Sec 80C deductions of Income Tax Act
(Applicable for FY 2019-20 – Updated as per Finance Act, 2019)
Generally, most of the people invest in the various modes of investments to reduce their tax burden. But do you know incurring certain expenditures also makes you eligible to cut down your taxes?
This article aims to give complete insight into the list of investments that are eligible for Sec 80C deductions of Income Tax Act and explains the way in which any person can reduce their tax burden by investing wisely in the respective investment options. And it also gives you an option to save the tax by incurring certain expenditure.
Though many are very familiar with the basic investment options under Sec 80C like LIC premium, School fee, Housing loan repayments, NSC bonds & Sukanya Samridhi Scheme, they are still not so sure about the way these investments shall be made to minimize their tax burden in an effective way.
In this article, I will try to give an overall view of eligible investments as well as eligible expenditure under Sec 80C along with the inherent conditions which come with each option to benefit you to the full extent.
Table of Contents
- Who can claim?
- How much is the deduction?
- When to invest to avail deduction?
- Eligible investment options
- Lock-in period
- Taxability on withdrawal during lock-in-period
Sec 80C deductions – Who can claim?
Individual or HUF
Any Individual or HUF is eligible to claim deduction under this section for an amount actually paid (i.e. even though the payment is related to prior years) towards the eligible schemes mentioned below.
There are no age restrictions for Individuals and members of HUF to claim Sec 80C deductions of Income Tax Act. Hence, even Senior citizens (i.e. age is 60 years or more) and Super Senior citizens (i.e. age is 80 years or more) are also eligible and they can be either Resident or Non-Resident.
How much is the Deduction?
Maximum deduction is Rs. 1,50,000
Can you claim the entire amount contributed as deduction under this Section? The answer is certainly NO.
The maximum deduction one can avail under this section is Rs. 1,50,000 only. i.e. actual amount paid towards eligible schemes/expenditure or Rs. 1,50,000 whichever is lesser is allowed as deduction.
For example, Mr. Naveen contributed Rs. 2,25,000 for various schemes under sec 80C during FY 2019-20. However, he is eligible to claim Rs. 1,50,000 as the maximum deduction. Similarly Mr. Jithin, a salaried individual contributed only Rs. 92,500 during the FY 2019-20 towards various schemes, then eligible deduction for him is only Rs. 92,500.
When to invest to avail the deduction?
For FY 2019-20 – Invest between 1st April, 2019 to 31st March, 2020
To avail the deduction for AY 2020-21 (i.e. FY 2019-20), you need to invest in any of the eligible investment options between 1st April 2019 to 31st March 2020.
Update: Hon’ble Finance Minister has extended the time limit for various investment options for FY 2019-20 to “30th June 2020” due to COVID-19 outbreak.
So, you can invest in various tax-saving investments up to 30th June 2020 to reduce your tax for FY 2019-20. Generally, many of us would invest in the various schemes towards the end of March to become eligible for tax saving. This is a big mistake. Because, when you invest in the year-end there could be a loss of appreciation on the investment & due to the minimal time, you may end up investing in the wrong option.
Eligible Investment Options
For the purpose of Sec 80C, Income Tax Act has assigned a meaning for “Eligible Investment”. Hence, every investment you do may not qualify for deduction. You should invest only in specified schemes under Sec 80C & certain conditions are to be fulfilled. Then only you are eligible to claim the deduction under this section.
List of Eligible Investment options are given below:
- Life Insurance Premium paid on the life of an individual or any member of HUF
2. Contribution towards EPF/RPF/PPF
3. Contribution towards Approved Superannuation Fund
4. Contribution to National Savings Certificates – VIII Issue
5. Contribution to Sukanya Samriddhi Account
6. Contribution to notified units of Mutual Fund or UTI
7. Contribution to annuity plan of LIC
8. Contribution to ULIP of LIC mutual fund or UTI
9. Contribution to notified pension fund scheme of mutual fund or UTI
10. Subscription to home loan account scheme of National Housing Bank or notified Pension fund set up by National Housing Bank
11. School/College tuition fee other than donation paid for children
12. Repayment of housing loan taken for purchase/construction of residential house property
13. Contribution to notified NABARD Bonds
14. Contribution to fixed deposit for a period of 5 years or more with a scheduled bank
15. Contribution to a deposit Under Senior Citizen Savings Scheme
16. Contribution to 5 year time deposit in a post office deposit scheme
17. Contribution to NPS Tier-II account by an employee of Central Government (Applicable from AY 2020-21) – Newly inserted by Finance Act, 2019
Lock-in period
It is the minimum period for which you need to hold the investment to qualify for the deduction.
Lock-in-period for the various investments covered under Sec 80C are given below:
| Nature of Investment | Lock-in-Period |
|---|---|
| Life Insurance Policy | 2 years |
| Public Provident Fund (PPF) | 15 years |
| National Savings Certificates (NSC) | 5 years |
| Sukanya Samriddhi Yojana | 21 years |
| Unit Linked Insurance Plan (ULIP) | 5 years |
| Mutual Funds (ELSS) | 3 years |
| Fixed Deposits | 5 years |
| Senior Citizen Savings Scheme | 5 years |
| Residential House Property constructed or purchased by loan from a Financial Institution | 5 years |
Taxability on withdrawal during Lock-in-Period
If you terminate the investments like Life Insurance Premium, ULIP, Housing loan repayment, Senior Citizen Savings Scheme & Post Office Time Deposit Scheme before the above-mentioned lock-in-period, the amount already claimed as a deduction in the previous financial year(s) will be taxable in the year of such termination.
So, plan wisely at the beginning of each financial year (i.e. in April) thereby you can avoid the last-minute rush of investing in the wrong options and you can save tax to the maximum extent with no crunch in the steady cash inflows throughout the year.
