According to the current income tax laws, the total investment amount under sections 80C, 80CCC, and 80CCD (1) cannot exceed 1.5 lakh for FY 2018-19. Apart from this, an additional deduction of maximum of ₹ 50,000 can be claimed if you invest in a Tier I account of NPS.
Income Tax Deductions Section 80: You must enter details of deductions you want to claim under sections 80C to 80U of the Act in order to reduce your gross income and thereby your tax liability. In accordance with sections 80C to 80U of the Income Tax Act, you must fill in the details related to tax-saving deductions. Deductions such as these can be claimed from income before income tax is imposed. In India, income tax deductions cover various sections. Tax deductions are defined here. Taxpayers can also deduct expenses from their total income under various sections. We will discuss four prominent tax deductions in this article. In 1961, the Income Tax Act prescribed a combined deduction limit. We have Section 80C, 80CCC, 80CCD, and 80D under the Income Tax Act, 1960 to help taxpayers save tax by investing up to 1.5 lakhs in different alternatives. Every taxpayer has a difficult time saving taxes, especially newly hired employees.
The maximum deduction amount under Section 80C stops until it reaches ₹ 1.5 lakh. 80C consists of two parts under it – 80CCC and 80CCD. It is worth noting that the deductions are not savings of the income tax but the reduction in the amount of total taxable income for the respective financial year.
What is a Tax Deduction?
It is the deduction that lessens a person’s tax liability by lowering the taxable income. Income tax forms an integral part of the revenue of the government, and it is also a fact that a major chunk of salary or earning of an individual may fall in that x slab. The sections defined by the Income Tax Act, 1961, ensure that it lowers the taxable income slab.
Tax Deduction under Different Sections
Section 80CCD Tax Deductions
Section 80CCD offers tax deductions on contributions made to the National Pension System (NPS). Individuals can claim deductions for both employee and employer contributions, promoting retirement savings. Understanding and leveraging Section 80CCD is key for optimizing tax liabilities and securing financial well-being during retirement planning.
It deals with the contributions made to the following schemes by the Government:
- National Pension Scheme
- Atal Pension Yojana
Section 80CCD consists the following subsections:
Section 80CCD (1)
Section 80CCD (1) under the Income Tax Act allows individuals to claim deductions for contributions made to their pension account, including employer contributions. This provision encourages individuals to actively participate in pension schemes, fostering financial security. Leveraging Section 80CCD (1) is vital for optimizing tax benefits and retirement planning.
This deals with a tax deduction for Central/State/Employed/Self-employed/Employer individuals. A salaried individual can get a maximum deduction of 10% of salary. Self-employed can get a deduction of 10% on their gross income.
Section 80CCD (2)
Section 80CCD (2) of the Income Tax Act pertains to employer contributions towards an employee’s pension account, enhancing retirement benefits. Eligible for deductions, it encourages employer participation in pension schemes, ensuring financial security for employees. Understanding and utilizing Section 80CCD (2) is crucial for comprehensive tax planning and employee welfare.
It takes into account the employer’s contribution to the National Pension Scheme. An employee can claim for the contribution made by their employer towards the NPS. The limit is 10% of the salary.
Section 80CCD (1B)
Section 80CCD (1B) allows additional voluntary contributions to the National Pension System (NPS) beyond the mandatory limits. Offering extra tax benefits, it empowers individuals to boost their retirement savings. Leveraging Section 80CCD (1B) is a strategic move for optimizing tax advantages while actively planning for a secure financial future.
Section 80C Deduction
As per deduction under Section 80C, a taxpayer is eligible to claim for deduction of Section 80C limit amount up to ₹ 1,50,000 on his/her taxable income using tax-saving investments. The various investment options that one can opt for are:
- EPF: Both the employer and employee can contribute an equal amount (12% of basic salary) to this fund.
- Public Provident Fund (PPF): It’s a long-term investment offered by the Government of India. Any amount ranging from a minimum of ₹ 500 to a maximum of up to ₹ 1.5 Lakhs can be deposited in a PPF account (in one financial year) and can be claimed for deductions. A PPF account matures in 15 years. And the invested amount could be withdrawn after 5 years. The interest of a PPF account is also tax-free. Deposits made under the name of the spouse or the child can also be claimed for tax deductions.
- Health Insurance Premiums: If you are paying a premium on health insurance, then you can get tax benefits.
- Equity Linked Savings Scheme (ELSS): Open-ended mutual funds invested into equities for higher returns can also give you tax benefits. It is a type of mutual fund investment that has a 3 year lock-in period.
- National Savings Certificate (NSC): It’s a secured savings scheme. Also, NSC can be claimed for deduction in the same year it was purchased even though their term is for 5 years. The interest rate is compounded annually. However, the interest earned is taxable.
- Life Insurance Premiums: If an individual is paying a premium of life insurance, then he can get the tax benefit.
- Children’s Tuition Fee: It includes tuition fees for college or a university in India. This is applicable for up to two kids.
- Home loan: If you are paying the home loan, then you can get tax benefits under Section 80C.
- Post Office Fixed Deposit: Similar to FD, but only a 5-year deposit qualifies for this.
- Infrastructure Bonds: These are government-approved bonds that are issued by companies like India Infrastructure Finance Company and Infrastructure Development Finance Company.
- Investment in Sukanya Samridhi account: A minimum of ₹ 1000 to a maximum of ₹ 1.5 Lakhs can be invested in the Sukanya Samridhi account for a girl child. The interest is exempted from taxes and interest rates are calculated annually. The account matures after a period of 14 years and the amount received thereafter is also tax-free.
- ULIPS: Unit Linked Insurance Plan or ULIPS that is usually sold along with life insurance is also eligible for deductions. The claimed deductions will be withdrawn if the policy terminates before 5 years because of not paying the premium. ULIP under the name of the spouse or child can also be claimed for deductions and the proceeds after its maturity is tax-free.
Section 80C Deductions List
| Investment options | Average Interest | Lock-in period for | Risk factor |
| ELSS funds | 12% – 15% | 3 years | High |
| NPS Scheme | 8% – 10% | Till 60 years of age | High |
| ULIP | 8% – 10% | 5 years | Medium |
| Tax saving FD | Up to 8.40% | 5 years | Low |
| PPF | 7.90% | 15 years | Low |
| Senior citizen savings scheme | 8.60% | 5 years (can be extended for other 3 years) | Low |
| National Savings Certificate | 7.9% | 5 years | Low |
| Sukanya Samriddhi Yojana | 8.50% |
Till girl child reaches 21 years of age (partial withdrawal allowed when she reached 18 years) |
Low |
Section 80CCC Tax Deduction
It is a tax deduction from the perspective of contributions towards pension plans. Section 80C of the Income Tax Act was curated to offer exhaustive content, thus making tax planning difficult. To overcome this problem, Section 80C is sub-divided into different sub-sections like Section 80CCC. The tax benefits of Section 80CCC is on expenses incurred for buying retirement plans and annuity plans.
Certain points to remember about this section are:
- If you earn interest or bonus from this plan, do not qualify for the deduction
- The amount that one receives after surrendering the plan is taxable
- The received pension amount is taxable
Deduction under Section 80D
Section 80D of the Income Tax Act provides deductions on Medical Insurance. An individual or HUF can claim a deduction of the amount up to ₹ 25,000 as per this section on the insurance of self-, spouse, or dependent children. Besides, one can also get an additional deduction for the insurance of parents. This amount is up to ₹ 25,000, but is applicable only if parents are less than 60 years of age. If the parents are above the age of 60, then the deduction amount is ₹ 50,000. One can also claim deductions of up to ₹ 5,000 in health check-ups of parents. However, it is a part of the ₹ 50,000 maximum limit set in this section.
There are other sections of the Income Tax Act, 1961 that allows tax deductions like Section 80E, Section 80 J, etc. You can use these sections to reduce your annual taxable income and prevent you from paying the income tax.
| Covered Persons | Exemption Limit | Exemption for Health Check-Up | Total |
| Self and Family | ₹ 25,000 | ₹ 5000 | ₹ 30,000 |
| Self + Family + Parents | ₹ 25,000 + ₹25,000 | ₹ 5000 | ₹ 55,000 |
| Self + Family + Senior Citizen Parents | ₹ 25,000 + ₹30,000 | ₹ 5000 | ₹ 60,000 |
| Self (Senior Citizen) + Family + Senior Citizen Parents | ₹ 30,000 + ₹30,000 | ₹ 5000 | ₹ 65,000 |
Intricacies of Section 80C, 80CCC, 80CCD and 80D
- Section 80C: As per this Section, you can claim up to ₹ 1.5 Lakh deduction from your total income i.e., you can save yourself from paying tax for ₹ 1.5 Lakhs out of the total taxable amount. Individuals and Hindu Undivided Families can claim for it. By filing for income tax returns, the Income Tax Department will refund the excess money to your bank account.
- Section 80CCC: The section provides for deductions for any amount paid or deposited in any annuity insurance plan of LIC or any other insurer. It is applicable for any individual who has paid or deposited in an annuity plan however the plan must be one that helps to receive pension funds as referred under Section 10(23AAB). The pension received or the amount received after surrendering the annuity (including the interest or bonus) is taxable in the same year.
- Section 80CCD: This section deals with the eligibility for deductions for contributions made towards the New Pension Scheme. Section 80CCD(1), it says that deductions are to be made for the contribution made by the employee and Section 80CCD(2) explains deductions with respect to the contribution of the employer towards the National Pension System (NPS). A new section 80CCD(1B) explains the additional deduction for the amount deposited to the Atal Pension Yojana by the taxpayer.
- Section 80D: According to this section, any individual or Hindu Undivided Family can claim deductions up to ₹ 25,000 in case of insurance for self, spouse and dependent children. If the parents are above the age of 60 years, an additional deduction of up to ₹ 25000 can be claimed. In cases where both the taxpayer and their parent(s) are above the age of 60 years, a maximum of up to ₹ 1 Lakh can be claimed as a deduction.
Deductions on Expenses
- EPF or Employee’s share of PF Contribution (12% of basic + DA is deducted)
- Life Insurance Premium Payment (Deduction valid on all insurance policies purchased after 1st April 2012 with premium less than 10% of sum assured)
- Children’s Tuition fee payment
- Principal repayments on loan for the purchase of house property (deduction includes stamp duty, registration fees and any other expenses for the transfer of such property to the taxpayer)
- Sum paid for securing deferred annuity (the considered payment is limited to 20% of the salary or actual contribution, whichever is lesser)
Conclusion
For salaried employees, tax saving can be a very stressful task. However, as a result of the various options available on this blog, taxpayers will be able to gain a better understanding of the different options available to them for saving on taxes and claiming deductions that are applicable to them.
