These days, almost everyone avails of a Home Loan to facilitate real estate purchases. Property prices have increased considerably, and it is nearly impossible for people to afford a home without seeking help in the form of Home Loans. Home Loans owe their popularity to several different reasons. To start with, Home Loans are low-interest rate loans. The low-interest rate applicable on these loans helps borrowers keep their EMIs on the affordable side as well as afford their dream home without paying too much interest in the long go. Further, Home Loans are long-tenor loans. The repayment tenor can easily stretch up to 25 to 30 years, which makes Home Loan repayment easy. Further, Home Loans come with Home Loan tax benefits.
Home Loans are repaid in the form of EMIs. The EMIs constitute a principal component and an interest component. The principal component goes up as time increases and the interest component goes down. Home Loan borrowers can claim tax deductions on payments made towards the repayment of both the interest as well as the principal component of the Home Loan. Section 80C of the Income Tax Act deals with deductions on payments made towards principal repayment and Section 24(b) deals with tax deductions available on payments made towards interest repayment.
In this article, we look at Section 80C of the Income Tax Act in detail. We also take a deep look at the 80C deduction list and how can one claim a maximum deduction under 80C.
What is Section 80C of the Income Tax Act?
Section 80C of the Income Tax Act highlights the various expenditures and investments that one can make to claim tax exemptions and save money by way of the tax exemptions available under Section 80C of the Income Tax Act. Taxpayers must know that only individual taxpayers and Hindu Undivided families can benefit from the tax exemptions available under this section and the maximum deduction available under this section is Rs.1.5 Lakh per annum.
Now that we know about the 80C max limit, let us look at what comes under 80C.
What Are the Various Investments Under 80C on Which Borrowers Can Claim Tax Deductions?
Under Section 80C of the Income Tax Act, borrowers can claim tax deductions on payments made toward repayment of the principal component of the Home Loan, provident funds, life insurance premiums, equity-linked saving schemes, Unit-Linked Insurance Plans, National Savings Certificates, Tax Saving FDs, NABARD Rural bonds, infrastructure bonds, etc. Let us now look at these various deductions in detail.
Investments Made Towards Principal Repayment of a Home Loan
If you are repaying a Home Loan, you can claim tax deductions up to a maximum of Rs.1.5 Lakh on payments made towards principal component repayment of the Home Loan. Further, borrowers can claim tax benefits on payments made towards stamp duty and registration charges under Section 80C.
Life Insurance Premiums
Life insurance premiums are also covered under the 80C deduction list. One can claim tax exemption on premiums paid towards life insurance policies taken in the name of self, life partner or dependent children. As of now, taxpayers can claim up to 10% of the payments made towards life insurance premiums as tax deductions.
PPF or Public Provident Fund
Taxpayers can claim income tax deductions on contributions they make towards their PPF or Public Provident Fund. One can claim an exemption on the entire deposited amount. However, the maximum limit for deductions under section 80C cannot exceed Rs.1.5 Lakh.
Employee Provident Fund
Taxpayers can claim tax exemptions up to a maximum of Rs.1.5 Lakh on payments made towards their EPF account. Further, if an employee withdraws money from their Employee Provident Fund after at least 5 years of being in service, the return earned is exempt from tax obligations.
Unit Linked Insurance Plans
The popularity of unit-linked insurance plans has grown over the last few years. However, one must opt for these plans only when one wants to stay invested for at least a few years. Taxpayers can claim tax deductions on payments made towards unit-linked insurance plans up to a maximum of Rs.1.5 Lakh in each financial year.
NABARD Rural Bonds and National Savings Certificate
NABARD Rural bonds are also covered under the 80C deduction list. Apart from this, one can also claim deductions under Section 80C of the Income Tax Act by investing in National Savings Certificates. NSCs have become popular since the interest compounds semi-annually and the maturity period can go up to 10 years. Thus, these certificates help taxpayers build a strong corpus.
Infrastructure Bonds and Equity-Linked Saving Schemes
Payments made towards infrastructure bonds fall under investments under 80C provided the investment is more than Rs.20,000. Similarly, payments made towards equity-linked saving schemes are also covered under Section 80C. However, these tax-saving tools have a minimum lock-in period of 3 years.
Over and above those mentioned above, the Section 80C deduction list also includes payments made towards the senior citizen savings scheme and Sukanya Samriddhi Yojana.
Who Can Claim Deductions Under Section 80C?
As mentioned before, only individual taxpayers and Hindu Undivided Families can claim tax deductions under Section 80C of the Income Tax Act. Businesses, partnership firms and corporate bodies are not eligible for tax deductions under this section of the ITC.
How to Avail of Tax Deductions Under Section 80C?
If you wish to claim a deduction under 80C, you can do so by filling in the details in your ITR-1. If you have made investments in any of the tax-saving instruments specified under Section 80C of the Income Tax Act, you can claim deductions by entering details related to these investments in your ITR form. Premiums paid towards life insurance policies, investments made in PPR, EPF, VPF, equity-linked saving schemes, National Savings Certificates, Senior Citizens’ Savings Schemes and Sukanya Samriddhi Yojna and payments made towards Home Loan principal repayment and stamp duty and registration charges are all covered under Section 80C. However, you must mention the detail of each payment made towards these investments in your ITR form to be able to claim tax deductions under Section 80C.
Also Read: Types of ITR Forms
How Much Can Be Claimed Under Section 80C?
One can claim up to a maximum of Rs.1.5 Lakh by way of the various investments mentioned under Section 80C. In other words, the maximum limit for deductions under 80C is Rs.1.5 Lakh.
Can Deductions Under 80C Be Claimed for Home Loan Renovation/repair?
The payments made towards principal repayment can be claimed under Section 80C only if the Home Loan funds are used for buying or constructing a property. If you take a loan to renovate or refurbish an old property, you won’t be able to claim any tax deductions on payments made towards principal repayment.
What Are the Sub-Sections of Section 80C?
Deductions available under Section 80C of the Income Tax Act can be further subdivided into Section 80CCC, Section 80CCD(1), Section 80CCD(1B) and Section 80CCD(2). Under Section 80CCC are covered payments made towards pension plans and mutual funds. Section 80CCD(1) covers payments made towards government-backed schemes, such as National Pension System, etc. Section 80CCD(1B) deals with NPS and Section 80CCD(2) deals with an employer’s contribution to the NPS.
Frequently Asked Questions
Definitely. Checking your CIBIL score is always better than not checking one, especially with the fact that an online check does not hurt your credit score. In fact, by knowing your score, you can take steps to improve or maintain it.
The safest way to check CIBIL score is from the official website of CIBIL. Note that you will be asked to enter personal details such as name, PAN card number, date of birth, gender, etc., clear the personal verification process, and make a fee payment to access your credit report.
Generally, a credit score of 750 and above is considered to be good or above average. A credit score of 600 falls in the range of less than average to poor and needs improvement.
On the scale of 300 to 900, a score between 300 and 600 is deemed to be poor, anything above that is deemed to be fair.
No. On the contrary, a loan can greatly improve your credit score and build a strong credit history provided you are paying the EMIs on time and in full.
