Tax planning plays a vital role in managing your finances effectively. Amongst many deductions in the Income Tax Act, Section 80 stands out as a powerful tool to legally reduce your taxable income. These deductions not only help in minimising your tax liability but also encourage sound financial decisions, such as securing your wealth, ensuring your health, and contributing to societal welfare.
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In this blog, we will explore the various deductions available under Section 80 and how you can leverage them for efficient tax planning.
Section 80C: Deductions on Investments
Under this section, you can claim deductions up to ₹1.5 lakh on eligible investments and expenses. Here are some investment options for tax-saving under Section 80C:
- Life Insurance Premium: If you have paid the premium for a life insurance policy to cover your own life, your spouse, or your child.
- Employee Provident Fund: An employee can claim a deduction of 12% of their salary and dearness allowance contributed to the EPF.
- Public Provident Fund: Whether you are a salaried or non-salaried individual, investments made in PPF can be claimed as a deduction. This government-backed scheme offers tax benefits on both contributions and returns. Also, no tax-liability is attracted in case of its maturity.
- National Savings Certificates (NSC) and other government-notified savings schemes.
- Equity-Linked Saving Scheme (ELSS): Investments made in certain mutual funds that offer the combined benefit of equity market returns and tax deductions.
- Unit-linked Insurance Plans (ULIPs): Investment made in plans that offer the combined benefits of both life insurance coverage and investment in equity or debt instruments.
- Housing Loan Repayments: Repayments of principal amounts on housing loans.
- Stamp Duty and Registration: Payment made to the registrar while purchasing a house.
- Tuition Fees: Fees paid to recognized institutions, including schools and colleges, for the full-time education of maximum 2 children.
- Five-Year Term Deposits: Only the principal portion out of investments made in a 5-year FD with banks qualifies for deduction. Interest earned on these deposits is taxable.
Section 80CCC: Pension Funds
- Eligible deduction: Individuals can claim a deduction of only principal amount for contributions made to an annuity plan of the Life Insurance Corporation of India or any other approved insurers.
- Tax on withdrawal: Amount received from pension funds either as an interest, surrender value, or pension is taxable under Income Tax Act.
- No Double Deductions: If you have claimed a deduction under Section 80CCC, you cannot claim the same amount of deduction under Section 80C.
Section 80CCD: National Pension Scheme (NPS)
Section 80CCD(1)
- Contribution Limits: Individuals can claim deductions up to 10% of salary (for employees) or 20% of gross income (for self-employed) subject to maximum of employees’/ assessees’ contribution .
- Tax on Withdrawals: Amounts received from the pension scheme are taxable in the year of withdrawal. Also, deductions claimed under Section 80CCD(1) are not eligible under Section 80C.
Note: You can claim a maximum deduction of ₹1.5 lakh in total across section 80C, 80CCC and 80CCD(1) in a financial year.
Section 80CCD(1B)
It provides an extra deduction of ₹50,000 for self-contributions to NPS made by salaried individuals, which is over and above the ₹1.5 lakh limit of Section 80C.
Section 80CCD(2)
- Contribution Limits: Contributions by the Central or State Government as an employer are deductible up to 14% of salary, while contributions from other employers are currently deductible up to 10% of salary in the old regime. However, this limit will be extended to 14% wherein the employees opt for the new tax regime with effect from FY 2024-25.
Section 80D: Medical Insurance Premiums
Under this section, you can claim deduction on premiums paid for health insurance policies from recognized insurers, subject to specific limits. This includes premium paid for your own health insurance, as well as that of your spouse, dependent children, and parents.
| Category | Premium paid | Tax deduction u/s 80D | |
| For self, spouse & children | For parents | ||
| Family and Parents < 60 years | 25,000 | 25,000 | 50,000 |
| Family < 60 years; Parents >= 60 years | 25,000 | 50,000 | 75,000 |
| Family and Parents >= 60 years | 50,000 | 50,000 | 1,00,000 |
| Preventive Health Check-up | Up to ₹5,000 | Included within the overall limits | |
Section 80DD: Medical Treatment of a Dependent with Disability
If you are incurring expenses for the medical treatment, rehabilitation, or maintenance of a disabled dependent, then you can claim deduction of ₹75,000 in case of normal disability and ₹1,25,000 in case of severe disability.
Section 80E: Education Loan Interest
- Eligible deduction: You can claim deduction of the interest amount paid towards higher education loans taken from a financial institution or a charitable institution approved by the government incurred for education of self, spouse, children and legal guardian of the student.
- Duration: The deduction can be claimed for a maximum of 8 years, starting from the year in which the interest repayment begins.
- Limit on claims: There is no limit to how much interest you can claim. Whether you are paying ₹10k or ₹ 10 lakh as an interest, you can claim it all!
- Exclusion: The deduction cannot be claimed on the Principal amount.
Section 80G: Donations
- Eligible deduction: Donations made to certain charitable organizations are eligible for deduction under Section 80G.
- Limit on claims: Depending on the organizations, you can claim either 50% or 100% of the amount donated, however, for certain donations, they should not exceed 10% of Gross Total Income.
- Payment Mode: Donations exceeding ₹2,000 should be made in non-cash mode to claim the deduction.
Section 80TTA and 80TTB: Interest on Savings
- Section 80TTA: Individuals can claim deduction of up to ₹10,000 on the interest earned from saving bank accounts under section 80TTA. This deduction is not available for interest earned on fixed deposits or recurring deposits.
- Section 80TTB: Senior Citizens can claim a deduction of up to ₹50,000 on the interest earned from savings bank accounts, fixed deposits, and recurring deposits under section 80TTB.
Conclusion
Utilising deductions under Section 80 can make a huge difference in your tax-saving journey. From investments in retirement funds to securing health coverage for your family, these deductions serve as powerful tools to reduce your taxable income. It is essential to keep proper documentation for all investment proofs and to understand the specific conditions and limits associated with each section for accurate income tax return filing.
A qualified financial advisor can help you optimise the benefits available under the Income Tax Act for effective tax planning. To optimise your taxes, download the 1 Finance app and book a consultation with a qualified financial advisor for a seamless, hassle-free tax planning experience.
