Tax Savings with Section 80: A Complete Guide
Tax planning is an important part of managing your finances. The Income Tax Act offers several ways to reduce your taxable income legally, and Section 80 is one of the most effective. These deductions not only help you save on taxes but also encourage good financial habits like investing, saving, and contributing to social welfare.
Let’s explore the various deductions available under Section 80 and how they can help you plan your taxes better.
Section 80C: Deductions on Investments
You can claim deductions up to ₹1.5 lakh under Section 80C for specific investments and expenses. Here are the main options:
- Life Insurance Premium: Premiums paid for life insurance policies for yourself, your spouse, or your children.
- Employee Provident Fund (EPF): Deduction of 12% of your salary and dearness allowance contributed to EPF.
- Public Provident Fund (PPF): Contributions to this government-backed scheme offer tax-free returns and maturity benefits.
- National Savings Certificates (NSC): Investments in NSC and similar savings schemes are eligible.
- Equity-Linked Saving Scheme (ELSS): Tax-saving mutual funds that combine market returns with deductions.
- Unit-Linked Insurance Plans (ULIPs): Insurance plans that combine life cover and investment benefits.
- Housing Loan Principal Repayment: Deduction for the principal repayment of home loans.
- Stamp Duty and Registration Fees: Payments made while purchasing a house.
- Tuition Fees: Fees paid for full-time education of up to two children in recognized schools or colleges.
- Five-Year Fixed Deposits: Only the principal amount in 5-year bank FDs qualifies for deductions. Interest earned is taxable.
Section 80CCC: Pension Funds
This section allows deductions for contributions to annuity plans from LIC or other approved insurers:
- Deduction Limit: The principal amount paid is deductible.
- Taxable Withdrawals: Pension income, interest, or surrender value is taxable.
- No Double Deductions: Amounts claimed under Section 80CCC cannot also be claimed under Section 80C.
Section 80CCD: National Pension Scheme (NPS)
- Section 80CCD(1): Contributions by employees (10% of salary) or self-employed individuals (20% of gross income) are deductible, up to a maximum of ₹1.5 lakh. Withdrawals are taxable.
- Section 80CCD(1B): An additional deduction of ₹50,000 is available for self-contributions to NPS, over and above the ₹1.5 lakh limit.
- Section 80CCD(2): Employer contributions are deductible up to 14% of salary for government employees and 10% for others. For the new tax regime starting FY 2024-25, this limit will be 14% for all employees.
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.
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 amountpaid 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.
Please note,
The views in the article/blog are personal and that of the author. The idea is to create awareness and for educational purpose and not intended to provide any product recommendations.
