14% of the total income tax collected by the government in the year.
With the rising expectations of middle class, the deductions and exemptions permitted under the Income Tax Act have gone up in recent years. In 2016-17, the total revenue implication of these deductions was Rs 64,790 crore which went up by Rs 10,455 crore in 2018-19, an increase of 16%.
Section 80C deductions cover several things like repayment of principal component of housing loan and investments into fixed deposits, NSC and provident funds that can be deducted from an individual or HUF tax payer’s income while calculating his tax liability for a financial year.
Deductions permitted under 80C
Under the section 80C of Income Tax Act, taxpayers can claim deductions of up to Rs 1.5 lakh from their taxable income in a financial year on the investments made in public provident fund (PPF), national saving certificates (NSC), and also investments in eligible mutual funds and UTI.
These deductions also cover investment in eligible fixed deposits (FDs) and bonds, other investment eligible for section 80C deductions.
Deductions of income under the section 80C of Income Tax Act are also admissible for payment of life insurance premium, payment of tuition fee for two children and repayment of the principal component of housing loan. These deductions also cover payment of stamp duty, registration fee and other expenditure on purchase or construction of a residential house.
Expenses eligible for 80C deductions
- Payment of life insurnace premium.
- Medical insurance premium for an individual, spouse and children.
- Deposit in provident fund/superannuation fund.
- Deposits in Public Provident Fund (PPF).
- Investment in eligible FDs and bonds.
- Investment in five years FDs eligible for deduction under 80C.