Section 80C, 80CCC and Section 80CCD: Know about Investment options to save tax

by Abhinav Gulechha on January 2, 2014

As the tax season is approaching, it is a wise move to check your existing investments status and where all you need to invest to meet the Rs. 1 lac deduction limit. In this regard people get confused as to what are the available tax saving options under Income Tax Act.

Under Section 80C, 80CCC and 80CCD, if you make investmentsm you get a maximum tax deduction from your Gross Total Income of Rs 1 lac.

Today’s post contains a listing of what all deductions you get under these sections and a brief description of product features, so that you can take the best decision.

National Savings Certificate (For 5 years and 10 Years):

o Provides Interest rate for Five Year NSC is 8.5% compounded half yearly and for 10 years NSC is 8.8% compounded half yearly.

o Payout Frequency on Maturity

o Minimum Investment is Rs. 100 and No Maximum Investment limit

o Interest accrued is taxable each year and you can also claim rebate u/s 80C

o Can be withdrawn after 3 years subject to the rules, No pre mature withdrawal Penalty

o A/C can be opened by an individual, minor or on behalf of a minor.

Employee Provident Fund (EPF):

o Whatever is your contribution to the EPF (check your monthly salary slip – deductions section) is allowed as a deduction under Section 80C.

o Interest earned is 8.8% (declared every year) and is tax free.

o If money is withdrawn before completion of 5 years of service, then to the extent deduction was claimed in previous years, it becomes taxable and added to income in the year of withdrawal.

Also read our post “Check your EPF Balance Online

• Public Provident Fund (PPF):

o Provides Interest rate 8.7% (monthly interest credited yearly)

o Period: 15 years

o Payout Frequency on Maturity

o Minimum Investment is Rs. 500 in a financial year and Maximum Investment is Rs. 1,00,000 per year per person

o Interest is tax free

o Can be withdrawn from 7th financial year from the year of a/c opening, No pre mature withdrawal Penalty

o Loans are allowed from 3rd – 5th financial year. Interest rate charged on loans is 2%.

o Repayment of loan does not qualify for Section 80C

Read our complete post on Public Provident fund here

5 years Bank Fixed Deposit:

o Provides Interest rate 8.5%

o Payout is only on maturity (No premature withdrawal and loans are possible)

o Interest is taxable under “Other sources”

5-Yr post office time deposit (POTD) scheme:

o Interest rate is 8.4% (compounded quarterly)

o Payout frequency is on Annual basis.

o Minimum Investment is Rs. 200 and no limit on maximum investment.

o Interest earned is taxable

o Pre mature withdrawal is permitted after 6 months and penalty charged is 2%

o Minimum period of holding is 5 years, else deduction claimed becomes taxable.

Home Loan Principal Repayment:

• Repayment of “Principal amount” of Home Loan under Sec 80C

• Repayment of loan taken for renovation etc. is not allowed. Only loan for purchase or construction is allowed.

• Stamp duty and registration fees are allowed.

• Only loan taken from specified institutions like banks, NBFCs, employer, society etc. is allowed. That means repayment for loan taken from friend/ relative is not allowed.

• Expenses like cost of share, admission fee, initial deposit etc. are not allowed.

• You need to get a certificate from the bank/ home loan company – the principal amount shown as repaid in that certificate will qualify as deduction under Section 80C. Interest component will qualify for a deduction as “Loss from House Property” under Section 24 of the Income Tax Act.

o Minimum period of holding of flat is 5 years, else deduction claimed becomes taxable.

• Tuition fees:

o Amount paid as tution fees for the education of your any two children for full time education qualifies for tax rebate under section 80C.

o Even fees paid towards playschool and pre-nursery are also allowed.

o Donation, capitation fee, development fee is not allowed.

Life Insurance Premium:

o Premium should be paid for a life insurance policy or a children’s deferred endowment policy for yourself, your spouse or your children

o The deduction is allowed only if the premium under the policy does not exceed 20% of sum assured (for policies issued till March 31, 2012) and 10% of Sum Assured (for policies issued on or after April 1, 2012).

o If you surrender the plan before maturity date of such annuity, then whatever deduction you have claimed under Section 80C will be included in taxable income in year of surrender.

o Minimum period of holding is 2 years, else deduction claimed becomes taxable.

Payment towards a pension plan:

o If you contribute towards a pension plan from any insurance company, it is eligible for tax rebate

o If you claim deduction on whatever amount you pay in pension plan, the annuity that you/ nominee receives will be taxable.

o If you surrender the plan, then whatever deduction you have claimed will be taxable in year of surrender.

ELSS – Equity Linked savings scheme:

o These are mutual fund schemes have a lock in of 3 years and amount is invested mainly in equity.

o In case of SIP investment, lock in will be applicable for each SIP. So, for e.g. a SIP done in Sept 2013 will be locked in till Aug 2016, for Oct 2013, it will be locked in till Sept 2016.

• Senior Citizen Savings Scheme (SCSS):

o Individual must have completed 60 years/ 55 years in case of retirement.

o Period is of 5 years (one time extension allowed for 3 years)

o Rate of Interest offered is 9.2% p.a.

o Payout Frequency is on Quarterly basis

o Minimum Investment is Rs. 1000 and Maximum Investment is Rs. 15 lacs

o Interest earned is taxable

o Premature withdrawal is allowed after 1 year of opening of A/c. Penalty between 1-2 years it is 1.5% and after 2 years it is 1%

o Minimum period of holding is 5 years, else deduction claimed becomes taxable.

Unit Linked Insurance Plan

o Amount invested ULIP qualifies for a deduction under Section 80C.

o Minimum period of holding of 5 years else the deduction claimed will become taxable

(Also read: What to do with your ULIP policy)

Subscription to National Pension Scheme (NPS) (Section 80CCD):

o Govt. had opened up NPS for public in 2009 (read our detailed review of NPS here)

o If a salaried employee contributes any amount towards NPS or employer contributes any amount, total of that amount is eligible as deduction, up to a max. limit of 10% of basic salary

o If other than salaried employee is contributing towards NPS, it is allowed as deduction upto 10% of Gross Total Income

o As and when the amount is received by you, to the extent annuity is purchased, it is exempt from tax. However, for balance amount, if you don’t purchase annuity for it in the same year, the money becomes taxable and added to the income in the year in which received.

Debentures / Equity Shares for infrastructure companies

o Amount invested in debentures or equity shares of a public sector company which works development and maintenance of infrastructure facility (for e.g. power sector).

Notified NABARD Bonds:

In case Govt. notifies a bond issue by NABARD, the same will qualify for Section 80C. For AY 2014-15, there is no govt. notification of any such issue though.

We hope this post was useful to you. Please write to us in case of any queries or suggestions.

 

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Abhinav Gulechha

SEBI RIA and Principal Financial Planner at M/s Soham Financial Planners
Abhinav is a SEBI Registered Investment Advisor (RIA) and the Principal Financial Planner at www.sohamfp.com, where he provides fee-only financial planning advice and mentoring to help families plan and organise their financial life and move confidently in direction of their life’s most important goals. By qualification, he is a Certified Financial Planner (CFPCM) and a Chartered Accountant (ACA), and has a 9+ years of industry experience. He regularly writes on his website as well as in reputed journals /industry magazines, and also serves as visiting faculty at a couple of FPSB India’s authorised education providers in Mumbai. He is also a member of The Financial Planners’ Guild, India (FPGI), an association of Practicing Certified Financial Planners.

{ 4 comments… read them below or add one }

Rajender Suda January 2, 2014 at 10:55 am

Thanks a lot For giving such a beneficial information

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SohamFP January 2, 2014 at 2:48 pm

thanks a lot Sir…keep reading and sharing your thoughts!

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vijay January 2, 2014 at 5:38 pm

Good work & keep up the good work.Its knowledge enriching.

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SohamFP January 2, 2014 at 6:04 pm

Thanks Vijay for your appreciation. Keep reading and also share it with your friends…

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