It is that time of the year when you will be asked to submit investment proof so that your workplace can deduct tax before the end of the fiscal on March 31, 2024. On one hand, the Income Tax department deducts tax, but at the same time, it promotes savings and investments among taxpayers. It has introduced several deductions from taxable income under Chapter VI A. Section 80C is the most well-known and widely used deduction. But it is mostly for those who will opt for or have already opted for the Old Tax regime.
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Here’s a look at some of the investments that would fetch you exemptions under Section 80C:
Section 80C deduction allows for the reduction of taxable income for individuals and Hindu Undivided Families (HUFs). Unfortunately, companies, partnership firms, and Limited Liability Partnerships (LLPs) are not eligible to avail of this deduction. In total, the maximum deduction that can be claimed under Section 80C, 80CCC, and 80CCD(1) combined is Rs 1.5 lakh.
However, there is an opportunity for individuals to claim an additional deduction of Rs 50,000 under Section 80CCD(1B). This provision provides individuals with the opportunity to further reduce their taxable income by availing of the benefits outlined in this section.
Investments in Provident Funds such as Employees’ Provident Fund, Public Provident Fund, etc., can help you trim your taxable income. It is to be noted that employees’ contribution to the EPF account is eligible for deduction under Section 80C. Employer’s contribution is also tax free but it is not eligible for deduction under Section 80C.
PPF is one of the few investment plans in India that provides the advantage of Exempt-Exempt-Exempt (EEE) Tax status. The amount that is deposited into the account during each financial year is eligible for tax exemption. Likewise, any interest earned on the deposit is also tax-free. Furthermore, when the account reaches maturity, including both the principal sum and the interest accrued, it remains free from taxation.
PPF contribution is eligible for tax deductions under Section 80C of Income Tax Act, 1961. The maximum limit of investment is Rs 1.50 lakh per fiscal. The current interest rate is 7.1 per cent.
Payments made towards life insurance premiums also draw tax benefits. While premium on life insurance policy can be claimed as deduction under Section 80C. In case of an individual, deduction is available in respect of policy taken in the name of taxpayer or his/her spouse or his/her children.
Under Section 80D of the Indian Income Tax Act, individuals are eligible for a tax deduction of up to Rs 25,000 per financial year on medical insurance premiums. Additionally, this section provides a deduction of Rs 5,000 for expenses incurred on preventive health check-ups. The maximum amount eligible for deduction is capped at Rs 25,000 or Rs 50,000, as applicable.
Investment in Equity Linked Saving Schemes (ELSS) can also be used for tax exemption. ELSS mutual funds are the only class of mutual funds that can fetch you tax exemption under Section 80C of the Income Tax Act, 1961. The upper limit, which can get a tax rebate, Rs 1,50,000 a year. This can help you saving up to Rs 46,800 a year in taxes. The ELSS has a lock-in duration of three years, after which the income and profit earned are considered as Long Term Capital Gains (LTCG). LTCG exceeding Rs 1 lakh is subject to a tax rate of 10 per cent.
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Payments made towards the principal sum of a home loan can also get you deductions. Section 80EE provides individuals with the opportunity to benefit from income tax advantages based on the interest component of their residential property loan obtained from banks or financial institutions. Under this section, you are eligible to claim a deduction of up to Rs 50,000 per financial year for home loan interest payments.
Investment in infrastructure bonds can also covered under Section 80C of the Income Tax Act. The investment should be equal to or higher than Rs 20,000. The 80c deduction limit of Rs.1.5 lakh stays applicable for these long-term secured bonds as well.
When it comes to property ownership, stamp duty and registration charges are significant expenses. The government provides a tax deduction on these charges up to the 80C exemption limit. It’s important to note that this deduction can only be claimed in the year when the duties are paid. Otherwise, it will not qualify for consideration under Section 80C deduction.
Investment in small savings schemes, such as Sukanya Samriddhi Yojana, can also fetch you deductions. The Sukanya Samriddhi Yojana is a savings scheme backed by the Government of India. It is an investment option for parents who have a girl child. The plan matures when the girl child reaches the age of 21. the investment limit is Rs 1.5 lakhs. The interest that accrues against this account which gets compounded annually is also exempt from tax under Section 10 of the Income Tax Act.
Recently, the Centre increased the interest rate of Sukanya Samriddhi Yojana (SSY) from 8 per cent to 8.2 per cent for the January-March 2024.
If you decide to put your money in the National Pension Scheme, you can avail deductions. NPS is a market-linked product where you can invest in a mix of equity, government debt, corporate debt, and alternative assets.
Deductions can be availed under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lakh under Sec 80 CCE. An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).
New Tax Regime
It is to be noted that most deductions under Section 80C cannot be claimed by the taxpayers who opt for the New Tax regime. However, salaried individuals can still claim two deductions under the new tax regime. These include a standard deduction and a deduction under section 80CCD (2) for the employer’s contribution to the National Pension System (NPS).
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With the benefit of Standard Deduction, individuals with taxable income up to Rs 7.5 lakh will not have to pay any taxes.
As per Finance Minister Nirmala Sitharaman‘s budget speech in 2023, salaried individuals with an income of Rs 15.5 lakh or more will receive a benefit of Rs 52,500 under the new tax regime.
