Tax deduction helps to reduce your total taxable income. Income Tax Act allows for certain tax exemptions/tax deductions, which you can subtract from your gross income. Many deductions are coming under chapter VI-A from Section 80C to 80U, but here we will cover only Section 80C and its subsections.
Section 80C of Income Tax Act 1961
Under Section 80C, the limit for maximum tax deduction is Rs. 150000, which can be claimed from your total income. This deduction is only allowed to an individual or a HUF. Following are some of the investment avenues and expenses eligible for tax deductions under Section 80C.
Payment for Life Insurance Premium for self, spouse, and children. (valid only if the premium is less than 10% of the sum assured)
Contribution to Public Provident Fund
Contribution to Recognized Provident Fund
Payment for Deferred Annuity Plan
Contribution to Recognized Superannuation Fund
Deferred annuity payable by government
Contribution towards Provident Fund operated by the Central Government
Subscription to Unit Linked Insurance Plan, 1971
Payment for tuition fees for maximum up to two children studying in India. (fees must be for a full-time course)
Payment for Fixed Deposit with a minimum tenure of 5 years
Contribution towards ULIP of LIC Mutual Fund.
Payment towards construction or purchase of a residential property (deduction also applicable on stamp duty, registration fees and transfer expenses)
Contribution to Senior Citizens Saving Scheme
Subscription to Notified Units of Mutual Fund
Subscription to Saving Certificates
NABARD notified bonds
National Housing Bank’s Pension Fund
Subscription to Mutual Funds unit recommended by Central Board of Direct Taxes
Subscription to Equity Shares/Debentures as approved for infrastructure
Sukanya Samriddhi Yojana Account Deposit Scheme (maximum of Rs. 1.5 lakh can be exempted from tax in the year of accrual as well as in the year of receipt)
Subsections of Section 80C, Income Tax Act, 1961 are Section 80CCC, Section 80CCD, Section 80CCF and Section 80CCG. Income Tax Act created these subsections to provide clarity to taxpayers as to which deductions they are eligible for. Let have a look at these subsections U/S 80C.
1. Section 80CCC:
Under this section, only an individual taxpayer whether resident or non-resident can claim the tax deduction against payments made towards Pensions Funds, for a maximum of Rs. 150000.
Payment to Life Insurance Corporation of India or any other Life insurance Company for receiving a pension from a fund is eligible for deduction under this section. However, interests or bonuses accrued from the policy are not eligible to be claimed as tax deductions.
2. Section 80CCD:
Under section 80CCD, an individual taxpayer can claim a tax deduction for a contribution made by an individual and his company for investing in pension schemes notified by the Central Government like National Pension Scheme (NPS). In case, an individual is an employee, the maximum deduction allowed is 10% of salary. In case, an individual is self-employed, the deduction allowed is 20% of gross total income or Rs. 150000, whichever is less.
The total tax deduction U/S 80C, 80CCC and 80CCD together should not exceed Rs. 150000. Part (1B) of Section 80CCD provides an additional deduction of Rs. 50000 for the contribution made by an individual under NPS. Therefore, the total deduction that can be claimed U/S 80C and U/S 80CCD is Rs. 200000.
3. Section 80CCF:
Under this section, both an individual and HUF can claim the tax deduction against investments made in infrastructure and other tax saving bonds for a maximum amount of Rs. 20000 and investments over this amount are taxable.
Under this section, NRIs and foreigners are not eligible for tax deductions. In case of joint investment, only the first applicant can claim tax deductions while in the case of HUF, only one member of the family can claim deductions.
4. Section 80CCG:
Section 80CCG allows deduction over and above the deduction permitted U/S 80C, i.e., Rs. 150000. Only specified individual residents can claim a maximum deduction of Rs. 25000, subject to the limit of 50% of the amount invested, against investments made in Government notified Equity Schemes.
A new investor in the financial year 2017-18 will not be eligible to claim the deduction under section 80CCG, as this scheme has been phased out from 1st April 2017.