Section 80C deduction is best source of tax planning, which also motivates individuals to save for the future. In the recent Budget 2015, the limit has been enhanced to Rs. 1,50,000/- from Rs. 1,00,000. Section 80C deduction offers large number of options for investments and at the same time saves tax. Let us take note of the various deductions available under Section 80C deduction.
| 1. Applicability | Individual/HUF, irrespective of residential status. |
| 2. Conditions | a. Investment or contribution should be made inapproved investment schemes.b. The payment need not necessarily be made out of income chargeable to tax.c. Deduction shall be allowed only on payment basisnot on accrual basis. |
| 3. Maximum deduction | Maximum amount along with deduction u/s 80CCC and 80CCD(1) or independently u/s 80C, is restricted to Rs 1,50,000 {sec. 80CCE] |
| 4. Eligible investments | See the list below. |
Eligible investments u/s 80C
| Nature of investment /payment | Payment made by individual |
| 1. Life insurance premium [ max. premium deductible = 10% of actual sum (15 % for persons covered u/s 80U / 80DDB)] | Self, spouse and child |
| 2. Non- commutable deferred annuity without a provision for cash payment in lieu of deferred annuity. | Self, spouse and child |
| 3. Deferred annuity deducted from government employee’s salary ( not exceeding 1/5th of salary ) | Self |
| 4. Contribution to statutory or recognized provident fund. | Self |
| 5. Contribution to public provident fund- minimum Rs 500 , maximum Rs 1,50,000 per account as per PPF rules. | Self, spouse and child |
| 6. Contribution to approved superannuation fund. | Self |
| 7. Subscription to national saving scheme,1992. | Self |
| 8. Subscription to national saving certificate ( including interest accrued) | Self |
| 9.Contribution to unit linked insurance plan of UTI/ LIC and continuous for minimum period of 5 years. | Self, spouse and child |
| 10.Contribution to annuity plans of insurance companies( jeevan dhara, jeevan akshay , of LIC ,plans of tata AIG life insurance co, etc) | Self, spouse and child |
| 11.Subscription to units of mutual fund /UTI. | Self |
| 12.Contribution to pension fund of mutual fund / UTI/ national housing bank. | Self |
| 13. Deposits with national housing bank, HUDCO | Self |
| 14. Deposits with a PSU providing long term finance for purchase/ construction of residential houses in INDIA. | Self |
| 15. Deposits with notified housing boards set up under law , for planning, developing and improvement of cities/ towns / villages. | self |
| 16. Housing loan/cost | Self |
| 17. Tuition fees paid to university, college , school or education institution located in india for full time education of children, other than donation or development fees. | Maximum 2 children |
| 18. Subscription to approved equity shares or debentures of a public company or a public financial institution, and the entire proceeds of the issue is utilized wholly and exclusively for power generation or infrastructure facility company (holding period minimum 3 years) | Self |
| 19. Term deposit for atleast 5 years with a scheduled bank in accordance with a scheme framed and notified NABARD bonds | Self |
| 20. subscription to notified NABARD bonds | Self |
| 21. Deposit under senior citizen saving scheme rules, 2004 | Self |
| 22. 5- year time deposit in an account under post office deposits rules, 1981 | self |
Notes:
LIC premium on endowment policies:
- Restriction on surrender: the policy should not be surrendered -( i ) within 2 years , in case of single premium policy, or (ii) before payment of premium for 2 years, in case of other policies.
- Deemed income: in case of non – compliance with the above , the deduction so claimed will be treated as the income of the previous year in which deduction was so claimed.
Unit linked insurance plan:
- Participation period : the assessee member should not terminate his participation in the ULIP scheme before making contribution for 5 years.
- Deemed income: if the assessee has terminated the scheme within 5 years of contribution, then –
- No deduction shall be allowed in respect of contributions made during the year of termination,
- The aggregate of deductions availed earlier in respect of the plan shall be deemed to be the income of the assessee, in the year of termination.
Withdrawals from senior citizen saving scheme and 5 year term deposits :
- Deemed income: if any amount , including accrued interest is withdrawn by the assessee from his account before the expiry of 5 years from the date of its deposits, the amount so withdrawn shall be deemed to be the income of the assessee shall be liable to tax in the year of withdrawal.
- Exceptions:
- Any amount of interest , relating to deposits which has been included in the total income of the assessee of the previous year or in the preceding previous years, and
- Any amount received by the nominee or legal heir of the asssessee , on the assessee, except interest accrued, which was not included in the total income of the assessee for the previous year or in the preceding previous year.
Repayment of housing loan:
- Residential purpose: constructed or purchased out of loan must be for residential purposes.
- Chargeable under HP: the income from such property should be chargeable under the head “ income from house property” ‘ and includes self – occupied property also.
- Restriction on transfer: the assessee transfer the property within 5 year of construction / acquisition, then-
- No deduction shall be allowed in respect of payments made during the year of termination,
- The aggregate of deduction availed earlier in respect of such repayment of instalments shall be deemed to be income of the assessee, in the year of transfer of property.
Cost of purchase / construction of residential house property
Amount qualifying for deduction
- Stamp duty , registration fee and other expenses for transfer of the residential house property to the assessee.
- Installment or part payment of the amount due under any self financing or the other scheme of –
- Any developing authority,
- Housing board, or
- Other authority engaged in the construction and sale of house property on the ownership basis
- Installment or part payment of the amount due to any company or co – operative society of which the assessee is a shareholder or a member , towards the cost of the property allotted to the assessee
- Repayment of loan borrowed from-
- Central govt. /state govt.
- Any bank ,including co-operative bank
- Life insurance corporation of India
- National housing bank,
- Public company formed with the object of providing long term finance for construction/ purchase of residential houses in India,
- Co- operative societies / companies in which public are substantially interested, engaged in the business of financing construction of houses,
- Assessee’s employer being- i)public company or ii) public sector company iii) university established by law iv) college affiliated from employer ,being an authority , board or corporation or any other body established under central or state act.
Amount not qualifying for deduction
- Admission / membership fees : amount paid by a shareholder / member towards admission fee, initial deposit, cost of the share to a company / co-operative society , for becoming a member of such company/society.
- Alteration / repair cost: cost of addition / alteration/ renovation/ repairs to house property incurred after
- Issues of completion certificate in respect of the house property by a local authority or,
- The house property has been occupied by the assesse, or
- The house property has been occupied by any other person on behalf of the assessee
- Payment by a non member: installment paid by a non member to a company / co- operative society , towards property allotted to him by such company / co- operative society.
- Deduction u/s 24 : expenditure which are allowable u/s 24 , i.e interest on capital borrowed for construction / accquition of house property , including prior period interest.
Note the above information is updated as per Finance Act 2014/ relevant for F.Y 2014-15.