Every tax payer should be aware of what Section 80C includes and what it implies.
Investments and expenses that fall under this Section are eligible for an income deduction up to a limit of Rs 100,000.
This Budget, there has been just one addition to this list.
Banks were lobbying hard to get their fixed deposits included under Section 80C. If the finance minister had obliged them, then post office deposits too would have to be included under this section.
Hence, the finance minister has declared that fixed deposits in scheduled commercial banks would fall under Section 80C. This was only applicable, however, if they have a tenure of at least five years. This means it will not be valid for deposits of a shorter tenure.
Similar to NSC?
This makes the five-year fixed deposit largely similar to a National Savings Certificate. Now, both are eligible for a deduction under Section 80C.
The key differences are that NSC has a slightly longer maturity of six years. While the deposits are only for five years.
However, where NSC scores is the higher interest rate. You will get 8% on NSC but a lower interest rate on the bank (the actual rate varies between banks). You could probably expect a maximum of 6.5% to 7% on these deposits.
When NSC matures, the interest is taxed in the hands of the investors. Will the interest on the bank deposit get similar treatment? Logically, it should.
Investments under Section 80C
Premium on life insurance policies
Contribution to Employee Provident Fund
Investment in Public Provident Fund
Investment in National Savings Certificate
Investment in infrastructure bonds
Investments made in Unit Linked Insurance Plans
Investments in Equity Linked Saving Schemes of mutual funds
Investments in notified pension funds set up by mutual funds
Expenses under Section 80C
Repayment of the principal amount of the home loan
Tuition fees
Any change in the sub-limits?
Overall, the limit under Section 80C is Rs 1,00,000. This is irrespective of how much you are earn and under which tax bracket you fall. This has not been touched in this Budget.
However, there may be individual limits for each. For instance, the maximum that you can invest in PPF is Rs 70,000 per annum.
Also, under Section 80CCC, the contribution made to pension funds is subject to a maximum of Rs 10,000. But this Budget, it has been proposed that this limit be removed and the ceiling of Rs 1,00,000 applies.
So, you can choose to invest the entire amount in ELSS or infrastructure bonds. The choice is entirely up to you as to how you want to reach this limit.
Or, if you are repaying a home loan and the principal repayment amounts to Rs 1,00,000, you can claim the entire amount as a deduction.
Similarly, the deduction for tuition fees under Section 80C is available towards payment of education fees for children upto a ceiling of Rs 1,00,000. However, in order to avail of this deduction, you will have to produce the fee receipt.
The calculation
Let's take an example to better explain the tax working:
|
Net taxable income |
Tax rate |
|
Upto Rs 1,00,000 |
Nil |
|
Rs 1,00,001 1,50,000 |
10% |
|
Rs 1,50,001 2,50,000 |
20% |
|
Rs 2,50,001 onwards |
30% |
Salary income: Rs 3,20,000
Home loan interest payment: Rs 1,20,000
Home loan principal repayment: Rs 80,000
NSC investment: Rs 30,000
|
Salary (a) |
320,000 |
|
Income from house property (b)* |
120,000 |
|
Gross total income (c) (c = a b) |
200,000 |
|
|
|
|
Home loan principal repayment |
80,000 |
|
NSC investment |
30,000 |
|
Section 80C investments |
1,10,000 |
|
|
|
|
Limit for Section 80C deduction (d) |
1,00,000 |
|
Taxable income (c d) |
100,000 |
|
Tax on taxable income |
Nil |
* The tax man views the home loan interest payment as negative income from house property.