Section 80C of Income Tax Act for tax exemption- What are the limits, components, list of deduction under Section 80C and Section 80D for FY 2018-19 ?What are the tax benefits under Section 80C and Section 80D for AY 2019-20?
The most popular Tax Savings instruments are deduction under Section 80C of the Income Tax Act. Section 80C came into force from 1st April, 2006, replacing the earlier Section 88 of the Income Tax Act 1961 The Section 80CCC for Pension contribution is also merged with Section 80C.
Income Tax Rebate 80C
There are many investments which qualify for deduction under Section 80C of the Act. Also, there are expenditures which come under Section 80C. The overall limit under Section 80C is capped at Rs. 1.5 Lakh. The limit has been increased from 1 Lakh to 1.5 Lakhs in FY budget 2014-2015.
If your Taxable income is Rs. 8 Lakh and if you invest Rs. 1.5 Lakh in various investments which qualifies under Section 80C, your taxable income will be reduced to Rs. 6.5 Lakh. This is the advantage of Section 80C.
What are the investments under 80C ?
Does PF come under 80C?
Provident Fund (PF) and Voluntary Provident Fund (VPF): The amount deducted from your salary every month towards Employees’ Provident Fund will qualify for deduction under Section 80C. If you have opted for Voluntary Provident Fund (VPF), such contribution also will qualify for deduction under Section 80C.
Public Provident Fund (PPF): It is the most popular retirement planning tool coming under Section 80C. This is a 15-year debt instrument with an option to extend the term after 15 years. This is a government scheme with tax-free status on all the 3 stages (EEE) The total amount accumulated along with interest is tax-free on withdrawal.
National Savings Certificate (NSC): This is another debt instrument of the government with Section 80C tax benefits which is available for 5 and 10 years. Though,the interest accrued every year is taxable but it will be deemed as reinvested and will qualify for Section 80C.
Life Insurance Premium: The Life Insurance premium paid towards policies for your spouse and children will qualify for deduction under Section 80C. The policies of LIC and private companies are eligible for this. The premium for ULIP policies also will qualify for Section 80C deduction.
Also Read: Why you should avoid LIC Jeevan Anand Policy
Pension Fund: Your contribution towards a Pension Fund will also qualify for deduction under Section 80C. This can be in any pension policies from Life Insurance companies or the approved Mutual Fund schemes. At present, there are only 2 Mutual Fund schemes which qualify for deduction under Section 80C. They are UTI Retirement Benefit Pension Fund and Templeton India Pension Plan.
Is mutual fund under 80C
Equity Linked Savings Scheme Mutual Funds: You can also invest in tax saving mutual funds,Popularly called ELSS, to enjoy tax benefits with an equity investment. You can invest in select Mutual Fund schemes designated under ELSS where there is a lock-in period of 3 years. Such schemes offer much better returns, if you remain invested for a longer term.
Deduction under Section 80C for AY 2019-20 – Fixed Deposit Limits
5-Year Bank Deposits: Scheduled banks offer 5-Year Fixed Deposits with Section 80C tax benefits where the interest is taxable.
5-Year Post Office Time Deposits: The 5-Year Post Office Time Deposit is offering tax benefits under Section 80C. Here the interest is taxable.
Senior Citizens Savings Scheme (SCSS): This scheme offers Section 80C tax benefits to senior citizens. Though,the interest is payable on a quarterly basis and is taxable.
Other expenses qualifying for Section 80C tax benefits
Other than the above mentioned investments, certain expenses also will qualify for Section 80C tax benefits. They are:
Home Loan Principal Repayment: When you are repaying your Home Loan through EMI, it contains both Principal and Interest. Interest on Home Loan can give you tax deduction under Section 24. But the Principal repayment you are making will qualify for Section 80C tax benefits.
Stamp Duty and Registration Charges: The amount you spend on Stamp Duty and Registration while buying a house will qualify for Section 80C tax benefits in the year of purchase.
Child Education Expenses(Tution Fee): The amount spent on children’s education also will qualify for Section 80C tax benefits.
Where to invest for good return under Section 80C ?
The investment for Section 80C tax benefit is limited to Rs. 1.5 Lakh in a year. The mandatory PF and the Children’s Education expense itself will be enough for many. But,If there is a shortage, the better option will be to go for ELSS under SIP mode to add equity to your portfolio.
Also Read : Best ELSS Funds to invest in 2018-19
Deduction under Section 80D for AY 2019-20
Section 80D, 80 DD, 80 DDB & 80 U are the options to reduce your tax liability, beyond Section 80 C, by saving in various tax savings instruments. Normally, all of us will limit our tax savings with Section 80C, which is known to most of us.
We all spend some amount every year towards various medical expenses. This can be for doctor consultation, treatment for certain serious diseases, regular medication for diseases etc. Some of you may be spending for treatment for dependents suffering from disability or critical illnesses. You may have a health insurance policy to take care of the hospitalization expenses. The Income Tax on salary Act provides certain exemptions to reduce your tax liability, if you are spending amount as described above.This is how you can reduce your tax liability in addition to deduction under section 80C.
Let us see the exemptions in details.
Section 80D, 80 DD, 80 DDB and 80 U
Section 80D Deduction
In Section 80D.You can claim exemption up to Rs. 25,000 in a year towards premium paid to buy a health insurance policy from any of the insurance company approved by the insurance regulator, IRDA. If you are a senior citizen, this limit is Rs. 50,000.
You can claim deduction for the health insurance premium paid for insuring yourself, spouse and children. You can also claim additional deduction up to Rs. 50,000 for the health insurance premium paid for your parents.
The Budget for FY 2012-13 announced an additional benefit in this area. You can spend Rs. 5000/- in a year for a preventive health check-up. But this is within the overall limit of Rs. 25,000.
So, the total deduction you can claim for your family and parents is Rs. 75,000.
Section 80DD Deduction
If you have a handicapped dependant, then you are eligible for certain exemptions under section 80DD.
Section 80DD exemption is for the amount spent on dependants like spouse, children, parents, brothers or sisters. The disabled person should be wholly dependent on you for their support and maintenance. Also,the dependant should have a disability of 40% or more. You have to produce a certificate to this effect issued by the Medical Board.
You can claim for Section 80DD exemption in the following 2 cases:
If you deposit any amount in schemes of Life Insurance Corporation of India or any other insurer for the maintenance of the disabled dependant. From this scheme, an annuity or a lump sum amount is paid to the dependant or to a nominee for the benefit of the dependant in case of your death.
If you incur any expenditure for the medical treatment, training, nursing and rehabilitation of the dependant.
You can claim a fixed exemption of Rs. 75,000 in a year in this section. Though this exemption is fixed at Rs. 75,000 irrespective of the actual amount spent under the above 2 categories. But,If the disability is above 80%, the exemption allowed is Rs. 1.25 Lakh.
Section 80DDB Deduction for AY 2019-20
You can also claim exemption under section 80DDB, if you are spending on treatment for certain specified ailments notified by the government. The amount can be spent on treatment for self, spouse, children, parents, brothers and sisters provided they are dependent on you. But you have to produce the certificate in the prescribed format to that effect from a specialist doctor in a government hospital.
The following are the ailments which will qualify for this exemption:
2. Renal Failure
4. Haematological Disorder
5. Neurological Issues
You can claim exemption for the actual expenses, but limited to Rs. 40,000 in a year. But for senior citizens, this limit is Rs. 60,000. For senior citizens above age 80, this limit is Rs. 80,000. But, if you are already having any reimbursement scheme for such expenses from your insurance policy or from your employer, you cannot claim it again. In such cases, you can claim for the shortage only. Another problem in this is that, your employer will not permit you this deduction in the tax calculations. So, you have to claim this as refund from the IT department by filing the Returns.
Also Read: Income Tax Calculator FY 2018-19
So Section 80U permits certain exemption, if you are suffering from a permanent disability or mental retardation. Also you will get exemption of Rs. 75,000 in a year under this section. If the disability is above 80%, the exemption is Rs. 1.25 Lakh.
First of all, we need to invest in Section 80C to save taxes. In addition, we can use deduction under Section 80D to save taxes.
So, what is your view on the tax saving instruments under section 80C and 80D? Also, share it with your friends as deduction under Section 80C, 80D, 80 DD, 80 DDB & 80 U may be of use to somebody.