Deduction under Section 80C and Tax Planning

Deduction under Section 80C is a new section which was introduced from the financial year 2005-2006. As per this section, deductions up to Rs.1, 00,000 are allowed from the taxable income relating to investments made in some specified types of schemes.

Those schemes are:

1. Amount paid towards Life Insurance Premium
2. Public Provident Fund Scheme, the statutory scheme being run by Government of India as per the provisions of the PPF Act, 1968( The maximum limit is Rs.70,000/-)
3. National Savings Certificates, popularly known as NSCs.
4. Employee’s Contributions to Employees Provident Fund/General Provident Fund.
5. Unit Linked Insurance Plan(ULIP)
6. Fixed Deposit with Banks wherein such deposits have been made for a period of 5 years or more.
7. Amount deposited in Five Year Time Deposit Scheme in Post Office.
8. Amount deposited in Post Office Senior Citizen’s Scheme.
9. Pension Scheme of Life Insurance Corporation of India or any other Insurance Company.
10. Interest accrued in respect of NSC VIII issue.
11. Amount deposited in the NABARD Rural development Bonds
12. Equity Linked Savings Scheme (ELSS) of Mutual Funds.
13. Repayment of Housing Loan(Principal Amount)
14. Tuition Fees including admission fees or college fees paid for full-time education of two children of the assessee. If wife and husband both are working and if their incomes are individually taxable, one of them can claim this benefit by giving proper declaration. Developmental fees charged by the school or donations or payments of a similar nature are not eligible for deduction under this section.)

Except in the case of Public Provident Fund, there are no caps on investments as per this new section and an assessee is at liberty to invest up to the maximum limit of Rs.1,00,000 in any one or more of the specified schemes as per  one’s choice.

Amount invested in the above schemes is allowed as deduction irrespective of the fact, whether or not such investments are made out of income chargeable to tax.

Assessee of any income level can participate in the deposit schemes as per this section and seek deduction from the taxable income. Higher the income more will be the tax benefit in real terms. For example, the exact savings in tax will depend upon the tax slab applicable to the individual. Thus, a person in the 30% tax slab can save income tax up to Rs.30, 900/-(Tax plus education cess) by investing Rs.1, 00,000.

It is the fundamental duty of every citizen to pay tax and also avail all the tax benefits and incentives provided by the Government. By prudent tax planning, income tax liability is reduced and a better future is secured by timely savings.  Government schemes are safe and one is free from worries of loss of the capital. Interest rates of various schemes are also moderately attractive. One needs to plan investments in such a manner that the post-tax yield is the highest keeping in view the basic yardsticks of safety and liquidity.

(Source: Income Tax Department Publications)