In order to encourage saving and investments habits amongst everyone, the Income Tax Act provides various deductions on the prescribed savings and investment up-to prescribed limits under Chapter VIA. Furthermore, Section 80C is the most famous and prevalent deduction provision under the Income Tax Act.
Almost all the taxpayers avail deductions under section 80C of the IT Act to reduce their tax liabilities. There are many deductions allowed under this section however, one should be aware about various conditions required to be fulfilled for claiming such different deductions under section 80C of the IT Act.
In this blog we will discuss the conditions required to fulfill before claim benefits of Section 80C of the IT Act, 1961.
What is Section 80C of the IT Act, 1961?
Before understanding the conditions to avail benefits of Section 80C, let’s first understand what is Section 80C of the IT Act, 1961?
Section 80C of the IT Act, 1961 provides exemptions/deductions on numerous expenditures and investments to only individual & HUF from their total taxable income maximum up to Rs.1.5 Lakh every financial year.
Deduction under Section 80C of the IT Act is not only available towards investments but also for specified expenditures such as Education expenses of children.
Generally, people invest in PPF, ELSS Schemes and Life Insurance Policies to get the deduction under Section 80C of the IT Act. Apart from this regular investment schemes, there are various other investment options available to claim deduction under this section, which are also worthwhile to consider.
Conditions required to fulfill for claiming Deduction Under Section 80C of the IT Act
As discussed, there are various investments and expenditure schemes in respect of which the taxpayers can claim deduction maximum up-to Rs.1.5 Lakh under Section 80C of the Act. Let’s discuss about various conditions required to fulfill for claiming deduction under section 80C of the IT Act
Tax benefits on Home Loan Repayment
An individual / HUF taxpayer is eligible to claim the expenditure of repayment of principal amount of home loan under Section 80Cof the IT Act subject to satisfaction of following prescribed conditions.
- The home loan must have been taken for acquiring a residential house property only.
- Such loan must have been taken from specified entities, including housing finance companies and banks.
- Loan can be taken for both types of properties e. Self-occupied and let-out properties.
- The acquired house property shall not be sold within 5 years of possession of the property. In case, such house property is sold within 5 years from the year of possession then any benefit or deduction claimed under this section 80C shall be reversed by adding the amount of deduction to the taxpayer’s income in the year in which it is sold.
Tax benefits on Life Insurance Premium
Next, the taxpayer can claim deduction on the amount of premium paid towards the life insurance policies.
Taxpayer must know that following conditions must be fulfilled to avail this benefit-
- This deduction is available only in respect of the payment of premium paid for life insurance policies.
- This policy must have been taken either for the taxpayer himself or for the life of spouse or children.
- The maximum deduction allowed only up-to 10% of the total amount assured under the scheme.
- The policy must continue at least for 2 years. In case, the policy is terminated or lapsed due to any cause before the expiry of 2 years then the deduction allowed in respect of this policy in earlier years shall be added back to the income of the assesses in the year in which such policy is terminated or lapsed.
- Section 80C doesn’t prescribe any restriction on the number of children for which this benefit can be claimed. Moreover, the section also not provides any age restriction in respect of children.
- However, children are not eligible to claim this deduction for the payment of premium of life insurance policy taken for parents, even though the child is financially dependent.
- Further, Hindu Undivided Family is eligible to claim this deduction for payment of premium of life insurance policy taken for any of its members.
Tax benefits on PPF Contributions
An individual can claim income tax deduction on the contributions made to his Public Provident Fund Account in a financial year.
- The taxpayer can invest from minimum Rs. 500 to maximum Rs. 1.5 Lakh in one financial year under PPF scheme.
- The lock-in period of PPF account is 15 years. However, its term can be extended in the block of 5 years for any no. of times.
- Presently, The interest earned on the PPF account is tax-free and the rate of interest is not fixed rather it is subject to revision every quarter. The present effective interest rate for the quarter ending 31st March 2021 is 7.1%.
- The income tax deduction can be availed for contributions made to assesses PPF account or to the PPF account of his child or spouse.
- HUF is also eligible to claim deduction on contributions made to the PPF account of any of its members.
Tax benefits on Education Expenses
An assesses can also claim deduction up-to Rs. 1.5 Lakh under Section 80C for the payment of education expenses incurred for his children (but only up-to 2 children) such as school fee or tuition fee etc.
Tax benefits on Deposits under SCSS
An assesses can also claim deduction up-to Rs. 1.5 Lakh under Section 80C for investing/depositing any amount in Senior Citizens Savings Scheme (SCSS). The point to note here is that the maturity period of the scheme is 5 years. Thus, if the assesses withdraws the amount before the expiry of lock-in period then the amount received shall be fully taxable.
Tax benefits on ELSS Contributions
Next, the taxpayers can also invest in Equity Linked Savings Scheme (ELSS) to claim deductions up-to Rs. 1.5 Lakh under Section 80C. However, the taxpayer must know following points about ELSS investments for claiming such deduction-
- It has a lock-in period of 3 years.
- There is no restriction on the amount that can be invested in ELSS schemes.
- When any capital gain is generated from ELSS schemes then such gain shall be subjected to Long-term capital gains.
Every taxpayer must keep these conditions before investing in any scheme in order to save tax; otherwise they will not be eligible to Section 80C deductions. If you are looking for professionals’ help for making tax saving investments or expenditure then contact your trustworthy advisors Manthan Experts for instant help.