Section 80C: Income tax deduction and limits under section 80C, 80CCD in 2024

Understanding the nuances of tax deductions can be a daunting task for many. But many taxpayers in India make a popular choice—the tax deduction they avail is the 80C deduction. This section of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to reduce their taxable income by making certain investments or expenditures.

80C Subsections: What to Know about 80C Deduction?

The 80C deduction is not just a single provision but comprises several subsections. Each of the 80C subsections pertains to a specific type of investment or expenditure. For instance,

1. Section 80CCC pertains to deductions for premiums paid towards certain pension funds.
2. Section 80CCD allows deductions for contributions to the National Pension Scheme (NPS) or Atal Pension Yojana.

Understanding these 80C subsections can help taxpayers make informed investment decisions and claim the maximum possible deductions.

Also Read: ITR filing last date for FY 2023-24 (AY 2024-25): Due dates for income tax returns filing, TDS, advance tax payments

Investments Eligible Under 80C

Numerous investment options qualify for deductions under section 80C. These investments under 80C offer a variety of returns and have different lock-in periods, allowing taxpayers to choose the options that best suit their financial goals and risk tolerance. Here's a summary of some of these options:

Investment Name and Type	Interest or Estimated Returns (as of April 2024)	Lock-in Period
Fixed Income Products
5 Years Post Office Time Deposit (POTD): Long-Term Debt	7.50%	5 years
National Savings Certificate (NSC): Long-Term Income	7.70%	5 years
NHB Deposit Scheme: Long-Term Debt	7%	5 years
PPF (Public Provident Fund): Long-Term Income/ Retirement Plan	7.10%	15 years
Provident Fund (EPF/VPF): Retirement	8.25%	5 years
Senior Citizen Savings Scheme (SCSS): Long-Term Debt	8.20%	5 years (can be extended for another 3 years)
Sukanya Samriddhi Yojana: Long-Term Income	8.2%	Until the girl child reaches 21 years of age (partial withdrawal is allowed when she reaches 18 years)
Tax saving FD: Long-Term Debt	Up to 7.85%	5 years
Market-linked Products
Any Pension Plans from Insurance Companies (under section 80CCC): Retirement Annuities	Not Fixed	Not Fixed
ELSS funds: Equity Mutual Funds	Not Fixed	3 years
Life Insurance Premium (Endowment Plan): Life Insurance cum Investment Plan	Not Fixed	Not Fixed
NPS/ New Pension Scheme: Retirement Plans	Not Fixed	Until the investor reaches 60 years of age
ULIP/ Unit Linked Insurance Plan: Life Insurance cum Investment	Not Fixed	5 years

Each of these investment options has its own set of rules and benefits. Therefore, it is important to understand these before making an investment decision.

Also Read: Income tax slabs in India 2024-25: Old vs new tax regime, deductions and more

Investment Options Under 80C Detailed

Let’s go for a deeper insight into the best investment options that can make you eligible for 80C deductions:

1. Life Insurance Premium: Life insurance endowment plans offer life coverage alongside a fixed income benefit, and it can make for risk-free savings. These plans can have variable lock-in periods and returns.
2. Provident Fund (EPF/VPF): The EPF is the Employees Provident Fund, while the VPF is the Voluntary Provident Fund- a non-compulsory investment that salaried employees can choose to make. Both are government-backed savings schemes with a lock-in period of 5 years; they offer high returns at low risks.
3. ELSS funds: These are equity-linked savings schemes that invest most of their corpus in the stock market. They tend to offer an average to high percentage of returns and have a lock-in period of 3 years. However, they carry an increased risk due to their exposure to the equity market.
4. NPS Scheme: The National Pension System is a government-backed pension scheme. The return rate can be variable. The investment is locked in until the investor reaches 60 years of age. The risk associated with this scheme is high.
5. ULIP: A Unit Linked Insurance Plan is a financial product offering dual insurance and investment benefits. This scheme provides a lucrative return rate of 8-10 percent and has a lock-in period of 5 years. It is important to note that investing in this plan carries a medium level of risk.
6. Tax saving FD: These are fixed deposits with banks that offer tax benefits. The return rate is up to 7.7 percent with a lock-in period of 5 years. The risk associated with this scheme is low.
7. PPF: The Public Provident Fund is a government-supported investment plan that lasts long. It offers a return rate of 7.1 percent and has a lock-in period of 15 years. This scheme has a low level of risk.
8. NHB Deposit Scheme: National Housing Bank or the NHB is an entity owned by the RBI or the Reserve Bank of India, which offers many fixed deposit schemes at competitive interest rates. The lock-in period would be around 5 years.
9. Senior citizen savings scheme: This scheme is specifically designed for senior citizens. The return rate is 8.2 percent with a lock-in period of 5 years (which can be extended for another three years). The risk associated with this scheme is low.
10. National Savings Certificate: This highly favourable investment option can be availed by opening a fixed-income investment scheme at any post office. This scheme has a lock-in period of 5 years and guarantees a return rate of 7.7 percent. Furthermore, this investment carries a low-risk factor, making it an ideal choice for those looking to invest their money safely.
11. 5 Years Post Office Time Deposit (POTD): Offered by India Post, this one is the most popular in more remote areas in India. This is another investment scheme with significant returns yet low risks.
12. Any Pension Plans from Insurance Companies: A pension plan from an insurance company qualifies as an investment-led life insurance policy that allows policyholders to earn fixed income over the variable lock-in period for a financially comfortable retirement period.
13. Sukanya Samriddhi Yojana (SSY): This scheme is designed for the betterment of a girl child. The return rate is 8 percent. The scheme is valid until the girl child reaches 21 (partial withdrawal is allowed when she reaches 18). The risk associated with this scheme is low.

Also Read: Cost inflation index (CII) for FY 2023-24 to calculate capital gains

FAQs

1. What is the maximum deduction limit under Section 80C?

As per Section 80C, you can claim a deduction of up to ₹1.5 lakh per financial year.

2. Can I claim the 80C Deduction for investments made in the name of my spouse or children?

Yes, you can claim the 80C Deduction for investments made in the name of your spouse or children.

3. What happens if I withdraw my investment before the lock-in period?

Suppose you withdraw your investment before the lock-in period. In that case, the amount deducted under Section 80C in the previous years will be added back to your income in the year of withdrawal and taxed accordingly.

4. Is there a limit on the number of investments I can make under Section 80C?

No, there is no limit on the number of investments. However, the total deduction across all investments can be at most ₹1.5 lakh in a financial year.

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