Tax benefits under Section 80C and 80D of Income Tax Act,1961

Khushi Rastogi

It is the duty and responsibility of every citizen of India to honestly and regularly pay their taxes as the amount paid by them in the form of taxes are used by the government for developing country’s infrastructure, provide public services and boost the economy.

One must make it a point to file their income tax returns on time and pay off their taxation liabilities at the earliest. However, just because it is a person’s duty doesn’t mean that he/she cannot be entitled to some tax benefits or reductions, that will allow the person to further increase his savings for future or present requirements.

Keeping in mind the needs of every citizen, the government of India offers several deductions that can be claimed to reduce your tax liability.

These tax benefits are also offered, keeping in mind the requirements of investors who are always on a lookout for investments which not only yield them high returns, but also relaxation or deduction in their taxation liability. These tax benefits attached with investments are an important deciding factor for the investors, while choosing investment options.

Section 80C of the Income Tax Act, 1961 is one of the most popular sections providing significant number of tax benefits upon investments.

Different investment instruments provide benefits under Section 80C, making them among the most sought-after instruments within the investor community. Other than s. 80C, s. 80D, s. 80E, s.80G, s.80GGC and s.80EE provides most popular tax-saving opportunities. But in this article, Author will focus on tax benefits available U/S 80C and 80D.

What is section 80C?

Tax deduction under section 80C can be claimed by an individual or a member of a Hindu undivided family (HUF) upon investments and approved expenses. In other words, only the investment and expenses that one makes as an individual or on behalf of HUF, will be considered for the deduction purposes of this section.

These investments or payments can be made in individual’s own name or in the name of his spouse or children (immediate family). To be precise, tax deductions under s.80C cannot be claimed or availed by companies, partnerships, or any other corporate bodies.

• What is the maximum limit under this section?

At highest, one can claim a tax deduction of Rs. 1.5 Lakh under section 80C, in one financial year. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income. This maximum cap of 1.5 lakh cannot be altered under any circumstance.

Important Tax-Saving Investments under section 80C

1. Public Provident Fund (PPF) – Section 80C exempts investment returns from PPF from taxation. It is a great tool for investors looking for an ideal investment to meet their long-term goals. It offers assured returns and a PPF matures after 15 years.
2. Investments in Tax Saving Mutual Funds (ELSS) – These tax-saving mutual funds, known as Equity Linked Savings Scheme. The maximum limit is of Rs. 1 lakh up to which ELSS returns are tax free.
3. Employee’s provident Fund (EPF) – Employee’s contribution to an EPF is included in the deduction list under s.80C. As this a long-term benefit scheme for salaried employees, the EPF is accessible to all employees who earn more than Rs. 15,000 a month.
4. National Pension Scheme (NPS) – This was started by the Government to ensure a source of pension for the workers or other people engaged in unorganized sector, in India. Under Section 80C of the Income Tax Act, deductions of up to Rs. 1.5 lakhs can be claimed on investments in the NPS. This scheme is available to residents belonging to age group of 18 to 60 years.
5. Fixed Deposits – Not all fixed deposits provide tax benefits under 80C. The tax-saving fixed deposits under this section have a lock-in period of 5 years and only offer tax benefits on investments of up to Rs. 1.5 lakh. Moreover, the interest accumulated in these FDs is fully taxable.
6. National Savings Certificate – These are government-backed savings schemes with 5-year tenure. The interest accumulated under the National Savings Certificate is eligible for tax exemption under 80C.
7. Sukkanya Samriddhi Yojana – Government introduced this scheme to support the education of a girlchild, and later her marriage. The account opened for a girl of below 10 years of the age, will mature after 21 years and the returns availed from this scheme will be tax-free under this section.
8. Senior Citizen’s Saving Scheme (SCSS) – The investments made under this scheme are exempt from taxation under Section 80C. However, the returns accumulated from this scheme are fully taxable as per your income tax slab.

Other than these investment options, the tax deductions under 80C are also available on-

1. Home loans
2. Premium Payment on Life Insurance Policies
3. Tuition fees for Children

These can also be called Spending Options.

For reader’s convenience, I will take help of this table showing investments and other venues for deduction U/S 80C, 80CCC and 80CCD.

Sub-sections of 80C

Section 80D – (Deduction for Premium paid for Health Insurance)

This section provides for tax deductions on medical insurance or in other words, deduction of tax upon the premiums made for medical insurance for self and on behalf of your family (spouse, parents or children). Section 80D offers deductions over and above the exemptions derived from the more popular Section 80C. An individual or HUF can claim a deduction of Rs. 25,000 under 80D.

Originally, if the parents are aged above 60 years then the deduction amount allowed on the insurance premium was Rs. 30,000 under section 80D. But as we will see, this limit has been increased to Rs. 50,000 in 2018 Budget.

In case, of both, the tax payer and the parents of tax payer are or above 60 years of age, then the maximum deduction available under this section is up to Rs.1 lakh. For example- If Sachin is 62 years old and his father is 78 years old, then Sachin can claim a total deduction of Rs. 1,00,000 under section 80D. From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check.

Eligibility to avail Tax benefits U/S 80D

The health insurance premium paid for the following members in a family are eligible for deductions:

1. Self
2. Children
3. Spouse
4. Parents (Additional)

Hindu Undivided Families (HUF) are also eligible under this section to avail deductions. Premium payments of any member in a HUF can be used for tax deduction subject to upper limit as per the act.

Rise in Tax Deduction limit U/S 80D – Union Budget (2018)

Former Finance Minister, Lt. Arun Jaitley announced Union Budget 2018 on February 1, 2018. In the budget, it was proposed by him to increase the deduction limit available under section 80D on health insurance premiums from Rs. 30,000to Rs. 50,000, for all senior citizens.

The objective behind this was to help senior citizens lead a dignified and less dependent life, even in their old age. These tax deductions on health insurance premiums and medical expenses incurred, will be available to senior citizens i.e. People aged 60 years or above, but below 80 years of age.

In Financial Budget of 2015, the provision of “Deduction on medical expenditure” was already introduced for super-senior citizens i.e. people aged 80 years or above. But these benefits were extended to senior citizens under 2018 Bill, who are usually not covered under any health insurance policy.

Thus, this benefit will also be available be available to senior citizens paying insurance premiums or medical expenses on behalf of their parents who belong to this same age category.

Section 80D- Deduction Limits

To sum it up, these are the deduction limits available under 80D on the insurance premiums paid for self/children/spouse or parent (apart from the incurred medical expenses on health check-ups etc.)

Difference between 80C and 80D

First of all, the tax-deduction limits between both the sections vary from each other. Where, section 80C offers maximum deduction of Rs. 1.5 Lakhs on investments and spending activities. On the other hand, section 80D can offer deductions up to Rs 1 lakh, subject to conditions.

Second, section 80C includes investments made in a wide range of financial instruments such as small savings schemes, life insurance premium, mutual funds etc., while Section 80D is meant exclusively for deductions on health insurance premiums paid.

Reference – Income Tax