12 smart Section 80C deductions to save your income tax

This article explains how the income tax Section 80c deductions of the Income Tax (IT) Act can help reduce your income tax liability in your yearly financial planning.

Though most of us use some of the deductions under Section 80C each year, we might be doing so unknowingly. Read on to understand what are the various options available under Section 80C of the Income Tax (IT) Act to help you better your next years tax savings.

This article is applicable for assessment year 2011-2012 or previous year 2010-2011.

Income tax Section 80C deductions

The income we earn is liable to tax. The government of India prods us to save our hard earned money for our future. It offers tax breaks on the savings that investors do annually.

Section 80C of the Income Tax Act is the section that deals with tax breaks. It states that if investments are done in specific instruments, then one’s income becomes deductible by a maximum of Rs 1,00,000/-.

Investments made under specified schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000.

To state with an example, if your gross total income is Rs 8,00,000/- and if you have invested Rs 1,25,000/- in the qualifying instruments, then your gross total income is reduced by Rs 1,00,000/- to Rs 7,00,000/- and you do not have to pay tax on this Rs 1,00,000/- at all !

Qualifying Investments under Section 80c

Following are the qualifying instruments under Section 80C which investors can use.

1. Life insurance premiums

Any amount of money that you pay as premium for yourself, spouse or your children will qualify for Section 80C. The children may be married/unmarried, dependent or not dependant.

Note that if the premium paid exceeds 20% of the sum assured of the life insurance policy, the amount eligible for deduction under section 80C shall be limited to 20% of the sum assured.

2. Employees Provident Fund (EPF)

You automatically begin saving in your EPF when you begin working. Under the EPF, 12% of your basic salary goes into this fund. Not only this, your employer matches an equal 12% ! From your employers contribution, 8.33% goes towards the Employees Pension Scheme (EPS) and 3.67% into the EPF. Your EPF earns a tax free interest.

3. Public Provident Fund (PPF)

The favorite of the masses among the various Section 80C options, PPF is a risk free tax free investment avenue that investors should mandatorily subscribe to. You can invest a minimum of Rs 500/- and a maximum of Rs 70,000/- in this in a year. With a lock in period of 15 years and a return of 8%, this stands as one of the best Section 80C deduction for saving tax.

Section 80C

4. Home Loan Principal Repayment

Any payment for the purchase or construction of a residential house property will also qualify under Section 80C.

Such payments should have been made towards :

# the principal component of the home loan that was taken.

# stamp duty, registration fee and other expenses for the purpose of transfer of such house property.

5. Bank Fixed Deposits

Any sum deposited in a fixed deposit for a period of not less than 5 years with a scheduled bankĀ  or post office will also qualify for deductions under Section 80C.

6. National Savings Certificate(NSC)

A zero risk investment avenue, NSC will give you a return of 8% for a duration of 6 years. Your Rs 1 lakh will become Rs 1.6 lakh after 6 years.

7. Senior Citizens Savings Scheme (SCSS)

Targeted at retired individuals, you are expected to put in Rs 15 lakh for 5 years in this scheme. You can earn 9% interest a year and get the Section 80C deduction benefit.

8. Equity-linked savings schemes (ELSS)

ELSS are diversified equity mutual funds that allow investors to get tax breaks and target a higher return as well. The lock in period is three years – this means, once you invest in the ELSS fund, you can sell only after 3 years are over. The best part is that there is no long-term capital gains in this. You can invest via lump sum or take the systematic investment planning route. The latter is advised.

9. New Pension System (NPS)

A new kid on the block, NPS is for those who do not have an EPF facility to target long-term retirement needs. NPS is market linked and boats of features like zero front load, minimal annual charges and a decent variety of fund managers to invest with.

10. Tuition fees

School fees for the purpose of full time education of up to two children can also be availed as deductions in Section 80C. The conditions are that the payment cannot be towards donations or development fees and the institution should be situated in India.

11. Unit-linked insurance plans (ULIPs)

ULIPs are hybrid products that bundle insurance and investment together. The premium needs to be paid for a minimum of three years. Since ULIPs have very high front end charges, they work only in the long run of over 9-10 years. Heavily mis sold and abused product, they are every insurance agents hot selling item between January to March each year.

12. NABARD

Subscription to bonds issued by NABARD(National Bank for Agriculture and Rural Development) will also qualify for Section 80C deductions.

Here is a small snapshot on the risk return trade off of some of these instruments.

Section-80C-Risk-Return-Tradeoff

Author: Radhey Sharma

Radhey is a Certified Financial Planner and an expert in the disciplines of insurance, retirement, investments and tax. His hobbies include gardening, traveling and reading self development books. The information contained on this blog is general advice and may or may not be suitable to the reader. Kindly take professional help before you apply what you read.

Share This Post On

50 Comments

  1. My Son is in Senior KG in Muljibhai Mehta International School & his Yearly Fees Approx 15000/- Can u give me the idea for this school fees how i m adjusted U/s.80C.

    Post a Reply
    • @Kiran Shah, Tuition fees defined under income tax act is : full time education of any two children in any university, college, school or other educational institution, subject max of Rs. 100000 (Section 80C).
      Payment towards any development fees or donation is not allowed.
      So yes, in your case you can claim deduction of Rs 15,000/-.
      Let me know whether you understood or not.

      Post a Reply
      • I am sponsoring my cousins education, Am I eligible for tax exemption for the tuition fees here?

        Post a Reply
  2. No body tells for how many years after purchase of apt/house can somebody claim relief for stamp duty/Registration. What is this some kind of secret?? This is total folly!!

    Post a Reply
    • @Kamesh Pandian, If you know about it, great if not why dont you find out for us and let us now. Will help everyone !

      Post a Reply
    • Deduction can only be claimed in the year in which property is purchased. So if you buy the house on say 01-09-2012 then in the year 2012-13, you will get the deduction.

      Post a Reply
      • Are you 100% sure? I think I heard it can be carried forward to certain years.

        Post a Reply
        • Ok, did some research and Praneet is right. Tax exemption can be claimed in the same financial year but only after the possession. If you have paid stamp duty in 2011-12 and possession is in 2012-13 then exemption cannot be claimed and you lose it forever. In such scenario it is advisable to delay stamp duty until next financial year or whenever you are getting the possession.

          Post a Reply
  3. The M.Sc. computer science fee receipt break-up shows Tuition fees – Rs. 10,500/- Laboratory fees – Rs. 25,000/- and few more like admission fees, Eligibility fees-M.S., Registration fees for PG, gymnkhana fees, Student activity, journal & stationery chgs..ETC.

    Please advice which of the above expenses defines Tuition Fees under Section 80C

    Post a Reply
    • Only tuition fees and laboratory fees allowed in this case.

      Only available to parents who have children under going education (full time)

      Post a Reply
  4. Any amount of money that you pay as premium for yourself, spouse or your children will qualify for Section 80C deductions. The children may be married/unmarried, dependent or not dependent.
    sir/madam i want to know whether son/daughter paid premium for his/her father (father is also employed)benefit us 80c received by son/daughter or not ??

    Post a Reply
    • @narpat charan, Is your question related to claim reg health insurance ? If yes, then yes the benefit is only for the son/daughter as one is allowed to cover parents in a health insurance policy.

      Sorry if I did not understand your question.

      Post a Reply
  5. sir my question is regarding Life Insurance of father ( father is employed) and Premium paid by son/daughter – Can benefit under sec 80c got by son/daughter??

    Post a Reply
    • @narpat charan, Radhey is right, you cannot claim tax exemption for life insurance premium of your parents or in-laws. You can only claim for medical insurance but under section 80D.

      Post a Reply
  6. what is distance between salary @ wages

    Post a Reply
      • salary is calculated as yearly basis and wages is hourly basis.. as per my opinion…..

        Post a Reply
    • Salary is a fixed periodical payment paid to a person for regular work or services; a wage is usually paid by the day or week for work or services which are of a more irregular nature.

      Post a Reply
  7. if i paid Rs.100000 for life inshurance premium and that time i paid my sons tuition fee Rs.25000 which amount is aloud to me deduction under Section 80c between Rs.100000 and Rs.125000.

    Post a Reply
  8. I AM SENIOUR CITIZEN WHAT IS MY INCOME TAX LIMIT

    Post a Reply
  9. what means advance income tax and how he calculate

    Post a Reply
  10. @Deepak,

    Here is the information i got from the net. Hope it helps

    http://www.caclubindia.com/forum/advance-tax-calculator-118579.asp

    Taxpayers are required to pay tax during the year on the basis of their own computation of income. The advance tax is payable on total income of the year from all sources i.e. salary, business, profession etc. (including capital gain, interest, rental income or lottery/prize money).

    The advance tax is payable if it exceeds Rs.10,000 for the year.

    In the case of an individual, advance tax needs to be deposited as below:

    30% of advance tax payable on or before 15th September
    60% of advance tax payable on or before 15th December
    100% of advance tax payable on or before 15th March

    What is the penalty for not depositing advance tax?

    In case of default in payment of advance tax, 1% p. m. interest is paid in addition to the tax payable amount, under section:

    234B – If you have not paid the advance tax i.e. 90% of total tax payable before 31st March.
    234C – If you have not paid the installment in time i.e 30% before 15th Sept, 60% before 15 Dec and balance before 15th March.

    Who need not deposit advance tax?

    If your total tax payable is below Rs 10,000, you are not obliged to deposit advance tax as per income tax laws. Also, if your main source of income is salary and all other income (like interest) has been declared to your employer, there is no need to deposit advance tax. However, salary income needs to be included if salary details under the previous employer are not given to the new company on joining.

    Post a Reply
    • @Rakesh, I don’t think this article is answering the second part of the question on how to calculate the advance tax?

      Post a Reply
      • @Vivek,

        The link contains the calculator, though i have not tried it.

        Post a Reply
  11. i am industrial machine manufacturer,if i sold my car Rs.5,00,000/-which originol price in my balance sheet is Rs.14,000,00/- that time my losss in car sale is Rs.9,00,000/-this loss income tax department aloud to me ,and Rs.5,00,000/- i include my sale a/c.

    Post a Reply
  12. am industrial machine manufacturer,if i sold my car Rs.5,00,000/-which originol price in my balance sheet is Rs.14,000,00/- that time my losss in car sale is Rs.9,00,000/-this loss income tax department aloud to me?,and Rs.5,00,000/- i include my sale a/c.?

    Post a Reply
    • You cannot include sale of car in your Sales A/c. Car is an asset, disposal of which will have to be shown in the Fixed Assets Chart. Loss can be shown in the balance sheet though.

      Post a Reply
    • Loss in your case is not Rs.900000. Deprication rate of Motor Car as per Income Tax Act is 15%. You have to give effect to depriciation to calculate the actual amount of profit/loss.

      Post a Reply
  13. @Deepak Malekar,

    But you would have already claimed depreciation for that vehicle. Did you consider that too? A tax consultant would be in a better position to assist. Please wait to hear from other experts.

    Post a Reply
  14. Sir
    my son is now repaying is educational loan along with interest.
    He is now working and the repayment is from his salary
    His office has allowed him to claim interest part of his educational loan u/s 80E
    They are not allowing him to claim repayment of principal under section 80C.
    Whether he can claim repayment of principal u/s 80C?
    please enlighten me!
    Ganesan

    Post a Reply
  15. On whose name should I declare interest on FD’s in joint name with my wife? Can it be 50% in th IT return of each of us?
    Thanks.
    RC Kohli

    Post a Reply
    • Good question – Rakesh/Vivek – thoughts ?

      Post a Reply
    • The first holder always.

      Post a Reply
  16. hi,my annual income is 4.5 lakhs per annum.I pay LIC Premium of Rs.20,000 per year and rent paid by me is Rs.8800 pm in a metro city.My Basic salary is Rs.19,000(app) per month and HRA of Rs.9400 per month.So please suggest me the suitable tools for tax savings as i can invest a maximum of another Rs.40,000 this year for tax savings.My age is 30yrs.

    Post a Reply
    • You shoudl invest in tax saving mutual funds. Make sure your EPF is also taken into account for Sec 80C. Don’t buy life insurance policies to save tax – I hope you have adequate term insurance.

      Post a Reply
  17. Dear Sir,

    I am paying the fees of a child who stays with me but does not hold any relationship with me. Can i claim the same under 80C tuition fees

    Post a Reply
    • Hmm, interesting question?
      I guess you cannot claim.

      Post a Reply
    • Have you adopted the child ? I think the relationship needs to exist – best you consult a tax consultant for this.

      Post a Reply
  18. I have taken Aegon Religare Term Plan in january 2013 of 70 lacs, i have doubt in my mind is this company good to further continue as its settlement ratio is not so good, i need your opinion

    Post a Reply
    • I dont think there is any issue as long as you did the due diligence correctly.

      Post a Reply
  19. @Sachin,

    As long as you have filled the form correctly you need to worry about the claim-ratio now.
    But do monitor their claim settlement ratio over the next few years and compare it with its peers and decide.

    Post a Reply
  20. I pay tution fees and purchase of books and stationaries and school books and school car , If I claim deduction of all this amount for my income tax statement?

    Post a Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>