Section 80C allows certain investments and expenditures to reduce the tax burden of individuals and HUFs. The extent of deduction under this section is Rs. 1.5 lakh. Thus if you are in the highest tax bracket i.e. 30% and you invest Rs. 1.5 lakh under section 80C, you save tax of Rs. 45000. Indeed, it’s a tax saver section with a huge deduction of Rs. 1.5 Lakh; and thus most assesses are attracted towards it.

Qualifying Investments:

Public Provident Fund (PPF): – PPF is a 15-year investment scheme under which an investor enjoys tax exemption at the time of deposit, accrual of interest and withdrawal. The interest rate on deposit in PPF for 2022 is 7.1 per cent. Loan against the investment is available only from 3rd financial year up to 5th financial year & pre mature withdrawals can be made from end of 6th financial year from when commenced.

The highest amount that people can deposit in this scheme is Rs.1.5 lakh annually.  Even contribution to PPF in name of spouse and children is eligible for tax deduction. HUF can also deposit the money for its members and claim relief u/s 80C, but cannot open account in its own name.

Provident Fund (PF) and Voluntary Provident Fund (VPF):- PF is automatically deducted from your salary. Both employer and employee contribute to it. While employer contribution is exempt from tax whereas employee contribution is eligible for deduction under section 80C. In PF, employee has to contribute 12% of basic pay but he can contribute more i.e. up to 100% of basic pay and dearness allowance through voluntary provident fund. Maturity is also tax free if contribution is for over 5 year of continuous service in same or different companies.

Life Insurance Premium: – Any amount that you pay as life insurance premium for yourself, your spouse or you children is only eligible for deduction under section 80C. But the premium paid in case of parents (Father/ Mother/ Both) or in-Laws or siblings is not eligible for the deduction under Sec. 80C. In a case you are paying premium for more than one insurance policy; aggregate shall be considered for deduction. You can take life insurance policy from any private corporation it’s not necessary to take the policy from Life Insurance Corporation (LIC).

Equity Linked Savings Scheme (ELSS):- I discussed this in my earlier article on ELSS. It is an open ended, diversified equity mutual fund schemes offered by mutual fund in India that does not just help you save tax but also gives you opportunity to grow your money. There is higher possibility of earning as well as a higher risk. It comes with a lock-in period of 3 years. There is no limit of investment but only Rs 1.5 lakh is eligible for deduction under section 80C.

National Savings Certificate (NSC): – NSC is issued by post offices in India and is very good small saving scheme. It is available for 5 year (for interest @ 6.8% p.a.). NSC ‘s are available in the value of Rs. 100, Rs. 500, Rs. 5,000 and Rs. 10,000 and interest is compounded half yearly. The interest earned from NSC investment is taxable; however, the beauty of this scheme is that interest can be reinvested back to scheme. This way you don’t have to pay any taxes on interest except the interest earned in last year. No pre-mature withdrawal is allowed. The amount you get at maturity is exempt but interest is taxable.

Infrastructure Bonds: – These are issued by infrastructure companies and are prior approved by the government for deduction u/s 80C. These offer a decent rate of interest plus tax benefits. They are popularly known as infra bond. The amount that you invest in this bond is eligible for deduction u/s 80C but the interest is taxable.

Please read my article on Tax Free Bonds.

Pension Funds – Section 80CCC: – This section 80CCC stipulates that an investment in pension fund is eligible for deduction from assessee income. This section 80CCC along with 80C and 80CCD is clubbed with the limit of 80C i.e. 80C + 80CCC + 80CCD= 1.5 lakh.  The deduction only can be claimed if taxpayer actually contributes to the pension fund. The amount received on maturity along with interest on which deduction is already claimed shall be taxable.

Bank Fixed Deposit (FD) – 5 year: – These are special 5 year fixed deposit by scheduled banks which are eligible for deduction under section 80C. You need to ask bank that you need “Tax saver FD”, bank will then put a stamp on your FD regarding 5 year lock-in. The same can be applied through internet banking or mobile banking of concerned banks.  Interest so received with rates 4.9% – 8.0% p.a. (varies) will be taxable.

Post Office Time Deposit (POTD) – 5 Year: – POTD’s are similar to bank fixed deposits. Although POTD’s are available for varying duration i.e. 1 year, 2 year, 3 year but only 5 year qualifies for tax saving under section 80C. Interest rate currently is 7.1% which is compounded quarterly but paid annually and is taxable.

Senior Citizen Savings Scheme (SCSS): -This scheme is available to an individual:

  • who has attained age of 60 years or above on the date of opening of the account.
  • who has attained the age of 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement and,
  • there is no age limit for the retired personnel of Defence services provided they fulfill other specified conditions.

The tenure of this scheme is 5 year, which can be extended to 3 years or more and scheme is with rate of interest of 7.2% p.a. which is calculated quarterly and is taxable. Investment has to be in multiple of Rs. 1000 and maximum upto Rs. 15 lakh. Premature closing and withdrawals is allowed only after 1 year but with penalty. Deposits qualify for deduction u/s 80C.

NABARD Rural Bonds: – There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C for the deduction.

Unit Linked Insurance Plan (ULIP): – ULIP is an important source of investment, saving on tax and taking an insurance cover with decent return in long term. ULIP is basically a combination of insurance as well as investment where part of premium paid is utilized towards insurance cover of policy holder and remaining part is invested in various equity and debt schemes. ULIPs offer high returns, risk cover and tax benefit.

Sukanya Samriddhi Account Scheme: – It is a small deposit scheme for a girl child, as a part of “Beti Bachao Beti Padhao” campaign. It would fetch 7.6% interest rate and shall be eligible for deduction under section 80C. The depositor shall be father or mother or the person taking care of the property and minor (in case of death of parents). This account can be opened for two girl’s only i.e. one account for one girl. Interest earned as well as the maturity amount is exempt from Income Tax. 

Qualifying Expenditures:

Home Loan Principal Repayment: – The instalment of your home loan it consists two components i.e. Principle and Interest. The principle component only qualifies for deduction under section 80C. The amount of loan should be either for the purpose of purchase or construction of a residential house. This excludes any addition/ alteration/ renovation/ repair after the construction is complete and the completion certificate has been awarded. You can also save your interest component of home loan which is allowed as deduction under section 24 (Interest on borrowed capital) / Section 80EE (Additional deduction for home loan interest).

Stamp Duty and Registration Charges for Home: –  The amount paid as stamp duty and registration charges is allowed as deduction under section 80C even if assessee has not taken home loan in the year of purchase of home.

Tuition Fees: – Any sum paid as tuition fees to any university/college/ educational institution in India for full time education is allowed as deduction under section 80C but you need receipt of payment made. Deduction under this Section is available for tuition fees paid on two children’s education.

Apart from this, Central Government, from time-to-time, notifies such securities, deposit scheme, bonds etc., investment in which shall also be eligible for deduction under Section 80C from the income of Individual and/or HUF.