Deduction Under Section 80C of Income Tax

Have you invested in Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), or similar investment avenues? If yes, you may be eligible for tax deductions. Tax deductions are designed to help you reduce your taxable income and save more. By understanding how tax deductions work, you can plan your investments strategically to reduce the amount you pay in taxes and benefit from increased savings.

In India, tax deductions are defined by various sections of the Income Tax Act. While there are many types of tax deductions you can avail of, in this article, we discuss the tax deduction under Section 80C of the Income Tax Act.

What is a tax deduction under Section 80C?

A tax deduction under Section 80C allows you to reduce your taxable income by investing in specific investment tools or by undertaking certain expenses. By claiming this deduction, you can reduce your taxable income and pay lower taxes effectively.

What is the maximum deduction under 80C?

The maximum deduction under Section 80C is ₹1.5 lakh in a financial year. Even if your total investments exceed ₹1.5 lakh, you can only claim up to this limit for deduction purposes.

Which investments are eligible in the 80C deduction list?

Not all investments are eligible for tax deductions under 80C. Eligible investments and expenses include:

1. Contributions to Public Provident Fund (PPF)

2. Life insurance premiums

3. National Savings Certificate (NSC)

4. Employee Provident Fund (EPF)

5. Equity Linked Savings Scheme (ELSS)

6. Principal repayment of home loan

7. Fixed deposits with a tenure of 5 years or more

8. Tuition fees for up to two children

How does tax deduction under 80C work?

Let’s understand how the tax deduction under 80C works with an example.

Say you have an annual income of Rs. 12 lakhs. You invest Rs. 1.5 lakhs in eligible investment tools like PPF, NSC, or pay your life insurance premium. You can claim tax deductions for this investment under Section 80C of the Income Tax Act.

For example, if the applicable income tax rate for your income slab is 20%, originally, you would have had to pay ₹2.4 lakh in taxes (20% of ₹12 lakh). However, with the tax deduction, you would only pay ₹2.1 lakh (20% of ₹10.5 lakh). Thus, you save ₹30,000 in taxes due to the deduction under Section 80C.

Benefits of tax deduction under 80C

Some of the key benefits of tax deduction under 80C are:

1. Reduces taxable income: By claiming eligible deductions, your taxable income decreases, leading to lower tax liability.

2. Encourages savings: Investments in 80C instruments like PPF or ELSS reduce taxes and promote long-term savings.

3. Diversified financial portfolio: Section 80C offers various investment options. This helps you build a diversified portfolio while saving on taxes.

Final Thoughts

While investments under Section 80C offer you substantial tax savings, selecting investments solely based on tax deduction eligibility may not be a wise move. Before investing, always weigh your risk tolerance and try to create a balanced and diversified portfolio to minimise risks. Choose 80C instruments that align with your long-term financial goals and use trustworthy platforms to make these investments.

Tata Capital Moneyfy is your trustworthy investment partner, giving you an easy-to-use platform for all your investment needs. It allows you to monitor your portfolio, invest in just a few minutes and make informed decisions by leveraging comparison and scanner tools.

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