Under Section 80C of the Income Tax Act of 1961, a taxpayer is allowed certain tax deductions that allow him to lower his tax liability against his taxable income. Eligible taxpayers can claim deductions upto Rs 1.5 lakh per year from your total income under Section 80C.
Let us first understand What is Tax Deduction?
Tax deductions are offered by the government for the taxpayer to save tax or to lower the amount of tax he needs to pay. Tax deduction helps in reducing your taxable income and helps you save tax. You can claim tax deduction for amounts spent in tuition fees, medical expenses, charitable contributions and you can invest in various schemes such as life insurance plans, retirement savings schemes, and national savings schemes etc. to get tax deductions.
The most widely used option to save income tax is section 80C of the Income Tax Act. Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF.
For example, if your gross total earnings for a financial year is Rs 6.5 lakh and if you invest Rs 1.5 lakh in Section80C schemes which allows you to claim this tax benefit, then your net taxable income will come down to Rs 5 lakh and you would have to pay tax on this amount.
Deduction under section 80C is available for investments and specified expenditures made by the taxpayer. However, in order to claim the deduction for a particular financial year you need to invest/spend the deductible amount in that financial year itself.
Here's a list of different investments and expenditures which can be claimed as deduction by the taxpayer under section 80C
- Investment in PPF
- Employee's share of PF contribution
- National Savings Certificates (NSC)
- Life Insurance Premium payment
- Children's Tuition Fee (for a maximum of 2 children studying in India)
- Principal Repayment of home loan
- Investment in Sukanya Samridhi Account
- Sum paid to purchase deferred annuity
- Five year Bank or Post office Tax saving Deposits
- Senior Citizens savings scheme
- Subscription to Home Loan Account Scheme of the National Housing Bank
- Subscription to notified NABARD rural bonds
- Stamp duty charges for purchase of a new house
Several of these investment options are more popular than others because of different reasons.
Our Advice - Do not pick tax-planning options blindly. Choose proper Tax Saving instrument not only to Save Tax but to Grow your Wealth.