A Home Loan is a secured financing option, which allows prospective homebuyers to own a property. Home Loans can be availed of at competitive interest rates, allowing borrowers to keep their EMIs and the cost of borrowing feasible. Further, Home Loans can be repaid over a tenure extending up to 32 years. Along with this, they also offer Home Loan tax benefits to borrowers.
A Home Loan is repaid in the form of EMIs, which constitute the principal component and the interest component. The principal component increases over time, while the interest component decreases. Home Loan borrowers can claim tax deductions on payments made towards the interest as well as the principal component of the Home Loan. Section 80C of the Income Tax Act, 1961 deals with deductions on payments made towards principal repayment and Section 24(b) deals with tax deductions available on the interest payments.
What is Section 80C of the Income Tax Act?
Section 80C of the Income Tax Act, 1961 highlights the various expenditures and investments that one can make to claim tax exemptions and save funds. Taxpayers should know that only individual taxpayers and Hindu Undivided Families (HUFs) can benefit from the tax exemptions available under this section. The maximum deduction available under Section 80C is Rs.1.5 Lakh per annum.
Tax-Saving Investments Eligible under Section 80C
Under Section 80C of the Income Tax Act, 1961, borrowers can claim tax deductions on repayments made towards 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.
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 the principal 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 funds 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
While the unit-linked insurance plans are preferred investments, they should be considered only when you are willing to remain 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
National Bank for Agriculture and Rural Development or 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, 1961 by investing in National Savings Certificates (NSCs). NSCs have become a preferred instrument 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.
Deductions List on Investments Under Section 80C
Under Section 80C of the Income Tax Act, 1961, individuals can avail deductions up to Rs.1.5 Lakh annually by investing in various financial instruments. Below is a table summarising eligible investments and expenses:
| Investment/Expense | Description | Deduction Limit | Lock-in Period | Tax Treatment of Returns |
|---|---|---|---|---|
| Life Insurance Premiums | Premiums paid for life insurance policies for self, spouse, or children. | Up to Rs. 1.5 Lakh | Varies | Maturity proceeds are tax-free under Section 10(10D), subject to conditions. |
| Public Provident Fund (PPF) | A government-backed savings scheme with a tenure of 15 years. | Up to Rs. 1.5 Lakh | 15 years | Interest earned is tax-free. |
| Employees’ Provident Fund (EPF) | Employee's contribution to their provident fund account. | Up to Rs. 1.5 Lakh | Until retirement | Interest is tax-exempt; withdrawals are tax-free after 5 years of continuous service. |
| Equity Linked Savings Scheme (ELSS) | Mutual funds that invest primarily in equities with a mandatory lock-in period. | Up to Rs. 1.5 Lakh | 3 years | Returns are subject to Long-Term Capital Gains Tax at 10% for gains over Rs. 1 Lakh. |
| Unit Linked Insurance Plans (ULIPs) | Insurance plans offering investment options in equity and debt markets along with life cover. | Up to Rs. 1.5 Lakh | 5 years | Maturity proceeds are tax-free under Section 10(10D), subject to conditions. |
| Tax-Saver Fixed Deposits | Fixed deposits with banks having a lock-in period of 5 years. | Up to Rs. 1.5 Lakh | 5 years | Interest earned is taxable as per the investor's income slab. |
| National Savings Certificate (NSC) | A savings bond with a fixed maturity period, available at post offices. | Up to Rs. 1.5 Lakh | 5 or 10 years | Interest is taxable; however, interest accrued annually is deemed reinvested and qualifies for deduction under Section 80C. |
| Sukanya Samriddhi Yojana (SSY) | A government-backed savings scheme for the girl child. | Up to Rs. 1.5 Lakh | 21 years | Interest earned and maturity amount are tax-free. |
| Senior Citizens’ Savings Scheme (SCSS) | A savings scheme for individuals above 60 years of age. | Up to Rs. 1.5 Lakh | 5 years | Interest earned is taxable as per the investor's income slab. |
| Home Loan Principal Repayment | Repayment of the principal amount of a home loan. | Up to Rs. 1.5 Lakh | N/A | No tax on principal repayment; however, benefits reversed if property sold within 5 years. |
| Tuition Fees | Tuition fees paid for up to two children’s education in India. | Up to Rs. 1.5 Lakh | N/A | Only tuition fees qualify; other charges like development fees are excluded. |
| National Pension System (NPS) | Contributions towards the NPS for retirement savings. | Up to Rs. 1.5 Lakh under Section 80C; additional Rs. 50,000 under Section 80CCD(1B) | Until retirement | Partial withdrawals are tax-free; annuity income is taxable. |
Note: The cumulative deduction limit under Section 80C is Rs.1.5 Lakh per financial year across all eligible investments and expenses.
How to Calculate Deductions Under Section 80C?
Section 80C of the Income Tax Act, 1961, allows taxpayers to reduce their taxable income by investing in specific instruments or incurring eligible expenses. You can claim a maximum deduction of Rs. 1.5 Lakh per financial year under this section. Here is a step-by-step guide on how to calculate your Section 80C deduction.
Step 1: List All Eligible Investments and Payments
Start by identifying all the investments and payments you have made in a financial year that qualify under Section 80C. C The combined maximum deduction from all sources under Section 80C cannot exceed Rs.1.5 Lakh.
Step 2: Total Your 80C Contributions
Add the total amount you have contributed across these eligible investments. For example:
- PPF Contribution: Rs.50,000
- ELSS Investment: Rs.40,000
- Life Insurance Premium: Rs.25,000
- Home Loan Principal Repaid: Rs.60,000
Total Claimed: Rs.1,75,000
Since the cap is Rs.1.5 Lakh, only that amount can be claimed as a deduction.
Step 3: Apply the Deduction to Your Taxable Income
Now, subtract the eligible deduction from your gross taxable income to reduce your overall tax obligation. Let us understand it with the following example:
| Particulars | Without 80C Deduction | With 80C Deduction (Rs.1.5 Lakh) |
|---|---|---|
| Gross Annual Income | Rs.10,00,000 | Rs.10,00,000 |
| Less: Section 80C Deduction | Not Applicable | Rs.1,50,000 |
| Net Taxable Income | Rs.10,00,000 | Rs.8,50,000 |
This brings down your taxable income and reduces the amount of income tax you owe for the financial year.
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, 1961. Businesses, partnership firms, and corporate bodies are not eligible for tax deductions under this section.
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, 1961, 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 details 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.
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 would not 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, 1961 can be further subdivided into Section 80CCC, Section 80CCD(1), Section 80CCD(1B) and Section 80CCD(2). Section 80CCC covers payments made towards pension plans provided by life insurance. Section 80CCD(1) covers payments made by the employee or self (salaried/self-employed) towards government-backed schemes, such as the National Pension System. Section 80CCD(1B) deals with NPS and Section 80CCD(2) deals with an employer’s contribution to the NPS.
CIBIL Score: FAQs
Sections 80C and 80CCC are not the same. Section 80CCC is a sub-section of Section 80C. While Section 80C deals with all the investment avenues explained in detail in this article, Section 80CCC only deals with tax exemptions available on payments made towards pension plans and mutual funds.
It does not matter how much you invest in the various investment options mentioned in the Section 80C deduction list; the maximum limit under Section 80C is Rs.1.5 Lakh, and therefore, you won't be able to claim more than that under this section.
Section 80C of the Income Tax Act, 1961, is further subdivided into Section 80CCC, Section 80CCD(1), Section 80CCD(1B) and Section 80CCD(2).
No, if you have invested in any of the tax-saving instruments specified under Section 80C of the Income Tax Act, you will be able to claim exemption only if you can provide proof of the investments. If you do not have the required documents or receipts, you won't be able to claim any deductions.
Section 80D of the Income Tax Act, 1961, deals solely with the premiums paid toward medical insurance. The maximum tax deduction that one can claim under this Section depends on the age of the person. The maximum deduction available for people aged below 60 years is Rs.25,000 towards self and Rs.25,000 towards insurance premiums paid towards health policies of a spouse, parents and dependent children. In the case of people aged above 60, this number increases to Rs.50,000.
The maximum tax exemption available under section 80C is Rs.1.5 Lakh. You can invest in all the tax-saving instruments specified under Section 80C, but the maximum exemption will still be Rs.1.5 Lakh.
There is no way to increase one's limit for tax exemption under Section 80C. The maximum deduction under 80C is Rs.1.5 Lakh.
Yes, a taxpayer can claim a deduction under Section 80C every year, provided they make eligible investments or expenditures during that year.
Yes, one can claim a tax deduction on donations made towards charities. However, the charity you have donated to must be a charity or fund recognised by the government for deductions under Section 80C.
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