What Is Section 80C Under the Income Tax Act? Investment Options Explained

As Indian citizens, we are legally obliged to pay our share of taxes to the government as per our income. However, this does not mean that you cannot reduce your tax liability. Section 80C of the Income Tax Act allows you to claim deductions of up to ₹1,50,000 every year from your total taxable income. These deductions can be claimed against various investments and expenditures that are exempted from income tax.

Section 80C of the Income Tax Act is applicable only to individual taxpayers and Hindu Undivided Families. It does not allow corporate bodies, partnership firms, and other businesses to claim tax exemptions under this section.

Tax deductions under Section 80C of the Income Tax Act are divided into certain sub-sections. These are:

Life Insurance Premiums

Premium payments made towards life insurance policies are eligible for income tax deductions under Section 80C. This is valid for premium payments made for policies held by self, spouse, dependent children, etc. Members of a Hindu Undivided Family can also claim these exemptions. Currently, an annual premium of up to 10% of the insurance policy’s total sum assured is eligible to be exempted from tax under Section 80C.

Provident Fund

Contributions made towards Public Provident Fund (PPF) and Employees' Provident Fund (EPF) are eligible for tax deduction under Section 80C.  Voluntary contributions made by an employee towards the provided fund are also eligible for tax deduction under this section of the Income Tax Act.

NABARD Rural Bonds

The rural bonds offered by NABARD (National Bank for Agriculture and Rural Development) are eligible for tax exemption under Section 80C of the Income Tax Act. 

Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans offer better returns in the long run as compared to conventional insurance plans. Investors of these plans can avail tax exemptions up to ₹1,50,000 on the invested amount under Section 80C.

National Savings Certificate (NSC) 

The NSC, or National Savings Certificate is a government-backed tax-saving instrument for risk-averse individuals. Under Section 80C, a maximum of investment of ₹1,50,000 will be eligible for tax exemption every financial year. 

Tax Saving FD

Tax Saving FDs are fixed deposit plans that allow tax deduction under Section 80C. These FDs come with a lock-in period of 5 years and offer up to ₹1,50,000 tax exemption on the principal amount). The interest returns of such FDs are liable for taxation. 

Infrastructure Bonds 

Section 80C of the Income Tax Act provides tax exemptions on investments in infrastructure bonds, provided the invested amount is ₹20,000 or more. 

Equity-Linked Saving Scheme (ELSS) 

Investments of up to ₹1,50,000 made in ELSS, or Equity Linked Saving Schemes are eligible for tax exemptions under Section 80C. ELSS schemes come with a mandatory lock-in period of 3 years. 

Senior Citizens Savings Scheme

Investments made towards the Senior Citizens Saving Scheme (SCSS) are eligible for tax deductions under this section. The SCSS scheme has a minimum lock-in tenure of 5 years.

Principal Repayment Made Towards Home Loan

The principal component of the repayments made towards a home loan is eligible for tax deduction under Section 80C. 

Stamp Duty And Registration Charges

The stamp duty and registration charges paid while taking ownership of a property are eligible for tax exemption under Section 80C. However, this can only be claimed in the year that these charges are paid.

Sukanya Samriddhi Yojana

Investments made towards the Sukanya Samriddhi Yojana of a girl child are eligible for tax deductions under Section 80C of the Income Tax Act. The interest earned from this scheme is also eligible for tax exemption under Section 80C.

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