A taxpayer is required to invest in the same financial year to claim tax benefits
To encourage savings and investments by taxpayers, the government has provided various deductions under the Income Tax Act, 1961. Among the most popular of them is Section 80C. It covers various investments and expenses that individual taxpayers and Hindu Undivided Families (HUFs) can claim for deductions up to Rs. 1.5 lakh in a financial year. Companies, partnership firms, LLPs cannot avail the benefit of this section. To avail of deductions under this provision, an individual must opt for the old tax regime. The new concessional tax regime does not allow deductions under this section.
Let’s have a look at how Section 80C can benefit taxpayers.
1. By claiming deductions under 80C, an individual or an HUF can reduce their taxable income by Rs 1.5 lakh in a financial year. Those in the highest tax slab of 30 per cent can save up to Rs 46,800 (inclusive of cess at 4 per cent) by utilising this provision in full.
2. A taxpayer is required to invest in eligible investment instruments in the same financial year to claim the tax benefit. The taxpayer can invest up to Rs 1.5 lakh in any of the eligible investment instruments such as Employees’ Provident Fund, Public Provident Fund, Equity-linked Savings Scheme mutual funds, Sukanya Samriddhi Savings Scheme, National Savings Certificate, five-year tax-saving fixed deposits with a bank, and/or post office, National Pension Scheme and Senior Citizen Savings Scheme.
3. Each of these eligible investment schemes has its own investment limit, rate of return and tax treatment on its returns. An individual can use several instruments to reach the upper investment limit.
4. The taxpayer can also claim deductions under Section 80C for expenses on the life insurance premiums, repayment of principal of home loans, children’s school fees.
5. You can also claim a deduction for stamp duty/fee to transfer house property to yourself.
Both resident Indians and NRIs can claim tax deductions under this section.