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All You Need to Know About Tax Deductions Under Section 80C

Personal Finance Tax 19-12-2022 | 5 mins read


Whether an individual is salaried or owns a business, filing income tax is undoubtedly one of the most important tasks as an Indian citizen. For the same reason, to motivate taxpayers to save and develop a habit of investing, the Income Tax Department has granted different deductions from taxable income under Chapter VI A deductions, one of the most popular being tax deductions under Section 80C.

Understanding Section 80C of the Income Tax Act

Section 80C of the Income Tax Act permits deductions of up to Rs. 1.5 lakh every year. By making investments in different savings schemes, individuals can reduce their tax liability under this clause. By effectively planning your investments with different assets such as PPF, NSC, and so on, you may claim deductions of up to Rs. 1.5 lakh.

Tax Deductions Under Section 80C in the Union Budget 2022

Finance Minister Nirmala Sitharaman did not propose any modifications to the existing Section 80C of the Income Tax laws in the recently concluded Union Budget 2022. Therefore, if you followed the previous tax regime, you may claim deductions of up to Rs. 1.5 lakh. If you choose the new tax regime, the deduction rules do not apply to you.

Major Tax Deductions Under Section 80C of the Income Tax Act

To help you make a better decision, here is a list of different investment options you can choose from to reduce your tax liability and enjoy deductions under Section 80C of the Income Tax Act:

Investment TypeLock-In Period (Minimum)Rate of Interest
National Pension SystemTill 60 years of age8-10%
Equity Linked Saving Scheme3 years12-15% depending on market fluctuations
Public Provident Fund15 years7.1%
National Savings Certificate5 years6.8%
Senior Citizen Savings Scheme5 years7.40%
Fixed Deposit5 yearsUp to 8.40%
Sukanya Samriddhi Yojana21 years7.6%
Unit Linked Insurance Plan 5 years8-10% depending on market fluctuations

Now let’s discuss the same in detail: 

  1. National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a pension program established by the Indian government to provide a pension to the informal sector and working professionals upon retirement. Section 80C of the Income Tax Act allows for tax deductions on investments of up to Rs 1.5 lakh. In the case of  NPS contributions that exceed the Section 80C threshold of Rs 1.5 lakh, there is an allowance for an additional Rs 50,000 deduction.

  1. Equity Linked Savings Scheme (ELSS) 

Some mutual fund strategies have been specifically intended to save taxes, such as the Equity Linked Savings Schemes, which allow investors to receive tax deductions up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

  1. Public Provident Fund (PPF)

The Public Provident Fund is a common investment option because it provides guaranteed profits. With PPF, the interest is compounded annually, and the program has a 15-year maturity time. The minimum contribution to a public provident fund is Rs. 500, and the highest contribution is Rs. 1.5 lakh. The amount you give to your PPF is tax-deductible under Section 80C of the Income Tax Act.

  1. National Savings Certificate (NSC)

The National Savings Certificate is one of the most popular tax-saving vehicles offered to Indian residents. The scheme has two maturity terms, namely, a five-year term and a ten-year term. NSC offers interest rates that are compounded semi-annually. The best part about the National Savings Certificate is that you can invest as little as Rs. 100, and you don’t have an upper limit when it comes to investing. The amount invested in a National Savings Certificate is eligible for a tax deduction up to a maximum of Rs. 1.5 lakh every fiscal year, under Section 80C of the Income Tax Act. 

  1. Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme is one of the finest investing options for seniors. Compared to other programs, the returns are rather attractive, and interest is paid weekly. Individuals over the age of 60 can participate in this plan and receive tax savings of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

  1. Fixed Deposits

Section 80C of the Income Tax Act, 1961 allows for tax savings on fixed deposits with deductions up to Rs. 1.5 lakhs from the investment. However, to be eligible for the deductions, you must opt for a lock-in term of a minimum of five years. Furthermore, you must register your PAN card with the respective banking institution.

  1. Sukanya Samriddhi Scheme

Individuals can start a Sukanya Samriddhi fund for a girl child at any point between her birth and the age of ten. The best part about this scheme is that you can start with an investment amount of as little as Rs. 1,000 and invest up to a maximum of Rs. 1.5 lakh every fiscal year. The interest earned through this plan is estimated and compounded every year, and this program is tax deductible under Section 80C of the Income Tax Act.

  1. Unit Linked Insurance Plans (ULIPs)

ULIPs provide insurance coverage to policyholders while also offering considerable long-term profits. One of the primary reasons for the rise in popularity of ULIPs is that they enable both money savings and tax deductions under Section 80C of the Income Tax Act, 1961.

Some other eligible deductions under Section 80 C of the Income Tax Act include:

  • Premium payments made toward life and health insurance policies
  • EMI repayments of the home loan principal amount
  • Registration charges and stamp duty for a home/property
  • Post office time deposit scheme for five years

Enjoy The Tax Deduction Benefits Under Section 80C of the Income Tax Act 

While it’s a common habit for most people to begin investing in tax-saving instruments at the end of a fiscal year to obtain tax deductions, tax experts advise doing so at the start of a fiscal year to ensure that you not only make educated judgments, but also enjoy the collection of interests from April to March.

If you need help deciding on the finest tax-saving investments, you can always turn to professionals like Piramal Finance. They can advise you on the finest tax-saving techniques and tools, allowing you to make educated decisions about how to invest your hard-earned money.

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