Income Tax

Details about Section 80C deductions

Section 80C is one of the most widely used and known deductions available to taxpayers under Chapter VI A of the Income Tax Act.

Deductions under Section 80C are allowed to an assessee for getting tax benefit. Maximum deduction of Rs. 1,50,000 is allowed under Section 80C. This is an area of pain for many tax payers as the limit is exhausted easily, especially for those earning more than Rs. 10 lacs.

 This deduction is allowed to an individual as well as an HUF and for both salaried individuals and self-employed.

Illustration

Kavita aged 36 years has total income of Rs. 13,50,000/-during A.Y. 2019-20 before claiming deductions under Section 80C.

Therefore, her total tax liability for A.Y. 2019-20 will be:

Rs. 0 to Rs. 2,50,000
Exempt
Rs. 2,50,001 to Rs. 5,00,000 @ 5%
Rs. 12,500/-  
Rs. 5,00,001 to Rs. 10,00,000 @ 20%
Rs. 1,00,000/-
Rs. 10,00,001 to Rs. 13,50,000 @ 30%
Rs. 1,05,000/-
Basic tax
Rs. 2,17,500/-
Add: Health & Education cess @ 4%
Rs. 8,700/-
Total Tax liability
Rs. 2,26,200/-

If Kavita claims a deduction of Rs. 1,50,000 for the A.Y. 2019-20 by contributing to any of the investments mentioned in the table, the taxable income will reduce to Rs. 12,00,000.

Her total tax liability after claiming deductions:

Rs. 0 to Rs. 2,50,000
Exempt
Rs. 2,50,001 to Rs. 5,00,000 @ 5%
Rs. 12,500/-  
Rs. 5,00,001 to Rs. 10,00,000 @ 20%
Rs. 1,00,000/-
Rs. 10,00,001 to Rs. 12,00,000 @ 30%
Rs. 60,000/-
Basic tax
Rs. 1,72,500/-
Add: Health & Education cess @ 4%
Rs. 6,900/-
Total Tax liability
Rs. 1,79,400/-

It can be seen that if the deduction of Rs. 1,50,000/- is claimed there is total tax benefit of Rs. 46,820.

If Kavita is not satisfied with her tax savings, she can claim an additional benefit of Rs. 50,000 by contributing to National Pension Scheme under Section 80 CCD (1B) i.e. the deduction Kavita can take under both 80C and 80 CCD (1B) is Rs. 200,000.

List of deductions under Section 80C – payments made during each financial year to the following are permissible as deductions under the section.

Section
Deduction allowed
Maximum Limit
80C
Investment in Public Provident FundEmployee’s share of contribution to Provident FundNational Savings CertificatePayment of Life Insurance PremiumChildren’s tuition feesPrincipal repayment of Housing LoanInvestment in Sukanya Samridhi SchemeUnit Linked Insurance PlanEquity Linked Savings SchemeSum paid to purchase deferred annuityFive-year deposit schemeSenior Citizens savings schemeSubscription to notified securitiesContribution to notified Pension Fund set up by Mutual Fund or Unit Trust of IndiaContribution to notified annuity plan of LICSubscription to notified bonds of NABARD.
Rs. 1,50,000/-  

The following deductions can also be claimed (subject to overall limit of Rs. 150,000 under Section 80C).

80CCC
Amount deposited in annuity plan of LIC or any other insurer for a pension.
Rs. 1,50,000/-
80CCD(1)
Employee’s contribution to National Pension Scheme account.  
10% of salary
80CCD(2)
Employer’s contribution to National Pension Scheme account. This deduction is permissible only if the Employer has contributed to National Pension Scheme.
10% of salary

Contributions to NPS have a lock-in period till retirement with only partial withdrawals permitted. This aspect needs to be carefully considered when making contribution for tax deduction.

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