Section 80C Deduction: List, Investment Options & Maximum Deduction

If you pay income tax, there’s one section in the Income Tax Act about which you must be fully aware, and that’s Section 80C. Under this section, you can reduce your taxable income significantly in a financial year by putting your money in select investments, repayment of loans or via certain expenses.

You can save a considerable amount of income tax under Section 80C investments.  Also, there are various subsections of Section 80C, which also helps you reduce your tax liability.

However, as per the income tax rules, you have two options for your tax regime.  You can choose a higher tax rate with deductions like section 80C or a lower rate without deductions. If you choose the former, this will be relevant to you. Let’s understand about section 80C in detail in this article.

What is Section 80C of the Income tax act?

Section 80 C of the income tax allows you to reduce your taxable income up to Rs. 1.5 lac in a financial year by investing in specific financial instruments like Public Provident Fund (PPF), Tax saving mutual funds, Life insurance premiums, etc. or repayment of the principal of your home loan or certain expenses like your children's tuition fees. Let's understand this with an example:

Example:

Suppose your income is Rs. 20 lac and you choose the old income tax regime. As per the old regime, your tax liability would be Rs. 4,29,000. If you utilize the full amount under section 80C, your taxable income will be reduced to 18.5 lac, and your tax liability will be reduced to Rs. 3,82,200. This will result in a tax saving of Rs. 46,800.

Who are eligible for Section 80C of the income tax act benefits?

Individuals

Individuals, both residents and Non-resident Indians (NRIs), are eligible to get the tax benefits under section 80C if they choose the old tax regime. Individuals could be salaried, professionals like doctors and business persons.

HUF (Hindu Undivided Families)

As per the Income Tax Act, HUFs are considered separate entities for taxation. HUFs can also claim section 80C benefits up to Rs. 1.5 lac in a financial year by investing in tax-saving FDs, tax-saving mutual funds (ELSS), etc.

Senior Citizens

Individuals above 60 years of age are considered senior citizens under the Income Tax Act and enjoy separate benefits. These individuals can also benefit from section 80 C under the old tax regime. Apart from regular investment options, they can also invest in special schemes designed for senior citizens, like Senior Citizen Savings Scheme ( SCSS).

How to avail tax deductions under section 80C?

Instruments under section 80C can be divided into three categories:

Financial Investments:

You can invest in specific financial instruments for a certain period and get returns/benefits on your investments.

Spending Activities:

Certain expenses are eligible for Section 80C benefits. As these are not investments, there are no returns on these expenses.

Loan repayments:

Specific types of loan principal repayment are eligible for benefits under section 80C benefits

Financial Investments

 Spending activities

• Tuition fee for up to two children
• Stamp duty paid on the house purchase

Loan repayment

• Home loan principal repayment

Section 80C deduction list

Here are some of the popular instruments which qualify for deductions under Section 80C. They differ considerably in risk, returns and maturity. So, choose one that suits your needs the best.

1. Equity Linked Saving Scheme (ELSS):

ELSS is an equity mutual fund that invests in stocks. It involves higher risk than other Section 80C options, but offers higher returns too. It also has the lowest lock-in period of three years among the various tax saving schemes.

2. National Pension Scheme (NPS):

This is mostly for those seeking a safe retirement corpus as well as tax benefits. It is also the only scheme that allows you an additional Rs. 50,000 as deductions under subsection 80CCD(1B). So, you can reduce your taxable income by up to Rs. 2 lakh by investing in NPS. This is a pension scheme where your money is locked in till you are 60. Even then, you can only withdraw 60 per cent of your savings; the remaining 40 per cent goes into an annuity account to get pension.

3. Life Insurance Premiums:

Premiums paid on life insurance policies are exempt from taxable income up to a limit of Rs. 1.5 lakh. If the policy was issued on or before March 31, 2012, annual premiums up to a maximum of 20% of the sum assured are tax-deductible. For insurance policies issued after that date, annual premiums up to a maximum of 10% of the sum assured are tax-deductible.

4. Public Provident Fund (PPF):

PPF is one of the few tax-saving instruments on which you can claim tax benefits on the investment, and on the interest earned as well. Interest rate as of Jan 2025 was 7.1%, and the lock-in period is 15 years.

5. Five-Year Bank Deposit:

Most banks offer tax saving fixed deposits which can be claimed as deductions under Section 80C. These have a 5-year lock-in and premature withdrawal is not allowed. Interest earned on this investment is taxable.

6. Home Loan Principal Repayment:

The principal amount of a home loan is eligible for deduction provided the construction is complete, and that you do not transfer the property before 5 years after taking possession.

7. Stamp Duty and Registration Charges for buying property:

This deduction can only be claimed once the construction is complete and you have legal possession. However, it can be claimed only in the year in which these expenses are incurred.

8. Sukanya Samriddhi Yojana:

This is a PPF-like scheme for the girl child. It can be opened by a parent or legal guardian of a girl child who has not reached the age of 10 years for her education or marriage. The accumulated amount can be withdrawn when the girl child attains age 21 or at the beneficiary’s marriage above the legal age of 18.

9. Senior Citizens Savings Scheme:

This government scheme is meant for those over 60 and has a five-year maturity period. It offers a good interest rate of 8.2% (as of Jan 2025). Rate of interest is defined by Ministry of Finance from time to time.

10. National Savings Certificate:

While investments in NSC are tax-deductible, interest earned on these instruments are taxable. These have a five-year maturity period.

11. Tuition Fees for Children

The amount paid as children's tuition fees to a school, college, university or any other educational institution can be claimed as a deduction under Section 80C of The Income Tax Act, 1961. However, it can be claimed for up to two children.

12. Contributions to Pension Funds (under Section 80CCC)

Section 80CCC of The Income Tax Act, 1961 allows you to claim a deduction for contributions to pension plans provided by life insurance companies. This deduction also helps you build savings for retirement.

Other subsection of Section 80C

There are various subsections under section 80C of the Income Tax Act which also help in tax savings via various financial instruments:

Section 80CCC:

This section allows to claim deduction for making payments toward specified pension plans offered by life insurance companies

Section 80CCD(1): This allows you to claim a deduction for making a payment towards a contribution to Atal Pension Yojana or other government-sponsored schemes

80CCD(1B):

Investments in NPS up to Rs. 50,000. This is over and above the overall limit of Rs. 1.5 Lac of section 80C

80CCD(2):

Employer’s contribution towards NPS is eligible under this section. However, this is capped at up to 14% of basic salary +DA for central government employees and 10% of basic salary + DA for others.

How much can be claimed under Section 80C?

The total amount under sections 80C, 80CC, and 80CCD (1) is Rs. 1.5 lac in a financial year. However, under section 80CCD(1B), an additional Rs. 50,000 can be claimed, leading to a total deduction of Rs. 2 lac.

Conclusion

Section 80C of the Income Tax Act in India is an excellent tool to reduce tax liability. Various instruments can help you to save taxes. You can choose the right instrument based on your investment objective, risk appetite, and liquidity requirement. The minimum lock-in period under section 80C is 3 years for ELSS with a return linked with the market. Various other options, like PPF, NSC, etc., offer a fixed return defined by the government. You should also compare your tax liability in both the old and new regimes and choose the one that benefits you.

FAQ

1. Are 80C and 80CCC the same?

No, Section 80C provides deductions on various eligible investments up to ₹ 1.5 lakh in a financial year from your taxable income. In comparison, Section 80CCC provides a deduction of up to ₹ 1.5 lakh in a financial year for the contribution made towards specified pension funds. However, the combined limit is up to Rs. 1.5 lac only.

2. What is the maximum tax exemption under Section 80C?

You can claim a maximum deduction of up to ₹ 1.5 lakh from your total income under Section 80C.

3.  Who is eligible for an 80C deduction?

It is available for individuals and Hindu Undivided Families (HUFs).

4.  How much tax can I save?

If you fall in the upper tax bracket and use full deduction under section 80C, you can save a tax of Rs. 46,800. However, tax savings depend on the deduction utilized under section 80C and your tax slabs.

5.  Is it necessary to invest a complete Rs. 1.5 lac in one instrument?

No, you can utilize various instruments/expenses to use your limit, but the maximum claimed amount can’t exceed Rs. 1.5 lac in a financial year.