What is Section 80C Deduction In Income Tax

Whenever we think of income tax, the first thing that immediately comes into our mind is how to save it !! One of the best options for Saving Income Taxes comes under Section 80C.

What Is Section 80C?
It is an investment option to save the tax. Government has specially promoted it for long term savings.

Limit:
The maximum limit of Rs 1 lac can be deducted from your income under Section 80C. However, there is a provision for additional Rs 20,000, solely reserved for Infrastructure Bonds. In this way if you are in highest tax bracket of 30% and you have invested upto Rs 1 lac under section 80C then you are saving Rs 30,000. For example if your salary is Rs 16 lacs per annum but you are investing Rs 1 lac in 80C then your taxable income will be Rs 15 lacs only. Even if you invest more than 1 lac in 80C, you can show only 1 lac as investment in 80C .

Investment:
Following investment options are eligible for Section 80C deduction.

Market Linked:

Fixed Income:

  • Provident Fund (PF) & Voluntary Provident Fund (VPF)
  • National Savings Certificate (NSC)
  • Infrastructure Bonds
  • Public Provident Fund (PPF)
  • 5-Yr bank fixed deposits (FDs)
  • Pension Funds – Section 80CCC
  • Senior Citizen Savings Scheme 2004 (SCSS)
  • 5-Yr post office time deposit (POTD) scheme
  • NABARD rural bonds

Others:

  • Life Insurance Premiums
  • Home Loan Principal Repayment
  • Stamp Duty and Registration Charges for a home
  • Children’s tuition fees.

Sample Calculation:

Example 1
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.40000 and you don’t have any other investments, then your Taxable Income for that financial year is Rs.700000 – Rs.40000 = Rs.660000.

Example 2
If your Taxable Income is Rs.700000 and your yearly home loans principal repayment is Rs.100000, then your Taxable Income is Rs.700000 – Rs.100000 = Rs.600000.

Example 3
If your Taxable Income is Rs.500000 and your yearly home loans principal repayment is Rs.140000, then your Taxable Income is Rs.500000 – Rs.100000 = Rs.400000. Because you can exempt maximum of one lac under this section.

So the overall conclusion is the main purpose of 80C is to encourage everybody for long term investment.But there are number of investment options under 80C so we should select the investment options very carefully. Like for younger age person, we should invest more in Market Linked Investment Avenues because by taking risk we can earn much money. On the other hand, for old aged person we should invest more in Fixed Income Investment where there is little risk.

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