Section 80C

What it means

Section 80C is the most widely used income tax deduction in India. It lets you reduce your taxable income by up to ₹1.5 lakh a year for money you invest or spend on specified items such as Provident Fund, PPF, ELSS mutual funds, life insurance premiums, children’s tuition fees and the principal portion of a home loan. The name comes from the old Income-tax Act, 1961, and it is still the term everyone uses. The deduction is available only if you choose the old tax regime.

How it works

You add up all eligible payments made during the year, and the total, subject to the ₹1.5 lakh cap, is deducted from your gross total income. Common eligible items include:

• Employee contribution to EPF and voluntary PF

• Public Provident Fund (PPF) and Sukanya Samriddhi Yojana

• ELSS mutual funds (3-year lock-in)

• Life insurance premium for self, spouse or children

• Tuition fees for up to two children (not donations or development fees)

• Home loan principal repayment, plus stamp duty and registration in the year of purchase

• 5-year tax-saving bank FD, NSC and Senior Citizens Savings Scheme

The ₹1.5 lakh limit is a combined limit for 80C, 80CCC (pension plans) and 80CCD(1) (own NPS contribution). An extra ₹50,000 for NPS is available separately under 80CCD(1B). Salaried employees declare these investments to the employer in Form 124 (earlier Form 12BB) so that TDS is reduced.

Example

Rahul earns a salary of ₹10,00,000 and opts for the old regime. During the year he pays:

• EPF contribution: ₹72,000

• PPF: ₹50,000

• Life insurance premium: ₹20,000

• Child’s tuition fees: ₹30,000

• Total: ₹1,72,000, but the deduction is capped at ₹1,50,000

Taxable income falls by ₹1,50,000. Since Rahul is in the 20% slab, his tax saving is ₹1,50,000 x 20% = ₹30,000, plus 4% cess of ₹1,200, a total saving of ₹31,200.

Key points to remember

• Section 80C is not available under the new tax regime, so compare both regimes before investing only to save tax.

• Investments must be made within the financial year, that is, by 31 March. Last-minute purchases often lead to poor product choices.

• EPF and home loan principal often use up most of the limit already. Check before buying more insurance.

• Selling a house within 5 years of possession reverses the home loan principal deduction claimed.

• Keep receipts and statements, as the department may ask for proof.