80C Deduction for AY 2023-24: Maximize your Tax Savings!

80C Deduction is available to the Individuals and HUFs. The maximum allowable 80C deduction for FY 2022-23 is 1.5 lakhs. You can avail this deduction by investing in tax saving investments such as ELSS.

We shall discuss in detail the deductions under section 80C in the below article.

Key Points

Section 80C Deduction

Section 80C covers the deduction that you can avail on tax saving investments, Life Insurance Premium, Deferred Annuity, Contributions to provident fund, Tuition Fees of Children. 80C Deduction limit for AY 2023-24 is Rs 1.5 lakhs. We will see in detail

Eligible Section 80C Investments

(1) Tax Saving Investments

You can reduce your tax liability by investing in tax saving investments. We have listed some of the best Tax saving investments below.

(a)Equity Linked Saving Scheme

Equity Linked Saving Scheme (ELSS) is a type of diversified mutual fund scheme. Your Fund manager conducts an in-depth study of the market and picks the right stocks or equity to deliver optimal risk adjusted portfolio returns on the basis of investment objective of the fund.

ELSS is the best option for you if you are looking to maximize your returns on investment. Typically, ELSS funds offer interest rate of 15% to 18%. Moreover, ELSS provides tax deduction upto Rs 1.5 lakhs under section 80C. In addition to this, ELSS has the shortest lock-in-period of only 3 years in comparison with other tax saving instruments such as ULIP, NPS, PPF, NSC & Fixed Deposits.

Although it is advisable to hold your investments for maximum duration for maximum returns.

However, the return on investments is subject to market risks. So, you have the option to opt for either dividend or growth option in ELSS Fund. From 1st April 2018 onwards, dividends received from equity schemes are 10% taxable and growth option in ELSS funds provides tax-free returns.

We have listed below some of the top performing ELSS Funds.

*Only ELSS growth options are mentioned as Dividends are taxable as per Budget 2018.

(b)National Pension Scheme (NPS)

National Pension System (NPS) is a pension cum investment scheme launched by the Central Government for providing old age income & reasonable market based returns over long term. Any citizen of India between the age of 18 to 65 can open NPS account by visiting eNPS website. Upon successful enrollment, a permanent retirement account number (PRAN) is allotted to you under NPS.

You can invest regularly towards NPS during the course of your employment to create the corpus for retirement. Depending on your risk appetite, you can choose to invest in any of the four asset classes namely Equity, Corporate Debt, Government Securities and Alternative Investment funds. All transactions are recorded under PRAN which you can track anytime.

On retirement that is after attaining 60 years, you can withdraw 60% of the total NPS amount. The Government mandate requires that you invest the balance 40% of NPS funds in an Annuity Plan of your choice to receive monthly pension. Only 40% of NPS is exempt from tax at the time of maturity and subsequent annuity received is again taxable income.

NPS funds have a longer lock-in-period ranging between 35- 38 years. However, they offer an interest of 12% to 14% return on investment. In addition to this,  Pension Fund Regulatory and Development Authority (PFRDA) regulates NPS. Also do note that only Tier II NPS accounts are eligible to avail tax deduction of Rs 1,50,000 under section 80C and an additional deduction of Rs 50,000 under section 80CCD.

In a nutshell, NPS is a good tax-saving investment option to an individual with a low to medium risk appetite who desires monthly pension after retirement. 

(c)Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plan is an Insurance cum Investment plan that gives you the dual benefit of Investment and Life cover. The premium paid towards an ULIP is divided into two parts. One part of ULIP is contributed towards your life cover and the other part goes towards investment. Depending on your risk appetite, you may invest in equity, debt or combination of equity and debt fund.

Most ULIPs offer a life cover of 10 times of your annual premium. Furthermore, you have the freedom to choose the type of investment. If your long term financial goal is to grow your wealth, you may invest in equity funds which is buying shares of companies. However, if your goal is to get constant returns on your investment, debt funds is the one to invest in. And, if you wish to take some risk and also have constant returns on your investment, you may choose Balanced funds which is a combination of equity funds and debt funds. You also have the option “Switch” to move the funds between equity and debt funds

ULIPs also provide you partial withdrawal option which allows you to withdraw a part of your money invested in your policy. This option is useful to meet any financial emergencies or other immediate expenses. The partial withdrawals are free of cost. The fund management fees are comparatively lower than the Mutual funds. Other benefits include tax benefits such as 80C Deduction on your premium payments, completely tax free debt-equity switches and Maturity benefit. You may tax deduction of Rs 1,50,000 under section 80C on the premiums paid. However, ULIPs have a long lock-in-period of 5 years.

In a nutshell, ULIP is a good tax-saving investment option to an individual with a low to medium risk appetite who desires grow his wealth along with a life cover to financially protect his family in case of unfortunate event.

(d)Public Provident Fund (PPF)

Public Provident Fund scheme is a long-term saving-cum-investment plan. It offers attractive interest rate and the interest earned on PPF account is not taxable.

Any Indian citizen may invest in Public Provident Fund. All that you need is to open an PPF account. PPF is a government backed scheme and not market based. So, it offers guaranteed return on investment. The minimum deposit to open a PPF account is Rs 500 and the maximum is Rs 1,50,000 in a financial year. Loan facility is available from 3rd financial year upto 6th financial year. Furthermore, you are allowed to withdraw funds every year from the 7th financial year. Also, on maturity that is completion of 15 years you may extend the PPF account for any number of years for a block of 5 years. The PPF account can be retained indefinitely without further deposit after maturity with the prevailing rate of interest. Amount invested in PPF is eligible for 80C deduction of the Income Tax Act, 1961. However, the point of concern is that the PPF has a long lock-in-period of 15 years.

In a nutshell, PPF is a good tax-saving investment option to an individual who has low risk appetite.

(e)Investment in fixed deposit/Bonds

Investment in tax saving fixed deposits allows you claim 80C Deduction of Rs 1,50,000 under the income tax act, 1961. As the name suggests, tax saving fixed deposits are similar to other fixed deposits. Returns on tax saving fixed deposits are fixed and the term is also fixed. As tax saving fixed deposits are not market linked, they fixed rate of interest and guaranteed returns throught the tenure.

You may open a tax saving fixed deposit account with a minimum of Rs 1000 and there is no maximum limit. You cannot withdraw funds before the maturity of the fixed deposit account. Furthermore, you cannot avail any loan against tax saving fixed deposits. Also, the tax saving fixed deposits have a minimum lock-in-period of 5 years. And the interest rate varies from bank to bank. Moreover, the interest earned on tax saving fixed deposits is taxable.

In a nutshell, tax saving fixed deposits is a good tax-saving investment option to an individual who has low risk appetite desiring definite return on investment.

(f)Investment in NSC

NSC means National Savings Certificate. NSC is a fixed income scheme that can be opened at any post office. It was an initiative taken by the Government to encourage small investors to save.

NSC Certificate may be purchased for a minimum amount of Rs 100. Other denominations at which NSC certificate can be purchased are Rs 500, Rs 1000, Rs 5000 and Rs 10000. NSC offer two maturity periods that is 5 years and 10 years. As an investor, you may choose that meets your needs. NSC can be used as a security or a collateral to avail Bank loan. Furthermore, NSC can be transferred from one post office to another and from individual to another. The interest earned on NSC is not taxable except for the interest earned in the final year. The interest earned is compounded on a yearly basis and reinvested towards the scheme. You are eligible to avail 80C deduction of Rs 1,50,000 on the NSC investment.

In a nutshell, NSC is an ideal tax-saving investment option to an individual planning his/ her retirement desiring consistent and guaranteed returns.

(2)Life Insurance Premium

The life insurance premiums that you pay towards the Life Insurance Policy is eligible for 80C Deduction of Rs 1,50,000. However, to avail the maximum tax deduction under section 80C, the life insurance premium must not be less than 10% of the sum assured amount of the policy. If you surrender your insurance policy or if the policy is terminated before 2 years from the date of commencement of policy, then the you will not receive any tax benefits on the premium paid.

This type of tax saving investment is suitable for individuals who prefer life cover for themselves and family and save tax.

(3) Contributions to Provident Fund

An employee’s contribution to the Provident Fund is eligible for 80C Deduction. You can claim a maximum of up to Rs 1.5 lakhs as section 80C Deduction. Employee’s contribution to PF amount is calculated at 12% of salary deducted by the employer.

(4) Tuition Fees of two Children

If you are paying tuition fees of your children, you can avail tax benefit for the tuition fees paid under section 80C. The Income Tax Act provides tax deduction under 80C for parents claiming tuition fees of his/ her children. The maximum amount that can be claimed as 80C Deduction is Rs 1.5 lakhs.

(5) Repayment of housing loan (principal component)

Let’s say you have taken a housing loan to construct your dream house. After completion of the house, you start repaying your housing loan through EMI payments. Now, repayment includes the principal portion and the interest portion. You can claim income tax deduction for the interest on housing loan under section 24(b). Did you know that you can also claim income tax deduction for the principal amount under section 80C? There is provision under the income tax act to claim a tax deduction on the repayment of principal amount subject to certain conditions. The condition is that the house property should not be sold within five years of possession. The maximum amount that can claimed as 80C Deduction is up to Rs 1.5 lakhs.

(6) Stamp duty/registration fees/ fees/ another expense for purchase/construction of residential house

You may also claim stamp duty or registration fees, or any other expense incurred during the purchase or construction of your house. The maximum amount that you can claim as section 80C Deduction is up to Rs 1.5 lakhs. The only condition is that you can claim these expenses only in the year that these expenses were incurred.

In a nutshell, you can claim 80C deduction for different expenses as described above. We hope that this article was able to provide you with all the information about 80C deduction. You may also check out other such tax deductions under section 80TTA and section 80GG.

How to Claim 80C Deductions?

To claim 80C deduction invest in eligible tax saving instruments during the financial year and before 31st March of that financial year. Also, ensure that you have proof of investment at the time of filing of your income tax return.