Deduction Under Section 80C Of Income Tax Act
Individuals and corporations pay income tax, which is a sort of tax levied by the national govt on income received within a fiscal year. Taxes are one of the government’s main sources of revenue.
This money is used by the government to build infrastructure, provide healthcare, educate children, and provide subsidies to farmers and the agricultural sector, among other things.
Direct taxes and indirect taxes are the two basic forms of taxes. Direct tax, for example, is a tax levied directly on earned income. Income tax is a form of direct taxation. The tax calculation is based on the income slab rates that were in effect at the time.
It’s important to remember that not all income can be taxed on a slab basis. This regulation does not apply to capital gains income. Capital gains are taxed based on the asset and the length of time you’ve owned it. The length of time an asset is held determines whether it is long or short term. The holding period used to identify the asset’s type varies depending on the asset.
80C of the Income Tax Act
Section 80C of the Income Tax Act of India identifies a number of expenses and investments that are excluded from paying income tax. It permits an individual to deduct up to Rs.1.5 lakh from their total taxable income each year.
Individual taxpayers and Hindu Undivided Families are the only ones who can use Section 80C. Corporate entities, partnership firms, and other businesses are not eligible for Section 80C tax exemptions.
National Pension Scheme(NPS)
Both an employee’s and an employer’s contributions are tax-free under Section 80C. However, keep in mind that in this instance, the employer’s contribution cannot exceed 10% of the employee’s basic pay plus dearness allowance.
Furthermore, a self-employed individual can claim this tax deduction for contributions up to 20% of their gross income under Section 80C.
Voluntary payments to the National Pension Scheme are additionally free for up to 50,000 in excess of the available exemption maximum of 1,50,000. Individuals who make additional donations to the NPS can so benefit from a tax exemption of up to 2 lakh rupees.
Home Equity Loans
For both self-occupied and rented-out houses, this exemption is offered on the principal amount of a home loan every year. However, you cannot claim the deduction if you sell the house within the first five years of owning it.
In addition, Section 80C permits you to deduct the cost of your property’s registration fee and stamp duty.
PPF stands for Public Provident Fund (PPF)
The Public Provident Fund, or PPF, is a government-sponsored savings program that offers guaranteed returns. After 15 years, a PPF reaches maturity.
Section 80C of the Internal Revenue Code exempts PPF returns from taxation. You must, however, declare the PPF returns when filing your annual income tax returns.
Sukanya Samriddhi Yojana (Sukanya Samriddhi Yojana)
This is one of the governments of India’s savings initiatives designed to help a girl child pay for her schooling and, eventually, her marriage.
Parents of a girl child under the age of ten years can open this account; the account matures after 21 years, and the returns earned under the Sukanya Samriddhi Yojana plan are tax-free.
Payment of Premiums on Life Insurance Policies
This exemption applies to the payment of life insurance premiums for oneself or family members. In the case of a single premium policy, you cannot cancel it within the first two years of its inception. To qualify for the tax exemption on multiple premium insurance, you must pay at least two years’ premium.
Your tax breaks under this section will be reversed if you do not follow the above-mentioned rules.
NSC (National Savings Certificate)
It is one of the most popular tax-saving vehicles for risk-averse people. NSC interest is compounded semi-annually, and the maximum maturity duration is between 5 and 10 years.
Investors do not have to adhere to any limits on the total amount invested in NSC in a financial year; however, Section 80C will only exempt up to Rs.1.5 lakh every financial year.
Aside from Section 80C, you can get tax relief from a number of additional sub-sections of Section 80. Consider the following scenario:
Section 80D – You can get a tax break on the premiums you pay for health insurance policies for yourself, your spouse, your children, and your parents. This area allows you to deduct up to 25,000 for yourself and your spouse, plus an additional 25,000 for your parents. This provision allows for a maximum exemption of one lakh rupees.
Section 80G – Donations to various charities and social purposes are included in this section. Depending on the reason for which you are donating, you may be entitled to up to a 50% or 100% exemption, with no restrictions.
Section 80GGC – Donations to any political party are included under this section. These exemptions are only available if the payment is made in a non-cash manner.
Remember that each qualified investment has its own investment limit, rate of return, liquidity, and tax treatment.
The payment of a life insurance premium, the repayment of a home loan’s principal, and the payment of children’s school fees are all examples of specific expenses that are permissible under this clause.
As a result of these and other deductions, taxpayers’ tax payments can be significantly reduced. So, before you file your income tax returns, double-check all of the rules under Section 80C and other sub-sections of Section 80 to be sure you’re getting the most out of your tax deductions.