Income Tax Saving - 80C Deductions

Our hard earned money is subject to income tax by government of india and rate of interest will depend on income made by person for any particular financial year. Hence government encourages certain types of long term saving (Mostly for your retierment times) and gives you tax breaks on those long term savings. These tax breaks are included in Section 80C of the IT Act which states that savings, upto a maximum of INR Rs. 1,00,000, can be deductible from person's yearly income and that's way you end up having some Tax free income in your hand. This benefit is available to everyone, irrespective of their income levels.

So, let’s understand the qualifying investments first.

Qualifying Investments
* Provident Fund (PF): The payments that you make to your PF are counted towards Sec 80C investments. For most of you who are salaried, this amount gets automatically deducted from your salary every month.
Thus, it’s not just compulsory savings for your future, but also immediate tax savings!

* Voluntary Provident Fund (VPF): If you increase your PF contribution over and above the statutory limit (as deducted compulsorily by your employer), even this amount qualifies for deduction under section 80C.

* Public Provident Fund (PPF): If you have a PPF account, and invest in it, that amount can be included in Sec 80C deduction. The minimum and maximum allowed investments in PPF are Rs. 500 and Rs. 70,000 per year respectively.

* 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.

* Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C.
To know the multiple benefits of Equity Linked Savings Scheme (ELSS), please read “ELSS is not for someone else”.

* 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. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

* Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

* National Savings Certificate (NSC): The amount that you invest in National Savings Certificate (NSC) can be included in Sec 80C deductions.

* 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.

* Pension Funds – Section 80CCC: This section – Sec 80CCC – is a subsection of Section 80C. It stipulates that an investment in pension funds upto Rs. 10,000 is eligible for deduction from your income.

* Bank Fixed Deposits: This is a newly introduced investment class under Section 80C. Bank fixed deposits (also called term deposits) having a maturity of 5 years or more can be included in your Sec 80C investment.

* 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 Sec 80C.