Articles deals with deduction under Section 80C & 80D of the Income
Tax Act and explains who is eligible for deduction, Eligible Investments, Limit
for deduction, who can invest for whom and time period for investment.
The total limit under this
section is Rs 1.50 lakh from Financial year 2014-15 / Assessment Year
2015-16.
Qualifying Investments
ü Contribution
to Recognized Provident Fund
& Current rate of interest is 8.5% per annum (p.a.) and is also tax-free.
ü Contribution
to Public Provident Fund - Current
rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity
period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs
1,50,000.
ü Life
Insurance Premiums: Any amount that you pay
towards life insurance premium for yourself, your spouse or your children can
also be included in Section 80C deduction. Please note that life insurance
premium paid by you for your parents (father / mother / both) or your in-laws
is not eligible for deduction under section 80C. If you are paying premium for
more than one insurance policy, all the premiums can be included. It is not
necessary to have the insurance policy from Life Insurance Corporation (LIC) –
even insurance bought from private players can be considered here.
ü Investment
in Equity Linked Savings Scheme (ELSS):
ü Home Loan
Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay
your home loan consists of two components – Principal and Interest. The
principal component of the EMI qualifies for deduction under Sec 80C. Even the
interest component can save you significant income tax – but that would be
under Section 24 of the Income Tax Act.
ü Stamp
Duty and Registration Charges for a home: The amount you pay as stamp
duty & registration when you buy a house, can be claimed as deduction under
section 80C in the year of purchase of the house.
ü National
Savings Certificate (NSC): NSC is a 5-Yr small savings instrument
eligible for section 80C tax benefit. Rate of interest is 8.50%t compounded
half-yearly. The interest accrued every year is liable to tax (i.e., to
be included in your taxable income) but the interest is also deemed to be
reinvested and thus eligible for section 80C deduction.
ü Infrastructure
Bonds: These are also popularly called Infra Bonds. These are issued by
infrastructure companies, and not the government. The amount that you invest in
these bonds can also be included in Sec 80C deductions.
ü Pension
Funds – Section 80CCC: Sec 80CCC – stipulates that an investment in
pension funds is eligible for deduction from your income. Section 80CCC
investment limit is clubbed with the limit of Section 80C – it means that the
total deduction available for 80CCC and 80C is Rs. 1.50 Lakh.
ü 5-Yr bank
fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled
banks with tenure of 5 years are also entitled for section 80C
deduction.
ü Senior
Citizen Savings Scheme 2004 (SCSS): Senior Citizen Savings
Scheme (SCSS) is the most lucrative scheme among all the small savings schemes
but is meant only for senior citizens. Current rate of interest is 9.20% per
annum payable quarterly.
ü 5-Yr post
office time deposit (POTD) scheme: Only 5-Yr post-office time
deposit (POTD) – which currently offers 8.40 per cent rate of interest
–qualifies for tax saving under section 80C. Interest is compounded
quarterly but paid annually. The Interest is entirely taxable.
ü NABARD
rural bonds:
ü Unit
linked Insurance Plan :
ü Others: Apart
form the major avenues listed above, there are some other things, like
children’s education expense (for which you need receipts), that can be claimed
as deductions under Section 80C.
When to Invest?
Many of us start looking
for investment avenues only in February or March, just before the Financial
Year is getting over. This is a big mistake! One, you would end up investing
your money without putting proper thought to it.
And secondly, you would end
up losing the interest / appreciation for the whole year. Instead, decide where
you want to make the investments, and start investing right from the beginning
of the financial year – from April. This way, you would not only make informed
decisions, but would also earn the interest for the full year from April to
March.
Section 80D
Medical Insurance
If Assessee is senior
citizen – INR 20,000/- otherwise INR 15,000/- for medical insurance of self,
spouse and dependent children.
Additionally, a further sum
of INR 15,000/- (INR 20,000/- in case of senior citizen) for medical insurance
of parents (father or mother or both)
Therefore, the maximum
deduction available under this section is to the extent of Rs. 40,000/ From AY
2013-14, within the existing limit a deduction of upto Rs. 5,000 for preventive
health check-up is available.
Chirag
Chordia
AIR CA,
CS, B.Com
Member of
The Institute of Chartered Accountants of India
Can be
reached at +91-8080492124/chiragb.chordia@gmail.com
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