Main deduction of Section 80C for the Financial Year 2016-17 as per Finance Bill 2016-17.
Section 80C replaced the old Sec.88 and came into effect from 1st April 2006. The current maximum limit of Deduction under Section 80C is Rs.1,50,000 in a financial year. The earlier limit of Section 80C was Rs.1,00,000 up to FY 2014-15. Later on, it was increased to Rs.1,50,000 and same is continued.
Section 80C constitutes many investment options for tax savers. Hence, it is the top most choice for many. But many believe that only investments can be claimed for Deduction under Section 80C but the reality is some expenses like tuition fee or home loan are also part of such Deduction under Section 80C.
This section is available only for individuals and HUF only.
1) Life Insurance Premium
2) Public Provident Fund
3) Employees’ Provident Fund (EPF) and Voluntary Provident Fund (VPF)
Any contribution you made (employees) made towards EPF and VPF will qualify for deduction under Section 80C. This is the automatic option of investment, which salaried will enjoy. Hence, you can claim this investment without any hassle.
4) Equity Linked Savings Scheme or Tax Saving Mutual Funds (ELSS)
These are actually equity oriented mutual funds. Such Mutual Funds will offer you 3-years lock-in. After three years you are free to withdraw the amount. But keep in mind that If you start SIP in the month of July 2016, then you are eligible to withdraw this invested amount (units) only after July 2019. Next month SIP will be after August 2019. So if you start the SIP of a year, then you will not be eligible to withdraw all amount exactly after the 3 years from first SIP investment. But after 4th-year completion, you can withdraw the whole amount.
One more thing to keep in mind that ELSS mutual funds are equity-oriented products. Hence, do keep in mind that equity investment is meant for long term. Therefore, never enter into ELSS with a belief that after 3 years you can withdraw it. The market may give you negative returns too.
5) Sukanya Samriddhi Account Scheme
Any amount you invested under Sukanya Samriddhi Account Scheme will be eligible for deduction under Section 80C. Note that this the girl child scheme launched by Government. I wrote about this product long back. Please click on below post to read about the same.
6)National Savings Certificate [ N.S.C.]
This is the post office savings scheme. The minimum you can invest Rs.100 and there is no maximum limit. It is a 5-year product. This is the most famous product among all tax savers. But do remember that it is an illiquid product. I wrote about NSC long back. Please refer below posts for the same.
7) 5 Yrs Bank and Post FDs
These are fixed deposit meant for tax saving purpose and lock-in will be 5 years. Any amount you invested under such FDs will qualify for deduction under Section 80C. Please note that there are many variants of FDs like a year, 2 yrs, 3 years or 5 years (in both bank and Post Office). But 5 years FDs will only qualify for tax saving purpose.
8) Home Loan Principal
In your home loan EMI, the total part of principal repayment will qualify for deduction under section 80C. Few points to remember.
- Tax Benefit will be on payment basis but not on due basis. Let us your repayment towards principal was due in March 2016. But you paid it in April 2016 means such principal repayment will be considered for deduction under section 80c for FY 2016-17 but not for FY 2015-16.
- Principal repayment during construction period will not qualify for tax deduction. You can claim the deduction only after the construction is over.
- You will not get any tax benefits for those periods of construction during which you paid principal.
- If you transfer (sold) the property before the expiration period of 5 years from the end of the Financial Year in which he obtains the possession, then aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.
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9) Stamp Duty and Registration Charges of home buying
Any amount you pay towards stamp duty and registration charges while buying a home will be eligible for deduction under Section 80C for the year in which you buy the house.
10) Tuition Fee-
Any amount you paid towards tuition fee of your kids (maximum 2 kids per individual) will eligible for deduction under section 80C. Few points to remember-
- An individual can claim up to the maximum of 2 kids.
- The deduction is available only towards tuition fee.
- Full-time courses are only eligible for deduction.
- Development fees or donations will not be eligible for deduction.
- Education institute must be situated in India.
- The school, college or university in which child studies should have necessary affiliations.
- You can claim the tax benefits for your adopted kid also (but within a limit of 2 kids).
11) Other options to claim deduction under Section 80C of IT Act- newly amended from the F.Y.2015-16 and 2016-17
I discussed the major options available for an individual or HUF to avail the deduction under section 80C. Below are few other options which are also be part of this Section 80C.
Newly amended Section
(1) 80CCD(2) Employer Contribution which is an additional deduction of U/s 80C.
(2) 80CCD(1B):- Contribution to the Pension Scheme Up To Rs. 50,000/- This amount is also additional deduction out of the limit of U/s 80C 1.5 Lakh.
