Section 80C provides deduction benefit on investments against qualified instruments. Source of income is not relevant while applying for deduction under this section.
As per the Income Tax Act, 1961, Section 80C provides deduction benefit on investments against qualified instruments. Source of income is not relevant while applying for deduction under Section 80C. However, before you choose an investment option u/s 80C, it’s important to know about its nitty-gritty.
Who can claim tax benefit u/s 80C?
Only individuals/HUF taxpayers can claim deduction under this section. Whether you are a salaried employee, engaged in your own business, professional person, male or female, senior citizen or non-senior citizen, Section 80C allows the benefit to all. This section covers a wide range of investment options as well as expenses on which you can claim the deduction.
Deduction based on the actual payment record date
Deductions under Section 80C are available on actual payment basis. For instance, the tuition fee of your child for Rs 19000/- is due on the 1st of March 2019, but it is actually paid by you on the 2nd April 2019, then this amount shall be qualified for deduction only under the year FY 2019-20, i.e., while filing ITR in A.Y 2020-21, rather than in FY 2018-19.
The maximum amount that can be claimed under Sec 80C is Rs 1,50,000/-, and, this is also the combined maximum ceiling of sections 80C, 80CCC, and 80CCD (1). This ceiling limit is not only for a single investment option, but its cumulative of all the options eligible investments made during the relevant financial year. Let’s explore the most popular options u/s 80 (C) that you may explore in the coming tax season.
# Equity-linked savings scheme (ELSS)
Investment in ELSS within the prescribed limit of Rs 1.5 lakh u/s 80 (C) is eligible for deduction benefit. There is a lock-in period of 3 years before which you can’t liquidate the investment. While booking LTCG on ELSS, the profit above Rs 1 lakh would be subject to tax at 10% rate.
# Principal on home loan and stamp duty on purchase/ construction of residential house
If you take a home loan, the principal component of the EMI payment allows you tax deduction up to Rs 1.5 lakh under Section 80 (C). Stamp duty or registration charges or any expenses incurred while purchase/construction of the residential house are eligible for deduction under section 80 (C), in the year of purchase/construction only.
# Sukanya Samriddhi Yojana (SSY)
If you have a girl child, then you can invest in SSY to claim the deduction benefit u/s 80 (C). Minimum deposit of Rs 250 and maximum of Rs 1,50,000/- per financial year is required to be maintained. Maturity shall become due only after 21 years of the account opening date. However, there are some exceptional cases for early withdrawal also. You can invest for a maximum of 2 girl children before they attain the age of 10 years.
# Senior Citizen Saving Scheme (SCSS)
The deposit under this scheme can be made in any post office, branches of nationalized or private banks. Persons who have attained the age of 60 years or above can deposit in this scheme with a minimum amount of Rs 1,000, and a lock-in period of 5 years (situational exceptions are there). Interest under the SCSS scheme is paid on a quarterly basis which makes it different from other tax saving investments.
# National Saving Certificate (NSC)
You can start investing in NSC with minimum Rs 100/- and there is no upper limit. The maturity period is 5 years. Interest accrued every year is reinvested in the NSC; therefore, it qualifies for tax deduction u/s 80 (C). However, interest accrued in the final year is not reinvested. Therefore, it is taxed at applicable slab rate of the investor.
# Tuition Fees
Tuition fees of children are eligible for deduction under Sec 80 (C), which can be claimed for a maximum of 2 children. It is important to note here that other payment made to the educational institute for the education of your children, such as donation or activity fees, etc, do not qualify for the deduction benefit.
Some other instruments which are eligible for the deduction u/s 80 (C) include investment in Public Provident Fund (PPF), which comes with an investment period of 15 years. Repayment of the principal amount of Housing Loan is also covered under this section.
While investing for tax benefit u/s 80 (C), you should focus on your financial needs, future goals, liquidity requirement, and your risk appetite. Take investment decisions keeping in view all the relevant factors, and, plan accordingly.
(The writer is CEO, Bankbazaar.com)