Under Section 80 Deductions

80 C :-
Section 80C replaced the existing Section 88 with more or less the same investment mix
available in Section 88. The new section 80C has become effective w.e.f. 1st April, 200.
Even the section 80CCC on pension scheme contributions was merged with the
above 80C. !owever, this new section has allowed a ma"or change in the method of
providing the tax benefit. Section 80C of the #ncome Tax Act allows certain investments and
expendit$re to be tax%exempt. &ne m$st plan investments well and spread it o$t across the
vario$s instr$ments specified $nder this section to avail maxim$m tax benefit. 'nli(e
Section 88, there are no s$b%limits and is irrespective of how m$ch )o$ earn and $nder
which tax brac(et )o$ fall.
The total limit under this section is Rs 1 lakh. #ncl$ded $nder this heading are man)
small savings schemes li(e *SC, ++, and other pension plans. +a)ment of life ins$rance
premi$ms and investment in specified government infrastr$ct$re bonds are also eligible for
ded$ction $nder Section 80C
-ost of the #ncome Tax pa)ee tr) to save tax b) saving $nder Section 80C of the #ncome
Tax Act. !owever, it is important to (now the Section in details so that one can ma(e best
$se of the options available for exemption $nder income tax Act. &ne important point to
note here is that one can not onl) save tax b) $nderta(ing the specified investments, b$t
some expendit$re which )o$ normall) inc$r can also give )o$ the tax exemptions.
.esides these investments, the pa)ments towards the principal amo$nt of )o$r home loan
are also eligible for an income ded$ction. /d$cation expense of children is increasing b) the
da). 'nder this section, there is provision that ma(es pa)ments towards the ed$cation fees
for children eligible for an income ded$ction
Sec 80C of the #ncome Tax Act is the section that deals with these tax brea(s. #t states that
0$alif)ing investments, $p to a maxim$m of 1s. 1 2a(h, are ded$ctible from )o$r income.
This means that )o$r income gets red$ced b) this investment amo$nt 3$p to 1s. 1 2a(h4,
and )o$ end $p pa)ing no tax on it at all5
This benefit is available to ever)one, irrespective of their income levels. Th$s, if )o$ are in
the highest tax brac(et of 607, and )o$ invest the f$ll 1s. 1 2a(h, )o$ save tax of 1s.
60,000. #sn8t this great9 So, let8s $nderstand the 0$alif)ing investments first.
:$alif)ing #nvestments
Provident Fund PF! " #oluntar$ Provident Fund #PF; +, is a$tomaticall) ded$cted
from )o$r salar). .oth )o$ and )o$r emplo)er contrib$te to it. <hile emplo)er8s contrib$tion
is exempt from tax, )o$r contrib$tion 3i.e., emplo)ee8s contrib$tion4 is co$nted towards
section 80C investments. =o$ also have the option to contrib$te additional amo$nts thro$gh
vol$ntar) contrib$tions 3>+,4. C$rrent rate of interest is 8.?7 per ann$m 3p.a.4 and is tax%
free.
Public Provident Fund PPF!% Among all the ass$red ret$rns small saving schemes, +$blic
+rovident ,$nd 3++,4 is one of the best. C$rrent rate of interest is 87 tax%free and the
normal mat$rit) period is 1? )ears. -inim$m amo$nt of contrib$tion is 1s ?00 and
maxim$m is 1s @0,000. A point worth noting is that interest rate is ass$red b$t not fixed.
&i'e (nsurance Premiums% An) amo$nt that )o$ pa) towards life ins$rance premi$m for
)o$rself, )o$r spo$se or )o$r children can also be incl$ded in Section 80C ded$ction. +lease
note that life ins$rance premi$m paid b) )o$ for )o$r parents 3father A mother A both4 or
)o$r in%laws is not eligible for ded$ction $nder section 80C. #f )o$ are pa)ing premi$m for
more than one ins$rance polic), all the premi$ms can be incl$ded. #t is not necessar) to
have the ins$rance polic) from 2ife #ns$rance Corporation 32#C4 B even ins$rance bo$ght
from private pla)ers can be considered here.
E)uit$ &inked *avings *cheme E&**!% There are some m$t$al f$nd 3-,4 schemes
speciall) created for offering )o$ tax savings, and these are called /0$it) 2in(ed Savings
Scheme, or /2SS. The investments that )o$ ma(e in /2SS are eligible for ded$ction $nder
Sec 80C.
+ome &oan Principal Repa$ment% The /0$ated -onthl) #nstallment 3/-#4 that )o$ pa)
ever) month to repa) )o$r home loan consists of two components B +rincipal and
#nterest.The principal component of the /-# 0$alifies for ded$ction $nder Sec 80C. /ven the
interest component can save )o$ significant income tax B b$t that wo$ld be $nder Section
2C of the #ncome Tax Act. +lease read D#ncome Tax 3#T4 .enefits of a !ome 2oan A !o$sing
2oan A -ortgageE, which presents a f$ll anal)sis of how )o$ can save income tax thro$gh a
home loan.
*tamp ,ut$ and Registration Charges 'or a home% The amo$nt )o$ pa) as stamp d$t)
when )o$ b$) a ho$se, and the amo$nt )o$ pa) for the registration of the doc$ments of the
ho$se can be claimed as ded$ction $nder section 80C in the )ear of p$rchase of the ho$se.
-ational *avings Certi'icate -*C!% *ational Savings Certificate 3*SC4 is a %=r small
savings instr$ment eligible for section 80C tax benefit. 1ate of interest is eight per cent
compo$nded half%)earl), i.e., the effective ann$al rate of interest is 8.17. #f )o$ invest 1s
1,000, it becomes 1s 101 after six )ears. The interest accr$ed ever) )ear is liable to tax
3i.e., to be incl$ded in )o$r taxable income4 b$t the interest is also deemed to be reinvested
and th$s eligible for section 80C ded$ction.
(n'rastructure .onds; These are also pop$larl) called #nfra .onds. These are iss$ed b)
infrastr$ct$re companies, and not the government. The amo$nt that )o$ invest in these
bonds can also be incl$ded in Sec 80C ded$ctions. 1s. 20,000A% besides 1 2a(h
Pension Funds / *ection 80CCC% This section B Sec 80CCC B stip$lates that an
investment in pension f$nds is eligible for ded$ction from )o$r income. Section 80CCC
investment limit is cl$bbed with the limit of Section 80C B it maeans that the total ded$ction
available for 80CCC and 80C is 1s. 1 2a(h.This also means that )o$r investment in pension
f$nds $pto 1s. 1 2a(h can be claimed as ded$ction $As 80CCC. !owever, as mentioned
earlier, the total ded$ction $As 80C and 80CCC can not exceed 1s. 1 2a(h.
012r bank 'i3ed deposits F,s!% Tax%saving fixed deposits 3,Fs4 of sched$led ban(s with
ten$re of ? )ears are also entitled for section 80C ded$ction.
*enior Citi4en *avings *cheme 5006 *C**!% A recent addition to section 80C list,
Senior CitiGen Savings Scheme 3SCSS4 is the most l$crative scheme among all the small
savings schemes b$t is meant onl) for senior citiGens. C$rrent rate of interest is H7 per
ann$m pa)able 0$arterl). +lease note that the interest is pa)able 0$arterl) instead of
compo$nded 0$arterl). Th$s, $nclaimed interest on these deposits won8t earn an) f$rther
interest. #nterest income is chargeable to tax.
012r post o''ice time deposit P7T,! scheme% +&TFs are similar to ban( fixed deposits.
Altho$gh available for var)ing time d$ration li(e one )ear, two )ear, three )ear and five
)ear, onl) ?%=r post%office time deposit 3+&TF4 B which c$rrentl) offers @.? per cent rate of
interest B0$alifies for tax saving $nder section 80C. /ffective rate wor(s o$t to be @.@17
per ann$m 3p.a.4 as the rate of interest is compo$nded 0$arterl) b$t paid ann$all). The
#nterest is entirel) taxable.
-8.8R, rural bonds% There are two t)pes of .onds iss$ed b) *A.A1F 3*ational .an( for
Agric$lt$re and 1$ral Fevelopment4; *A.A1F 1$ral .onds and .havish)a *irman .onds
3.*.4. &$t of these two, onl) *A.A1F 1$ral .onds 0$alif) $nder section 80C.
9nit linked (nsurance Plan ; '2#+ stands for 'nit lin(ed Saving Schemes. '2#+s cover
2ife ins$rance with benefits of e0$it) investments.The) have attracted the attention of
investors and tax%savers not onl) beca$se the) help $s save tax b$t the) also perform well
to give decent ret$rns in the long%term.
&thers; Apart from the ma"or aven$es listed above, there are some other things, li(e
children8s ed$cation expense 3for which )o$ need receipts4, that can be claimed as
ded$ctions $nder Sec 80C.6
80 CCF %1
An investment up to a maximum of Rs. 20,000/- in infrastructure bonds would be deductible
from your taxable income. Thus, your taxable income would reduce by the investment you mae
in these infrastructure bonds, sub!ect to an upper limit or ceilin" of Rs. 20,000/-
#lease remember that this is over and above the Rs. $,00,000 allowed under %ection &0'.
80,1 :ediclaim%1
(asic deduction) *ediclaim premium paid for %elf, %pouse or dependant children. *aximum
deduction Rs $+,000. ,n case any of the persons specified above is a senior citi-en .i.e. /+ years
or more as of end of the year0 and *ediclaim ,nsurance premium is paid for such senior citi-en,
deduction amount is enhanced to Rs. 20,000.
80; %1 ,onations%1
Donations for charity come under section 80 G of the Income Tax Act, 191.
This section has c!assi"ed charity funds under #arious heads, each of $hich
%i#e the donor a di&erent 'ind of tax re(ate. )o$e#er, *!ease remem(er,
that for a!! charity donations the deductions are made direct!y from the %ross
tota! income of the assessee.
The contri(utions for charity fa!! under t$o (road cate%ories +,A- Those $here
the tota! sum donated is deducti(!e from the assesse.s %ross income. These
donations $ou!d (e more (ene"cia! to you, in case you $ish to donate for
charity.
/- Those $here on!y 001 of the amount donated $i!! (e deducted from tota!
income.
This article explains how the deductions under %ec &0' of the ,ncome Tax .,T0 Act can help
reduce your income tax liability. ,t also helps you decide where to invest to claim deductions
under %ec &0'.
The "overnment encoura"es certain types of savin"s 1 mostly, lon" term savin"s for your
retirement 1 and therefore, offers you tax breas on such savin"s.
Sec 80C of the Income Tax Act is the section that deals with these tax breas. ,t states that
2ualifyin" investments, up to a maximum of Rs. $ 3ah, are deductible from your income. This
means that your income "ets reduced by this investment amount .up to Rs. $ 3ah0, and you end
up payin" no tax on it at all4
.%ection &0' investment is !ust one of the many avenues of savin" income tax4
This benefit is available to everyone, irrespective of their income levels. Thus, if you are in the
hi"hest tax bracet of 506, and you invest the full Rs. $ 3ah, you save tax of Rs. 50,000. ,sn7t
this "reat8 .,llustrative example and downloadable spreadsheet follow later in the article0
%o, let7s understand the 2ualifyin" investments first.
Qualifying Investments
Provident Fund (PF) The payments that you mae to your #9 are counted towards %ec
&0' investments. 9or most of you who are salaried, this amount "ets automatically
deducted from your salary every month.
Thus, it7s not !ust compulsory savin"s for your future, but also immediate tax savin"s4
!oluntary Provident Fund (!PF) ,f you increase your #9 contribution over and above
the statutory limit .as deducted compulsorily by your employer0, even this amount
2ualifies for deduction under section &0'.
Pu"lic Provident Fund (PPF) ,f you have a ##9 account, and invest in it, that amount
can be included in %ec &0' deduction. The minimum and maximum allowed investments
in ##9 are Rs. +00 and Rs. :0,000 per year respectively.
#ife Insurance Premiums) Any amount that you pay towards life insurance premium for
yourself, your spouse or your children can also be included in %ection &0' deduction.
#lease note that life insurance premium paid by you for your parents .father / mother /
both0 or your in-laws is not eli"ible for deduction under section &0'.
,f you are payin" premium for more than one insurance policy, all the premiums can be
included.
,t is not necessary to have the insurance policy from 3ife ,nsurance 'orporation .3,'0 1
even insurance bou"ht from private players can be considered here.
$%uity #in&ed Savings Scheme ($#SS) There are some mutual fund .*90 schemes
specially created for offerin" you tax savin"s, and these are called ;2uity 3ined %avin"s
%cheme, or ;3%%. The investments that you mae in ;3%% are eli"ible for deduction
under %ec &0'.
To now the multiple benefits of ;2uity 3ined %avin"s %cheme .;3%%0, please read
<$#SS is not for someone else=.
'ome #oan Princi(al )e(ayment) The ;2uated *onthly ,nstallment .;*,0 that you
pay every month to repay your home loan consists of two components 1 #rincipal and
,nterest.
The principal component of the ;*, 2ualifies for deduction under %ec &0'.
;ven the interest component can save you si"nificant income tax 1 but that would be
under %ection 2> of the ,ncome Tax Act. #lease read <Income Tax (IT *enefits of a
'ome #oan + 'ousing #oan + ,ortgage=, which presents a full analysis of how you can
save income tax throu"h a home loan.
Stam( -uty and )egistration Charges for a home) The amount you pay as stamp duty
when you buy a house, and the amount you pay for the re"istration of the documents of
the house can be claimed as deduction under section &0' in the year of purchase of the
house.
.ational Savings Certificate (.SC) The amount that you invest in ?ational %avin"s
'ertificate .?%'0 can be included in %ec &0' deductions.
Infrastructure *onds) These are also popularly called Infra *onds. These are issued by
infrastructure companies, and not the "overnment. The amount that you invest in these
bonds can also be included in %ec &0' deductions.
Pension Funds / Section 80CCC) This section 1 %ec &0''' 1 stipulates that an
investment in pension funds is eli"ible for deduction from your income. %ection &0'''
investment limit is clubbed with the limit of %ection &0' - it maeans that the total
deduction available for &0''' and &0' is Rs. $ 3ah.
This also means that your investment in pension funds upto Rs. $ 3ah can be claimed
as deduction u/s &0'''. @owever, as mentioned earlier, the total deduction u/s &0' and
&0''' can not exceed Rs. $ 3ah.
*an& Fixed -e(osits) This is a newly introduced investment class under %ection &0'.
(an fixed deposits .also called term deposits0 havin" a maturity of + years or more can
be included in your %ec &0' investment.
.#lease read AFixed -e(osits (F- for saving income tax through section 80CA for
more on this0
Senior Citi0en Savings Scheme (SCSS) %'%% is a deposit scheme specially meant for
elderly citi-ens.
.#lease read AAll you 1anted to &no1 a"out Senior Citi0en Savings Scheme (SCSSA
for more on this0
Post 2ffice Time -e(osit Account) This is the fixed / term deposits offered by the
Bepartment of #osts .Covernment of ,ndia0 throu"h the post offices in ,ndia.
,f the time deposit is opened for a duration of + years or more, the amount invested is
2ualified for deduction under section &0'.
.#lease read APost 2ffice Time -e(osit Account (Fixed + Term -e(ositA for more on
this0
2thers) Apart form the ma!or avenues listed above, there are some other thin"s, lie
children7s education expense .for which you need receipts0, that can be claimed as
deductions under %ec &0'
All you 1anted to &no1 a"out Senior Citi0en
Savings Scheme (SCSS
The %enior 'iti-en %avin"s %cheme .%'%%0 is often referred to as the best alternative for the
elderly to invest their money. ,s this !ustified8 @ereDs a detailed loo at all the features of the
%enior 'iti-en %avin"s %cheme, and an analysis of whether you should invest in it or not.
3hat is Senior Citi0en Savings Scheme (SCSS4
The <%enior 'iti-en %avin"s %cheme= .or %'%%0 is a deposit scheme specially meant for elderly
citi-ens.
Features + 2vervie1 of the Senior Citi0en Savings Scheme (SCSS
Age Criteria
The investment can be made only by people of /0 years of a"e or above.
#eople who have retired on superannuation or under a voluntary retirement scheme can also
invest if they are at least ++ years old.
#eople retirin" from defense services are eli"ible to invest in the scheme irrespective of the a"e
limit, but there are some additional conditions applicable.
Other Restrictions
The %enior 'iti-en %avin"s %cheme account can be opened only by individuals. ,t can not be
opened by ?on-Resident ,ndians .?R,0, #ersons of ,ndian Eri"in .#,E0 and @indu Fndivided
9amilies .@F90.
Source of Funds
9or people between ++ and /0 years of a"e, the amount invested in %'%% has to come from their
retirement benefits.
9or persons over the a"e of /0 years, there is no restriction on the source of funds invested.
Maturity
The %enior 'iti-enDs %avin"s %cheme has a maturity of + years, which is extendable by 5 years.
Interest Rate
The rate of interest offered on the investment is G6 per annum.
Interest Payment
The interest is computed and paid out every 2uarter. That is, the interest is paid out every three
months.
Income Tax Treatment
There is %ection &0' income tax benefit on the investment made in %'%%, but there is no income
tax benefit on the interest earned from it.
The investment made in the %enior 'iti-en %avin"s %cheme on or after $st April, 200& is
deductible from your income under section &0' of the ,ncome Tax Act. The interest earned on
the deposit is fully taxable.
.To now more about the deductions under section &0', and the avenues of investment u/s &0',
please read ASaving Income Tax / 5nderstanding Section 80C -eductionsA0
Tax Deducted At Source TDS!
The income tax applicable is deducted at source. ,f your income is not taxable, you can provide
form $+@ or $+C so that no tax is deducted at source.
The tax is deducted at source only if the total interest in a year is over Rs. +,000.
In"estment #imits
The minimum investment is Rs. $,000, and the maximum allowed investment is Rs. $+ 3ahs.
Any amount between Rs. $,000 and Rs. $+ 3ahs can be invested in multiples of Rs. $,000.
$oint Account
The account can be opened as a sin"le account, or can be opened in !oint names. The !oint
account holder can only be the spouse.
There is no a"e limit applicable for the !oint account holder .spouse0.
,n case of the death of the primary account holder, the spouse can continue the account 1 this is
sub!ect to the condition that his / her total investment in %'%% should not exceed Rs. $+ 3ahs.
Premature % &arly 'ithdra(al
The amount can be withdrawn before the maturity date, provided the deposit is at least $ year
old. (ut early withdrawal carries a penalty as follows)
Account a"e between $ and 2 years) $.+6 of the deposit amount
Account a"e over 2 years) $6 of the deposit amount
#oan % Pledging
Hou can not obtain a loan a"ainst the %'%% account by pled"in" it.
)omination
?omination facility is available for the %enior 'iti-en %avin"s %cheme. ?ames of one or more
persons can be specified as nominees.
?omination can be done even after openin" the account. The nomination can also be chan"ed or
canceled later.
?omination can also be done in case of !oint accounts. ,n such cases, the !oint holder is entitled
to the amount in case of death of the primary account holder. The nominee.s0 would have a claim
only after the death of both the !oint holders.
Should you invest in Senior Citi0en Savings Scheme (SCSS4
Interest Rate
Till very recently, the prevailin" interest rates on ban fixed / term deposits were +6 - /6 per
year. At that time, the %enior 'iti-en %avin"s %cheme was very popular with people, as it
provided interest rates that were way above the avera"e maret rates.
(ut now .Au"ust 200&0, with interest rates on 9Bs bein" as hi"h as $06 .with an additional
0.+6 for senior citi-ens0, the interest offered on %enior 'iti-en %avin"s %cheme loos 2uite low.
Interest Payment
The interest is paid out every 5 months. This means that %'%% can provide a steady, periodic
income.
Safety
The %'%% is baced by the Covernment of ,ndia, and thus, carries a soverei"n "uarantee for
principal and interest payments.
Therefore, it is amon" the safest investment avenues available in ,ndia.
*ottomline
%ince the scheme is absolutely safe, and provides periodic payment of interest, retirees and
senior citi-ens can invest a portion of their retirement corpus in the %enior 'iti-en %avin"s
%cheme.
'o1 to invest in the Senior Citi0en Savings Scheme (SCSS
A %enior 'iti-en %avin"s %cheme account can be opened at any designated (ost office
throu"hout the country.
The scheme can also be opened at the desi"nated branches of the followin" (u"lic sector "an&s)
Allahabad (an
(an of (aroda .(o(0
(an of ,ndia .(o,0
(an of *aharashtra .(o*0
'anara (an
'entral (an of ,ndia .'(,0
'orporation (an
Bena (an
,ndian (an
,ndian Everseas (an .,E(0
#un!ab ?ational (an .#?(0
%tate (an of ,ndia .%(,0
%tate (an of @yderabad
%tate (an of ,ndore
%tate (an of (ianer and Iaipur .%((I0
%tate (an of #atiala
%tate (an of %aurashtra
%tate (an of *ysore
%tate (an of Travancore .%(T0
%yndicate (an
F'E (an
Fnion (an of ,ndia
Fnited (an of ,ndia
Ji!aya (an
A %enior 'iti-en %avin"s %cheme .%'%%0 account can also be opened at ,',', (an. ,',',
(an is the only (rivate "an& where an %'%% account can be opened.