Tax deductions are essential to personal finance planning, and understanding how to maximise them can lead to significant savings. Two of India's most popular tax deductions are 80C and 80D deductions. In this article, we will provide a detailed guide on maximising these deductions and reducing your tax liability.
Regarding tax planning, deductions on Section 80C, 80CCC, 80CCD & 80D are some of the most popular options that individuals use to save taxes. These deductions allow taxpayers to reduce their taxable income by investing in various financial instruments and insurance policies.
However, with so many options available, choosing the right ones that suit your financial goals and tax-saving requirements can be confusing.
Deductions on Section 80C:
Section 80C of the Income Tax Act 1961 provides tax benefits on investments made in various financial instruments and expenses incurred by an individual during the financial year. The maximum limit for deduction under Section 80C is Rs 1.5 lakh.
Eligible Investments and Expenses under Section 80C:
Some several investments and expenses are eligible for deduction under Section 80C, such as:
- Life Insurance Premiums: Premiums paid towards life insurance policies for self, spouse or children are eligible for deduction under Section 80C.
- Public Provident Fund (PPF): PPF is a popular investment option that allows individuals to save for the long term and earn tax-free returns. Investments made in PPF are eligible for deduction under Section 80C.
- Equity-Linked Savings Scheme (ELSS): ELSS is a type of mutual fund that invests in equities and provides tax benefits to investors. Investments made in ELSS are eligible for deduction under Section 80C.
- National Pension System (NPS): NPS is a government-sponsored retirement savings scheme offering investors tax benefits. Contributions made towards NPS are eligible for deduction under Section 80C.
- Sukanya Samriddhi Yojana (SSY): SSY is a savings scheme for the girl child that offers tax benefits to the investor. Investments made in SSY are eligible for deduction under Section 80C.
- Senior Citizen Savings Scheme (SCSS): SCSS is a savings scheme for senior citizens that offers tax benefits to investors. Investments made in SCSS are eligible for deduction under Section 80C.
- Tax-Saving Fixed Deposits (FDs): Banks offer tax-saving fixed deposits with a lock-in period of 5 years and tax benefits to investors. Investments made in tax-saving FDs are eligible for deduction under Section 80C.
- Principal Repayment on Home Loan: Principal repayment on a home loan is eligible for deduction under Section 80C.
- Tuition Fees for Children’s Education: Tuition fees paid for children’s education are eligible for deduction under Section 80C.
- Other Eligible Expenses: Certain expenses such as stamp duty and registration charges paid for the purchase of a house, expenses incurred towards renovation or repair of a house, and investments made in post office savings schemes are also eligible for deduction under Section 80C.
Maximising 80C and 80D deductions
To maximise 80C deductions, one must plan their investments and expenses carefully. Here are some strategies to consider:
- Invest in tax-saving instruments early in the financial year to maximise returns and minimise the burden of a lump sum investment towards the end of the financial year.
- Invest in a mix of instruments to diversify the portfolio and reduce risk. Consider investing in ELSS, PPF, and NSC, among others.
- Pay off your home loan’s principal amount before the end of the financial year to maximise your deduction.
- If you have children, consider investing in their education and claim the tuition fee paid under section 80C.
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To maximise 80D deductions, consider the following:
- Purchase a health insurance policy for yourself and your family members. Having adequate health insurance coverage is essential to deal with any unexpected medical expenses.
- If you are a senior citizen, consider purchasing a policy that offers higher coverage and additional benefits.
- Pay your health insurance premiums on time to avoid any lapses in coverage and maximise your deduction.
Section 80 Deductions Summary
| Section | Deduction on | Allowed Limit (maximum) FY 2021-22 |
| 80C |
Investment in PPF – Employee’s share of PF contribution – NSCs – Life Insurance Premium payment – Children’s Tuition Fee – Principal Repayment of home loan – Investment in Sukanya Samridhi Account – ULIPS – ELSS – Sum paid to purchase deferred annuity – Five year deposit scheme – Senior Citizens savings scheme – Subscription to notified securities/notified deposits scheme – Contribution to notified Pension Fund set up by Mutual Fund or UTI. – Subscription to Home Loan Account scheme of the National Housing Bank – Subscription to deposit scheme of a public sector or company engaged in providing housing finance – Contribution to notified annuity Plan of LIC – Subscription to equity shares/ debentures of an approved eligible issue – Subscription to notified bonds of NABARD |
₹1,50,000 |
| 80CCC | For amount deposited in annuity plan of LIC or any other insurer for a pension from a fund referred to in Section 10(23AAB) | – |
| 80CCD(1) | Employee’s contribution to NPS account (maximum up to Rs 1,50,000) | – |
| 80CCD(2) | Employer’s contribution to NPS account | Maximum up to 10% of salary |
| 80CCD(1B) | Additional contribution to NPS | ₹ 50,000 |
| 80TTA(1) | Interest Income from Savings account | Maximum up to ₹10,000 |
| 80TTB | Exemption of interest from banks, post office, etc. Applicable only to senior citizens | Maximum up to ₹50,000 |
| 80GG | For rent paid when HRA is not received from employer |
Least of : – Rent paid minus 10% of total income – ₹5000/- per month – 25% of total income |
| 80E | Interest on education loan | Interest paid for a period of 8 years |
| 80EE | Interest on home loan for first time home owners | ₹50,000 |
| 80D |
Medical Insurance – Self, spouse, children Medical Insurance – Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old |
– ₹25,000 – ₹50,000 |
| 80DD |
Medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent – Disability is 40% or more but less than 80% – Disability is 80% or more |
– ₹75,000 – ₹1,25,000 |
| 80DDB |
Medical Expenditure on Self or Dependent Relative for diseases specified in Rule 11DD – For less than 60 years old – For more than 60 years old |
– Lower of ₹ 40,000 or the amount actually paid – Lower of ₹1,00,000 or the amount actually paid |
| 80U |
Self-suffering from disability : – An individual suffering from a physical disability (including blindness) or mental retardation. – An individual suffering from severe disability |
– ₹75,000 – ₹1,25,000 |
| 80GGB | Contribution by companies to political parties | Amount contributed (not allowed if paid in cash) |
| 80GGC | Contribution by individuals to political parties | Amount contributed (not allowed if paid in cash) |
| 80RRB | Deductions on Income by way of Royalty of a Patent | Lower of ₹3,00,000 or income received |
FAQ
What are the deductions under Section 80D?
The deductions under Section 80D covers medical insurance premium, senior citizen parents, and preventive health check-ups.
What is the maximum limit for 80D?
For the financial year 2022-23, the maximum limit for deductions under Section 80D of the Income Tax Act in India is set at ₹ 1.5 lakh.
What is the limit for 80C and 80D?
The deduction limit under Section 80C is ₹ 1.5 Lakh, while under Section 80D, it is ₹ 2 Lakh for senior citizens and ₹ 1.5 Lakh for individual taxpayers and Hindu Undivided Families. Additionally, preventive health check-ups are eligible for deductions up to a limit of ₹ 50,000.
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