Investment Deductions Under Section 80C
One of the most well-liked and well-known sections for taxpayers is Section 80C, which enables individuals to lower their taxable income by investing in tax-saving opportunities or paying qualified expenses.
Who is eligible to claim the Section 80C deduction? Individuals and HUFs are eligible to claim the Section 80C deduction.
The maximum annual deduction from the taxpayer’s total income that is permitted under section 80C is Rs 1.5 lakh. The deduction is not available to companies, partnership firms, or limited liability companies (LLPs).
List of Section 80C Deductions
Equity-Linked Savings Scheme
A kind of mutual fund called ELSS makes investments in stocks and securities linked to stocks. There is a three-year lock-in period for ELSS funds.
National Pension Scheme
A savings program supported by the government, the National Pension Scheme is available to workers in the public, private, and unorganized sectors. The military is not permitted to invest in it. There is a lock-in period for the NPS that lasts until age 60.
Unit-Linked Insurance Plan
In addition to providing a life insurance policy, a unit-linked insurance plan (ULIP) also provides investment options. It gives you the option to achieve your financial objectives by investing in debt, equity, and hybrid funds. The funds you select will determine how much money you get out of a ULIP. A five-year lock-in period applies to ULIPs.
Tax-saving fixed deposits
Subject to certain requirements, some fixed deposit kinds provide tax advantages under Section 80C of the Income Tax Act of 1961. There is a five-year lock-in term. Fixed returns are provided by fixed deposits.
Public Provident Fund
A government savings program called PPF can be used to achieve long-term financial objectives. Fifteen years from the account opening date, it matures. Nevertheless, starting with the seventh fiscal year, you are able to take out funds from your PPF account annually.
Senior Citizen Savings Scheme
It’s a savings plan intended for individuals who are over 60. People over 50 and 55, however, may utilize it in some unique situations. After a five-year lock-in period, it can either be closed down or extended for an additional three years.
Sukanya Samriddhi Yojana
The Indian government supports a savings program called Sukanya Samriddhi Yojana. It’s a financial choice for parents of female children. When the girl child becomes 21, the plan comes of age.
How much is eligible for Section 80C claims?
1. The total amount that can be claimed under these activities as well as the amounts that can be claimed for various activities have limits.
2. Sections 80C, 80CCC, and 80CCD(1) together allow for a total claim sum of Rs. 150,000.
3. Under Section 80CCD, the total deduction may be increased by an extra Rs 50,000.
4. *80 CCD(1) and 80 CCD(2) apply to employer and employee contributions, respectively.
5. On NPS additional deduction over Rs. 150,000/-deduction available under Sections 80C, 80CCC, & 80CCD(1), the deduction U/s. 80CCD(2) and U/s. 80CCD(IB) of Rs. 50,000/-is available.
Exemption of Special Allowance: Section 10(14)
Employers may provide their staff with a special stipend to help with living expenses. The employee should bear these costs in the course of carrying out his responsibilities. The amount of a special allowance that an employer gives to a worker is not limited; nevertheless, allowances can only be used for the intended purpose.
Exemption of Allowance under Section 10(14) (i)
Travel Allowance
The company pays this allowance to cover the employee’s travel expenses related to carrying out office activities.
Daily Allowance
A daily allowance may be given to the employee to cover his costs. When an employee is not in his actual place of employment, they receive this kind of allowance.
Uniform Allowance
Uniform allowances are available to staff members who must buy or maintain their uniforms while on the job.
Academic or Research Allowance
The allowance is given to staff members in order to support their academic, research, and training endeavors.
Helper Allowance
This stipend is intended to cover the cost of employing an assistant to do administrative tasks.
Exemption of Allowance under Section 10(14) (ii)
The allowance is given to cover costs incurred while carrying out one’s job. Employees are responsible for paying taxes on any allowances that exceed the specified amounts. The allowances for this part are outlined in Rule 2BB.
Children’s Education Allowance
An allowance of Rs. 100 each month per child, up to two children is given.
Tribal Area Allowance
An allowance of Rs. 200 per month for tribal areas, schedule areas, and agency areas.
Compensatory Field Area Allowance
The employee can claim either a Compensatory Field Area Allowance of Rs. 2,600 per month or a Border Area Allowance.
Border Area Allowance
This allowance is allowed for army personnel and ranges from Rs. 200 to Rs. 1,300 per month.
Special Compensatory Allowance
For employees working in hilly regions of the country, allowances like high altitude allowance, uncongenial climate allowance, snowbound area allowance, or avalanche allowance are offered, which range from Rs. 300 to Rs. 7,000 per month.
Counter Insurgency Allowance
Individuals from the armed forces living away from their homes receive this allowance with a limit of Rs. 3,900 per month.
High Active Field Area Allowance
Members of the armed forces receive this allowance with a limit of Rs. 4,200 per month.
Island Duty Allowance
Members of armed forces posted in the area of Andaman and Nicobar Islands and Lakshadweep Group of Islands are eligible to receive this allowance with a limit of Rs. 3,250 per month.
Exemption on House Rent Allowance (HRA): Section 10(13A)
Salaried workers are entitled to a tax-free allowance based on the amount of rent they pay for their homes. Under this clause, the portion of an employee’s pay that goes for housing and rent is free from taxation. The prerequisites are as follows:
1. The real HRA that the worker was given
2. For rental property in non-metropolitan areas, HRA is 40% of the salary; in metro areas, it is 50%.
3. Rent actually paid is less than ten percent of income.
Deductions under Section 16
Three separate categories of tax deductions on salary income are available under Section 16 of the Income Tax Act. The tax obligation is reduced by these deductions. The following are among the deductions allowed by Section 16:
- Standard deduction
- Deduction for entertainment allowance paid by the employer
- Deduction for professional tax charged on the salary income
Standard Deduction under Section 16 (ia)
A fixed deduction from salary income is permitted as the standard deduction under Section 16(ia). As previously stated, the Interim Budget 2019 increased the maximum standard deduction under section 16(ia) from INR 40,000 to INR 50,000 in order to give salaried individuals greater tax relief.
A salaried person is eligible to deduct the lesser of the two amounts below as the standard deduction each fiscal year:
The actual salary amount or
The standard deduction, which is Rs. 50,000, whichever is low
Entertainment Allowance under Section 16 (ii)
The standard deduction, which is Rs. 50,000, whichever is low
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The entertainment allowance is first included in the salary income under the heading “Salaries.” Thereafter, a deduction is made based on the information that is summarized in the paragraph that follows:
If an individual works for the government (i.e., the State or Central Government), the following minimal deductions are made:
- 20% of the basic salary
- Rs. 5,000
- Entertainment allowance amount that was granted during the last year.