How to Save Tax on Rs 1.5 Lakh under 80C?

All about Section 80C in Income Tax

Paying the taxes every year becomes a real struggle for some people. Most of the senior employees know how to save tax on their income. But, there only, this becomes difficult for the new fresher employees. No worries! We are here to tell you how to save income tax under Section 80c in an easy way.

Section 80c is a clause of the income tax act that calculates the various expenditure and investment free from the income tax. A citizen holding more than Rs 1.5 Lakh goes through a maximum deduction from their account's total taxable income.

Section 80c is only acceptable for individual tax-payers and Hindu Undivided Families (HUF). Section 80c does not consider the tax deduction if it is a corporate body, businesses, or partnership firm.

When the individual claims their deduction from the total income, they deduce the tax payable amount. Therefore, the gross taxable amount reduces and in this way, the person can save the income tax. For example, an individual has a gross income of Rs 7.5 Lakh for a financial year. They invest or spend Rs 1.5 Lakh from the gross amount, which will allow them to avail the tax benefit. Their taxable amount will come down to Rs 6 Lakh, and they will pay the tax for this amount only.

Things You Should Know About Section 80c

What is Section 80C?

The 80c section of the Income Tax Act is the most commonly used scheme to save tax in income tax. This section conveys that a Hindu Undivided Family or an individual spends or invests in a specified course of action up to Rs 1.5 Lakh. This investment or expenditure is claimed as a deduction from their total gross income before calculating tax payable in a financial year. The amount claimed from that income, from which the individual will make the investments or expenditure.

What are the categories that fall under 80c and how?

The individual tax-payers or the HUN's have the facility to claim the break-in tax from the taxable income. A total of Rs 1.5 Lakh deduction can be claimed from the total income under 80c section.

In case an individual has missed the benefits of tax deduction by already investing in LIC, PPF, Mediclaim, etc. by filing the income tax return form to regain the break-in tax. The money will automatically get deposited by the income tax department to the individual's bank account.

What are the possible investments under 80c?

Most individuals or HUFs invest in LIC, equity-linked savings schemes (ELSS) or Public Provident Fund (PPF), etc. to take advantage of this deduction. There are more ways to invest/spend under section 80c. An individual can make specific investments as well as expenditures that are worth considering.

Invest/spend up to Rs 1.5 Lakh of the deductible amount to enjoy the tax break advantage under section 80c.

What are the eligible payments under 80c?

There are many more ways to invest rather than life insurance, Public Provident Fund, and NPS. ELSS Funds or Tax Saving Mutual Funds are considerably the best tax saving way. These investments are designed to make a profit twice the time of saving taxes and higher returns on investments.

What is Section 80CCD?

Under section 80CCD, the contribution is made after reducing a certain amount of money to the National Pension Scheme (NPS) or the Atal Pension Yojana (ATY). In case the employee themselves made the deduction towards NPS, it is also considerable. It is a scheme from the central government itself.

What is the National Pension Scheme (NPS) under Article 80CCD?

To provide a pension, the government has introduced the National Pension Scheme to the citizens of India. The government has initially paid pension to the government employees. Later, the scheme of 80CCD section was initiated to self employees as well. The key objective behind the NPS scheme was to provide an after retirement plan to live peacefully. These are the furthermost conditions under sections 80CCD.

An individual is supposed to invest under NPS after the age of 60. For government employees, it is mandatory. Whereas, for the self-employed, it is optional. Investment should be up to Rs 6000 per annum or Rs 500 per month to fall under the income tax deduction of NPS for tier one. Whereas, for tier two, it should be Rs 2000 per annum or Rs 250 per month.

How can you use Section 80c, and how can you apply for it?

Here is a list of expenditures and investments from specified avenues eligible for deduction from the gross income under section 80c.

1. Fixed-deposits

You will get a tax reduction of up to 1.5 Lakh under section 80c for five years on all types of tax saver FDs. These generally have a fixed rate of interest around, 7% to 8%. The interest in these amounts is always tax-free.

2. Public Provident Fund (PPF)

PPF or Public Provident Fund is a governmental established programme, has a saving scheme of tenure of 15 years span. It is available in almost all the banks and post-offices of India. The interest rate changes quarterly and the interest is tax-free.

3. Equity Linked Savings Scheme (ELSS)

It is a scheme in mutual funds, in which, out of your total asset in equity, it invests a minimum 80% of assets. The invested amount locks for 3-years of the span. The ELSS returns are subject to Long Term Capital Gains Tax in 10% above Rs 1 Lakh of the amount.

4. National Saving Certificate (NSC)

It has a tenure of 5 years of span and has a fixed rate of interest. The interest NSC is calculated for Rs 1.5 Lakh under 80c. The tax is deductible when no other investments are in current use up to the limit.

5. Life Insurances

There are different types of insurance plans in the market. From which, ULIP and Endowment Policies are tax-payable up to Rs 1.5 Lakh. But the coverage should be 10-times the annual insurance premium.

6. National Pension System (NPS)

It comes under section 80CCD (1B) up to 50,000. It is a programme for the contribution to NPS. It allows you to invest, debt pension and, make a maintenance fund after retirement.

7. Home Loan

The repayment of the home loan is tax-deductible under income tax up to Rs 2 Lakh per annum.

8. Paying Tuition Fees

Paying the tuition fee of your children's alma-mater is tax-deductible. There are even tuition fees which are not associated with any institution. It is up to Rs 1.5 Lakh per annum.

9. Employees Provident Fund (EPF)

From the total salary of an individual, 12% of the payment is deducted to contribute to the Employee Provident Fund. The fund is tax-deductible up to Rs 1.5 lakh under section 80c.

10. Senior Citizens Savings Scheme (SSCS)

It has a tenure of 5 years span and is available to senior citizens above 60 years. The rate of Senior Citizen Saving Scheme is more than the Current FD rates. The contribution is tax-deductible up to Rs 1.5 Lakh.

11. Sukanya Samriddhi Yojana

This Yojana is for the girl child. Sukanya Samriddhi Yojana has a tenure of 21 years of span until the girl child marries after 18 years of age. Parents of a girl child below 10 years of age will get the deduction. It has interest rates higher than FD interests. The interest is tax-deductible.

Conditions Where You are Not Eligible for Tax-Deduction

Besides knowing the claiming deduction under 80c, you should also know the conditions when you are not eligible for the tax deduction.

• You cannot claim the expenditures and investments from the deducted amount from the income.
• When an individual's salary or gross income is below the 2.5 Lakh per annum and is below 60 years of age is not eligible to save tax under section 80c. The amount of the individual does not fall under the tax payable amount.

Source: Sharekhan

Conclusion

The provisions under section 80c are providing advantages to the tax-payers. Their initiative of saving taxes should not harm financial life. Like, by taking a home loan if not necessary because there is deduction possible. In the crisis of money, the home loan burden will work as it reduces tax deduction. So, utilise the tax deduction advantages cleverly when needed.

Also read:

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2) The USA vs India: Taxation System
3) How does the Income Tax System work in India?
4) Capital Gains Explained: Definition, Types, Exemptions & Tax Saving