One of the most common deductions available under the Income-tax Act, 1961 is section 80C.
The deduction under this section can be claimed only if an individual opts for the old/existing tax regime in a financial year. On the other hand, if an individual opts for the new concessional tax regime, then the individual will not be able to claim deduction under this section.
Here is how this section works and helps an individual save tax in a financial year.
1. Through section 80C, an individual or an HUF can reduce up to Rs 1.5 lakh from their gross total income in a financial year thereby reducing their net taxable income and tax payable thereon. Full utilisation of this deduction can save up to Rs 46,800 (inclusive of cess at 4%) for those in the highest tax bracket of 30%.
2. To claim this deduction, a taxpayer is required to invest the amount in eligible investment instruments or spend the money on the specified deductible in the same financial year. The tax payer can claim tax benefit under this section by investing/spending up to Rs 1.5 lakh in the specified avenues under this section.
3. Eligible investment instruments include Employees' Provident Fund (EPF), Public Provident Fund (PPF), Equity-linked savings scheme (ELSS) mutual funds, Sukanya Samriddhi Savings Scheme, National Savings Certificate (NSC), five-year tax-saving fixed deposits with a bank and/or post office, National Pension System (NPS), and Senior Citizen Savings Scheme (SCSS).
4. Do keep in mind that each of the eligible investment has its own investment limit, rate of return, liquidity, and tax treatment on its returns.5. Specified expenditures that are allowed under this section include expenditure on the life insurance premium, repayment of principal of a home loan, children's school fees.
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