Section 80- C of Income Tax Act, gives tax benefit to all tax payers in India. One can get a tax deduction benefit up to Rs. 1,50,000 per financial year under Section 80-C. But this deduction is not available to partnerships, companies and other such bodies.

The amount of deduction which one claims under this section gets reduced from the taxpayer’s gross total income. But the amount of tax one can save under the 80- C benefit depends on his/her tax bracket. Those in higher tax brackets of 20% or 30% rate will save more income tax.

 It is a misconception that one has to do fresh investments to claim section 80- C benefit. Main reason behind these benefits is to encourage more investments in savings schemes.

There are several expenses which are eligible for deduction u/s 80- C. Deductions under section 80- C broadly divided into two categories – Expenses and Investments. 

Expenses eligible for deduction under section 80- C

1) Interest payments and principal repayment on your home loan.

2) Tuition Fee paid for the school (includes play school, preschool) and college education of your children. But hostel fee, mess fee, allied activities fee are not eligible for deduction.

3) Life Insurance premium towards term policies/ money back policies/ endowment policies/ Unit Linked Insurance Policies (ULIPs) are eligible for deduction u/s 80- C. Though the annual premium paid should not exceed 10% of the sum assured.

4) Compulsory provident fund contribution deducted from one’s salary (employee contribution).  Employers contribution is not eligible for deduction.

If the above payments are not sufficient to meet the overall exemption limit of Rs 1,50,000 u/s 80-C, then one needs to make fresh investments for the shortfall amount.

For example, if the above four payments (1+2+3+4) total up to Rs. 1,00,00 in a financial year, then one needs to make further new investments for the balance amount of Rs 50,000 in order to claim the full exemption limit of Rs. 1,50,000.

Investments eligible for deduction under section 80- C

• Public Provident Fund (PPF): Contribution to PPF is eligible for tax deduction u/s 80 C. PPF account can be opened in most of the banks and post offices. It has a tenure of 15 years.  The present rate of interest on PPF is 8% per annum.
• ELSS mutual funds:  ELSS are equity mutual funds and gives tax benefit. It has a lock in period of 3 years.
• Tax Saving Bank Fixed Deposits: Fixed deposits of 5 years in banks are eligible for tax deduction u/s 80- C.
• National Pension System (NPS): Government launched NPS in the year 2004 for government employees. It was later got open to private sector employees and other individuals.
• Senior Citizens’ Savings Scheme (SCSS): This is a government guaranteed savings scheme with a tenure of 5 years. Senior citizens aged 60 years or above can invest in this saving scheme. SCSS account can be opened in any of the authorized banks or post office branches. Present interest rate on SCSS is 8.7%.
• National Savings Certificate (NSC): This is a government backed savings instrument with a 5 year tenure. NSC can be purchased from post offices. The present rate of interest on NSC is 8% per annum compounded half-yearly. Accumulated amount with interest is payable on maturity.
• Sukanya Samriddhi Yojana (SSY): This savings scheme is for the welfare of girl child. Parents can open SSY for their girl child below age of 10 years. It matures when girl child attains 21 years or until she gets married, whichever is earlier. The present rate of interest is 8.5%. Only two SSY accounts are allowed for a family.