How Much Tax Can be Saved Under Sections 80C, 80D, and 80G?_Banner_WC

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How Much Tax Can be Saved Under Sections 80C, 80D, and 80G_WC

5 min 22 Feb 2023
Income Tax Deductions and Exemptions Explained
Highlights
  • Section 80C Overview
  • Subsections of 80C
  • What are the Deductions Under Section 80D?

The Income Tax Department is a government agency in charge of administering and enforcing a country's tax laws. The department's primary function is to collect taxes and ensure that tax laws are followed by individuals and organizations. The department also provides taxpayers with tax services, such as tax refunds, and assists in educating taxpayers about their tax obligations and rights.

Individual and corporate income taxes are the primary sources of revenue for the Income Tax Department. These taxes are levied based on the income earned by individuals and organizations during a fiscal year. The department also collects taxes on other types of income, such as capital gains, dividends, and interest income. The revenue collected by the Income Tax Department accounts for a significant portion of the government's total revenue and is used for a variety of public expenditures, such as infrastructure development, healthcare, and education.

Let us now understand how much tax an individual can save under Section 80C, Section D and Section 80G of the Income Tax Act. 

Section 80C Overview

Section 80C of India's Income Tax Act is a tax-saving provision that allows individuals to deduct certain specified investments and expenses from their taxable income. In a fiscal year, the maximum deduction under Section 80C is limited to Rs.1.5 Lakh.

Deductions and Tax Saving Under Section 80C

The Indian Income Tax Act's Section 80C enables taxpayers to deduct certain predefined investments and expenses from their taxable income. Under Section 80C, taxpayers are eligible to deduct up to Rs.1.5 Lakh from their taxes each fiscal year. Section 80C also allows for a deduction for payments made toward the principal amount of home loan EMIs.

Taxpayers can lessen their taxable income and subsequently their tax obligation by making investments in and incurring expenses for eligible items. According to Section 80C, the following investments and costs are typical examples of deductions. 

Contributions to Employees' Provident Fund (EPF)

The Employees' Provident Fund (EPF), an Indian retirement savings program, is in charge of managing the fund. Employees in the organised sector are required to make a set monthly contribution to the EPF from their take-home salary. Employers must also contribute a matched contribution. The EPF was created to provide workers with security during their retirement years. Employees may withdraw accumulated contributions and interest upon retirement or in other circumstances. Because withdrawals are tax-free, the EPF is an appealing investment option for tax-saving purposes.

Life Insurance Premiums

Life insurance premiums are payments made to purchase a life insurance policy. A life insurance policy is a contract between the policyholder and the insurance company in which the insurance company agrees to pay a death benefit to the policy's beneficiaries in the event of the policyholder's death. Life insurance premiums are deductible in India under Section 80C of the Income Tax Act.

Equity-Linked Savings Scheme (ELSS) investments

In India, an equity-linked savings scheme (ELSS) is a type of mutual fund investment that provides tax benefits to taxpayers under Section 80C of the Income Tax Act. ELSS funds are a type of equity mutual fund that invest primarily in equities. ELSS funds invest in a diverse portfolio of equity securities intending to provide long-term capital growth.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a long-term savings plan offered by the government of India. It is intended to encourage individual savings while also providing a safe investment option with attractive returns. Individuals can open a PPF account with a bank or post office and contribute up to Rs.1.5 lakh per fiscal year. The contributions are deductible under Section 80C of the Income Tax Act.

National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a savings certificate issued by the government of India to encourage individual savings. The NSC is a fixed-income investment, which means it pays a fixed rate of interest for the duration of the investment. The interest earned on NSC is reinvested, and the principal and accumulated interest are paid back at the end of the investment term. Investments in NSC are deductible under Section 80C of the Income Tax Act.

Subsections of 80C

Section 80CCC

Individual contributions to pension plans in India are tax deductible under Section 80CCC of the Income Tax Act. Individuals can deduct contributions to pension plans offered by life insurance companies, banks, or any other approved institution under this section. The maximum deduction under this section in a fiscal year is Rs.1.5 Lakh, which is the same as the limit under Section 80C. The goal of Section 80CCC is to encourage people to save for retirement and to provide a steady source of income in their post-retirement years.

Section 80CCD

Individual contributions to India's National Pension System (NPS) are tax-deductible under Income Tax Act Section 80CCD. Under Section 80CCD, individuals can deduct up to 10% of their basic salary (for salaried individuals) or gross total income (for self-employed individuals) for NPS contributions. Individuals can claim an additional deduction of up to Rs.50,000 under Section 80CCD (1B) for NPS contributions made in addition to the 80CCD deduction.

Section 80CCF

Section 80CCF of the Income Tax Act of India provides a tax break for investments in certain infrastructure bonds. Individuals can claim a deduction under this section for infrastructure bond investments up to Rs.20,000 per fiscal year.

Section 80CCG

Investments in equity savings schemes are tax deductible under Section 80CCG of the Income Tax Act of India (RGESS). The section allows first-time investors with an annual income of up to Rs.12 Lakh to claim a deduction for investments made in approved equity savings schemes up to a maximum of 50% of the amount invested in a fiscal year, subject to a maximum of Rs.50,000. This section's goal is to encourage first-time investors to invest in the stock market while also promoting financial literacy.

Section 80D Overview

Section 80D of the Income Tax Act of India provides tax breaks for citizens who pay for medical insurance premiums for themselves, their spouses, dependent children, and their parents. Individual taxpayers can claim a maximum deduction of Rs.75,000 while senior citizens can claim a maximum deduction of Rs.1,50,000. The maximum deduction increases to Rs.50,000 if the parents are senior citizens. 

What are the Deductions Under Section 80D?

Section 80D of the Income Tax Act provides for the following deductions:

Medical insurance premium

Taxpayers can deduct the premiums paid for health insurance policies for themselves, their spouses, their children, and their parents, up to certain limits.

Senior citizen parents

A higher deduction of up to Rs.75,000 is permitted if the taxpayer pays medical insurance premiums for senior citizen parents.

Preventive health check-ups

Expenses incurred for preventive health check-ups for self, spouse, children, and parents are also deductible under this section, up to a limit of Rs.5,000.

Overall, the maximum deduction available under Section 80D is Rs.75,000 for the financial year 2022-23. These deductions can be claimed as a part of the taxpayer's taxable income, which in turn reduces their taxable income and the amount of tax they are liable to pay. 

To calculate the exact amount of tax savings that can be achieved through these deductions, taxpayers can use an income tax calculator, which takes into account various factors such as income, deductions, and exemptions to provide an accurate estimate of their tax liability.

Section 80G Overview

Section 80G of the Income Tax Act allows for tax deductions for charitable contributions made to specific institutions and organizations. Donations eligible for deductions under this section must be made in specified forms, such as cash, check, demand draft, or electronically.

Depending on the nature of the institution and the type of donation made, the deduction available under Section 80G ranges from 50% to 100% of the donation amount. Donations to a notified charitable trust or institution, for example, are eligible for a 100% deduction, whereas donations to political parties are eligible for a 50% deduction.

It should be noted that the contribution must be made to a recognised and eligible institution or organisation and a receipt must be obtained. The receipt must be kept for record-keeping purposes and must be produced if the Income Tax Department requests it.

Conclusion

It is critical for taxpayers to keep detailed records of their investments and expenses, as well as appropriate proof and documentation, to claim deductions under Sections 80C, 80D, and 80G. Taxpayers can effectively reduce their tax liability while also investing for their future financial security by claiming these deductions.

Income_Tax_Disclaimer

DISCLAIMER:

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How Much Tax Can be Saved Under Sections 80C, 80D, and 80G_FAQ_WC

Frequently Asked Questions

Yes, even if you do not have the bills, you can claim Section 80D deductions for medical insurance premiums paid for your senior citizen parents. However, it is best to keep all relevant documents and receipts for record-keeping purposes and to be able to produce them if the Income Tax Department requests them. In the absence of bills, you can use the insurance company's premium receipt as proof of payment.

The maximum limit for deductions under Section 80D of the Income Tax Act in India for the financial year 2022-23 is Rs.1.5 lakh.

Individual taxpayers and Hindu Undivided Families (HUFs) have a maximum limit of Rs.1.5 lakh under Section 80D and senior citizens (individuals aged 60 years or above) have a maximum limit of Rs.2 Lakh, with an additional deduction of up to Rs.50,000 available for preventive health check-ups.

Donations to certain specified charitable organizations and institutions are 100% tax-free under Section 80G of the Income Tax Act. Exemptions are available to the following organizations and institutions:

  • Universities and educational institutions that have been approved
  • Hospitals and medical research institutions that have been approved
  • Relief funds and charitable organizations that have been approved
  • Rural development projects and poverty alleviation programs that have been approved

The limit for deductions under Section 80C is Rs.1.5 Lakh, and the limit for deductions under Section 80D is Rs.2 Lakh for senior citizens and Rs.1.5 Lakh for individual taxpayers and Hindu Undivided Families, as well as preventive health check-ups up to a limit of Rs.50,000.

The amount of tax saved under Section 80G is determined by the amount of the donation and the taxpayer's marginal tax rate. Exemptions can range from 50% to 100% of the donation amount.

The maximum tax deduction under Section 80D for individual taxpayers is Rs.1.5 Lakh and Rs.2 Lakh for senior citizens, inclusive of premiums paid and preventive health checkups.

The scope of the medical insurance coverage and the diseases covered by the policy are determined by the insurance provider. However, In general, medical insurance policies cover a wide range of illnesses and medical conditions, such as hospitalization, surgery, and other medical expenses. Some policies may also cover specific diseases like cancer or heart disease.

Yes, you can claim deductions for both together under Sections 80D and 80DD of the Income Tax Act.

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