The Tax Saving Act: Section 80C Of Income Tax Act
The Income Tax Department of our nation has offered several deductions from the taxable income with the target to encourage savings and investments among the taxpayers. Making use of these deductions is beneficial to the taxpayer in order to reduce their tax liabilities.
The Tax Saving Act Section 80C is one of the most common and notable deductions that is available under the Income Tax Act, 1961. The deduction that is applicable for this particular section may be claimed only if a person opts for the old/existing tax regime during that year. However, if they choose to apply for the new concessional tax regime, they are not eligible to apply for the tax deduction in this particular section. Let us now discuss how this specific section helps a person to save up on tax during a financial year.
With the help of the Tax Saving Act Section 80C , a person as an individual or a HUF (Hindu Undivided Family) can save up to Rs. 1.5 lacs from their gross total income during one financial year which will lead to an overall reduction of their net taxable income and thereby the amount which is payable as tax for the financial year.
If utilization of this deduction feature is done completely, an individual can save up to Rs. 46,800 (which includes a cess of 4%) meant for those who are in the tax bracket of 30% (which happens to be the highest).
It is to be noted here that only individuals and Hindu Undivided Families (HUFs) can avail the benefits of the Tax Saving Act Section 80C. Companies, partnership firms, LLPs cannot avail the benefit of this deduction.
• In order for an individual to make a claim on this particular deduction, they are required to invest the amount in insurance instruments that are considered to be eligible or spend the amount on a specified deductible in the same financial year. Tax benefit can be claimed by the tax payer under this section either by investing or spending Rs. 1.5 lacs in the specified avenues that are under this section.
• What can be considered as the eligible investment instruments? These include the Employees’ Provident Fund(EPF), Public Provident Fund(PPF), Equity-linked savings scheme (ELSS) mutual funds, Sukanya Samriddhi Savings Scheme, National Savings Certificate (NSC), five-year tax-saving fixed deposits with a bank and/or post office, National Pension System (NPS), and Senior Citizen Savings Scheme (SCSS).
• We have to make note of the fact that for each eligible investment, there is its own investment limit, rate of return, liquidity, and tax treatment on its returns.
• There are although, specific expenditures and investments that are allowed under this section. These include expenditure on life insurance premium, repayment of principal of a home loan, and children’s school fees.
• When an individual wants to save up on income tax, the Section 80C is the most frequently used route. This is one of the most famous ways that is taken up by the taxpayers in order to reduce taxable income – either by making tax saving investments or by incurring expenses that are eligible for the same.
• Section 80C includes subsections, 80CCC, 80CCD (1) , 80CCD (1b) and 80CCD (2).
It is important to note that overall limit including the subsections for claiming deduction is Rs 1.5 lacs except an additional deduction of Rs 50,000 allowed u/s 80CCD(1b).
• The Section 80CCC refers to the department of insurance premium while the section 80CCD refers to the area of pension contribution. Let’s talk about the 80CCC Deduction for life insurance annuity plan. 80CCC allows deduction for payment towards annuity pension plans Pension received from the annuity or amount received upon surrender of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt.
When it comes to the 80CCD (1) Deduction for NPS, Employee’s contribution under section 80CCD (1) Maximum deduction allowed is least of the following:
- 10% of salary (in case taxpayer is employee)
- 20& of gross total income (in case of self employed)
- Rs 1.5 Lacs ( limit allowed u/s 80C)
• As for the 80CCD (1b) Deduction for NPS, Additional deduction of Rs 50,000 is allowed for amount deposited to NPS account. Contributions to Atal Pension Yojana is also eligible for deduction.
• Regarding the 80CCD (2) Deduction for NPS, Employers contribution is allowed for deduction upto 10% of basic salary plus dearness allowance under this section. Benefit in this section is allowed only to salaried individuals and not self employed.
To conclude, the Tax Saving Act Section 80C is a beneficial way to save up on income tax and is considered as a welcome change by taxpayers who have reaped the benefits of this measure from time to time.
Happy Learning
The Successlogy
Article By Sukanya Majumdar (Intern)
[Computer Science,St. Xavier's College (Autonomous), Kolkata]
0 Comments