Understanding Section 80C Deductions And Other Tax Benefits

The Income Tax Act, 1961, provides multiple avenues to reduce total tax liability through various deductions and exemptions. Among these, Section 80C is one of the most widely used provisions. The taxpayers can claim deductions for investments in different assets and certain expenditures as outlined under Section 80C.

What are Section 80C deductions?

Section 80C of the I-T Act enables taxpayers to reduce their taxable income by claiming deductions on specific investments and expenses. The maximum deduction allowed under this section is Rs.1.5 lakh per financial year.

Section 80C deductions are available only under the old tax regime and not under the new tax regime. The taxpayers opting for the old tax regime for filing their Income Tax Returns (ITRs) for the financial year 2024-25 (FY 2024-25) and Assessment Year 2025-26 (AY 2025-26) can claim the deductions under Section 80C.

Taxpayers must also note that the new tax regime has become the default option from FY 2023-24.

For FY 2025-26, eligible taxpayers can continue to claim up to Rs.1.5 lakh in deductions under Section 80C.

To maximise tax benefits, taxpayers should plan their investments strategically across different eligible instruments such as the Public Provident Fund (PPF), Employee Provident Fund (EPF), National Pension System (NPS), and life insurance policies.

Section 80C includes multiple sub-sections, each offering tax benefits on different investment schemes and expenses.

Investments eligible for Section 80C deductions

The following investments qualify for tax benefits under Section 80C:

Public Provident Fund (PPF): Public Provident Fund (PPF) contributions qualify for deductions up to Rs.1.5 lakh per year. This long-term investment comes with a 15-year lock-in period and it can be extended in blocks of 5 years each. It’s a government-backed scheme with a fixed interest rate. The PPF interest rate currently stands at 7.1% per annum (for Q3FY25).

Employees’ Provident Fund (EPF): The contributions made by the employee to the EPF can qualify for deductions under the overall limit of Rs.1.5 lakh per annum under Section 80C. The EPF scheme is a retirement benefit plan managed by the Employees’ Provident Fund Organisation (EPFO).

Life Insurance premiums: Premiums paid for life insurance policies covering self, spouse or dependent children also qualify for deductions. However, the premium paid should not exceed 10% of the sum assured to avail this benefit (20% for policies bought before April 1, 2012).

NABARD bonds: National Bank for Agriculture and Rural Development (NABARD) rural bonds are eligible for deductions under the overall limit of Section 80C.

Equity-Linked Savings Scheme (ELSS): A tax-saving mutual fund with the potential for high returns.

Home loan principal repayment: The principal paid for a home loan qualifies for deductions. However, the benefits can’t be claimed if the property is sold within five years of purchase.

Sukanya Samriddhi Yojana (SSY): It’s a government-backed savings scheme for the benefit of the girl child. The maximum deposit limit in a financial year in SSY account has been capped at Rs 1.5 lakh per annum. The entire deposit can be claimed as deduction under the Section 80C limit.

National Savings Certificate (NSC): A fixed-income savings instrument with guaranteed returns. The amount deposited in NSC can be claimed as deductions under the Rs 1.5 lakh limit of Section 80C. The minimum deposit is Rs 100 and there is no maximum cap.

Senior Citizens Savings Scheme (SCSS): A government-backed scheme designed for individuals above 60 years of age. Senior citizens can claim tax benefits for deposits up to Rs 1.5 lakh under Section 80C in a financial year.

Pension-related deductions

In addition to general savings, Section 80C includes provisions for pension contributions.

• Section 80CCC: Deductions on contributions made towards specific pension plans and annuities.
• Section 80CCD(1): Deductions on contributions made towards government-sponsored pension schemes like the National Pension System (NPS) and Atal Pension Yojana (APY).
• Section 80CCD(1B): An additional ₹50,000 deduction on NPS contributions (only to Tier-I account), over and above the Rs.1.5 lakh limit under Section 80C.
• Section 80CCD(2): Tax benefits for the employer on contributions to the NPS account of the employee (limited to 10% of basic salary plus dearness allowance per month for private sector employees).

Who can claim deductions under section 80C?

The tax benefits under Section 80C are available to:

• Individual taxpayers
• Hindu Undivided Families (HUFs)

Tax-saving investment options under Section 80C

Overall, Section 80C is an important tool for taxpayers to lower their tax burden while making financial investments. With a broad range of eligible options, individuals can tailor their tax-saving plans to meet long-term financial goals. By maximising the deductions available under this section, taxpayers can achieve dual benefits — building wealth and tax savings.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.