If you want to save income tax, Section 80C of the Income Tax Act provides you with a lot of options. It is important that you choose the proper type of plan or instrument so that you may reap the most monetary and safety advantages while also saving money on taxes. Create a portfolio that includes life insurance, which not only provides life insurance but also allows you to save taxes and reduce your tax liability under Section 80C. This will relieve you of a significant portion of your tax payment load and keep your income from being depleted.

To save a significant portion of your earnings in India, you must pay special attention to the various tax-saving financial solutions. Sections 80C, 80CCC, and 80CCD allow paid professionals in India to avoid tax. If you believe you have been spending a big portion of your income on taxes, it is extremely probable that you have not correctly budgeted your taxes. There are several legal methods for saving money on taxes. Deductions are allowed under the Income Tax Act of India, which will enable individuals to save taxes. The deductions can be claimed while filing one’s tax return. With that being said, let us look deeper into the Section 80C tax deductions.

What is Section 80C?

Section 80C is a renowned and well-liked section by many taxpayers because it enables them to lower their tax liability by making tax-saving investments or incurring qualified costs. It enables a total deduction of Rs 1.5 lakh from the taxpayer’s total income per year. Individuals and HUFs can both benefit from this deduction. This deduction is not available to corporations, partnership businesses, or LLPs. Additionally, Section 80C stipulates a combination of activities, which includes sections 80CCC and 80CCD. If you desire to use your money in most of these activities during the Previous Year (PY), you can get deductions from your overall taxable revenue for the PY. But, what are the differences between them?

• Section 80C lets you deduct up to 1.5 lakh each year from your taxable revenue for various investments. 
• Section 80CCC allows a person to deduct up to 1.5 lakh per year for contributions paid to designated pension plans. 
• Section 80CCE limits the overall exemption ceiling to 1.5 lakh per year.

Investment Deductions under Section 80C

The following are some of the several investments you may make to avoid taxes under Section 80C of the Income Tax Act:

Source: https://www.bankbazaar.com/tax/deductions-under-80c.html

Eligible Payments with tax deductions under Section 80C

This section allows an individual or a HUF to claim a deduction. This deduction is not available to corporations, limited liability partnerships, or other legal entities. This clause allows for the following deductions:

Life Insurance Premium Payments

The yearly premium paid for life insurance coverage in the name of the taxpayer or his wife and kids is a Section 80C qualifying payment. The deduction is only applicable if the premium is less than 10% of the insured amount.

If the insurance coverage is a single premium plan, it cannot be canceled within two years of its inception. You should pay nearly two years’ premiums if you have multiple premium insurance. Failure to do so may result in the deduction being reversed under this Section. Section 80C also allows for a tax rebate for unit-linked life insurance plans (ULIPs).

Employees’ Provident Fund (EPF) 

Worker contributions to the EPF account are deductible under Section 80C. Employer contributions are likewise tax-free, although they are not deductible under Section 80C. Returns Taxation: The interest rate on an EPF is tax-free. When you quit an EPF-registered business, however, it becomes taxed. If an EPF is withdrawn before completing 5 years of employment with an EPF registered firm, the interest is also taxed. 

Public Provident Fund (PPF) 

Public Provident Fund is a government-managed savings plan with a government-managed interest rate. Many financial institutions and post offices accept investments in it, and PFF is for a period of 15 years. Tax is not levied on PPF refunds. PPF returns, on the other hand, must be declared in your income tax return each year.

National Pension System (NPS) 

Section 80CCD (1) and (2) provide for the NPS deduction. Contributions to the NPS by both employers and workers are tax-deductible under Section 80C. Yet, in order to qualify for this part, your employer’s payments cannot exceed 10% of your base pay and dearness compensation. Self-employed individuals can also receive this benefit for payments up to 20% of their gross income. Furthermore, voluntary donations to the NPS up to Rs 50,000 are deductible in excess of the Rs 1.5 lakh allowed under Section 80c of the income tax act. Section 80CCD (1B) applies to certain voluntary donations. 

Investment in ELSS mutual funds. 

ELSS mutual funds have a three-year lock-in period and invest 80 percent of their capital inequities. 

Home Loan Repayment

The settlement of the mortgage used to buy or build a home qualifies for tax breaks under Section 80C. This exemption also applies to stamp duty, registration costs, and more.

Payments for Children’s Education

University fees spent for the education of 2 kids are tax-deductible up to Rs 1.5 lakh under Section 80C. The payment can be made to any Indian institution, college, university, or academic facility. The costs must only cover a full-time course.

Bottom Line

As previously stated, the deduction under section 80C was last amended to Rs 1.5 lakh in the fiscal year- 2014-15. Meanwhile, the standard of living has risen significantly, which has been exacerbated by the pandemic’s negative effect. As a result, the Rs 1.5 lakh cap should be reconsidered and increased to at least Rs 2.5 lakh in Budget 2022. 

Now that you have a brief idea of the tax benefits under Section 80C, it is time to find out more. For further information, check out the official website of Aditya Birla Sun Life Insurance Company Limited. For more details on section 80C – read here.