The Indian tax laws include certain provision to give incentives to achieve creation socio economic objectives. These provisions are included under Section VIA and are in the form of deductions (80 C to 80 U). Deductions are for certain personal expenditure, social security expenditure for various purposes and that aims to support economic development. There are some basic rules to avail these deductions as well.
Section 80 C
Section 80 C is the most popular provision and it aims to encourage savings in the economy by extending several incentives under it. The section allows income tax deductions for certain types of payments, subscriptions and investments/savings made by the tax payer. As per budget 2016, a maximum of Rs 150000 can be deducted by a normal person under this section. Following are the tax deduction items under the section.
- Payment to Employment Provident Fund and Public Provident Fund.
- Housing loan repayment- Repayments of Principal: Repayment of Principal amounts done towards a housing loan are also considered under 80C deductions. But this property should not be sold within 5 years from the end of the financial year.
- National Savings Certificates: Investments in National Savings Certificates (NSC) are also considered under 80 C. These investments are available from the Indian Postal Services or Post offices. These are issued for a period of 5 years or 10 years.
- Life Insurance Premium: An individual or an HUF can claim deduction for life insurance premium paid. An individual can claim deduction for life insurance policy on life of himself, his spouse or his children.
- Educational Expenses: Education Expenses or children’s tuition fee is eligible under Section 80C, but with some conditions. ‘Tuition Fee’ here means school, college or university fees.
- Fixed Deposits: Fixed Deposits of 5 years or more with a scheduled bank are also eligible for deduction under section 80C.
- Unit Linked Insurance Plans: Investments in ULIPs of UTI and of LIC Mutual Fund and other such ULIPs which are specifically sold as 80C savings instruments also form part of the deductions.
- Equity Linked Savings Schemes: ELSS are a type of mutual funds. These tax saving funds are sold with a lock in period of 3 years. Since these funds invest in equity mostly, they come with higher returns albeit higher risk.
- Subscriptions to Senior Citizen Savings Scheme or notified bonds of NABARD (National Bank for Agriculture and Rural Development) say the Rural Development Bonds of NABARD are also eligible for deduction under section 80C.
- Sukanya Samridhi Yojana
- Senior Citizen Savings Scheme (SCSS).
For the maximum deductions, section 80 C is clubbed with other savings/ pension related exemption clauses. There are many other provisions under ITA, that provides tax concessions individuals for contributing to savings and pension schemes under 80 C, 80 CCC and 80 CCD (1). As per the budget 216, the total limit of exemption under these schemes together is Rs 1.5 lakh.
Following are the other tax exemption/deduction measures that are contained under the Income Tax Act.
Section 80 CCC: Section 80 CCC of the Income Tax Act provides scope for tax deductions on investment in pension funds. These pension funds could be from any insurer and a maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed only by individual taxpayers.
Section 80 CCD – promotion of NPS
Government offers tax deductions by persons for participating in the National Pension Scheme. Section 80 CCD is for investment in pension schemes of the Central Government ie., for contribution to the National Pension Scheme. Deduction under this section is available only to individuals and to HUFs. For the NPS contributions, tax deduction are there under two sections – 80CCD (1) and 80CCD (2).
- Section 80 CCD (1) is for employee’s contribution towards notified pension scheme (NPS).
- Section 80 CCD (2): deduction to NPS scheme for contribution by the employer (NPS).
Section 80 CCD (1)
Contribution of an employee to his NPS scheme is deducted under section 80CCD (1). The maximum deduction available under this section would be Rs.1 lakh. This should come within the total limit set for 80C of Rs 150000.
Section 80 CCD (2)
The Section 80CCD (2) is for employer’s contribution to a notified pension scheme. As per Section 80CCD (2), where any contribution in the said pension scheme is made by the Central Government or any other employer then the employee shall be allowed a deduction from his total income of the whole amount contributed by the Central Government or any other employer subject to limit of 10% of his salary of the previous year.
It is emphasized that aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD (1) shall not exceed Rs.1,50,000/. However, the deduction under Section 80CCD (1) shall not exceed Rs.1,00000. But contributions made by the employer under Section 80 CCD (2) doesn’t come under this limit as it is the contribution of the government.