How section 80C of the Income-tax Act works to Save Tax

Tax saving: How section 80C of the Income-tax Act works

One of the most common deductions available under the Income-tax Act, 1961 is section 80C.

The deduction under this section can be claimed only if an individual opts for the old/existing tax regime in a financial year. On the other hand, if an individual opts for the new concessional tax regime, then the individual will not be able to claim deduction under this section.

Here is how this section works and helps an individual save tax in a financial year.

1. Through section 80C, an individual or an HUF can reduce up to Rs 1.5 lakh from their gross total income in a financial year thereby reducing their net taxable income and tax payable thereon. Full utilisation of this deduction can save up to Rs 46,800 (inclusive of cess at 4%) for those in the highest tax bracket of 30%.

2. To claim this deduction, a taxpayer is required to invest the amount in eligible investment instruments or spend the money on the specified deductible in the same financial year. The tax payer can claim tax benefit under this section by investing/spending up to Rs 1.5 lakh in the specified avenues under this section.

3. Eligible investment instruments include Employees' Provident Fund (EPF), Public Provident Fund (PPF), Equity-linked savings scheme (ELSS) mutual funds, Sukanya Samriddhi Savings Scheme, National Savings Certificate (NSC), five-year tax-saving fixed deposits with a bank and/or post office, National Pension System (NPS), and Senior Citizen Savings Scheme (SCSS).

4. Do keep in mind that each of the eligible investment has its own investment limit, rate of return, liquidity, and tax treatment on its returns.

5. Specified expenditures that are allowed under this section include expenditure on the life insurance premium, repayment of principal of a home loan, children's school fees.

Source: The Economics Times - https://economictimes.indiatimes.com/wealth/tax/tax-saving-how-section-80c-of-the-income-tax-act-works/articleshow/81150504.cms

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e-Book on Income Tax Deductions u/s. 80C to 80U for A.Y. 2017-18

There are so many Income Tax Deductions which are allowed to be claimed by an Salaried Employee, Individual or HUF. Though this a few Income Tax Deductions are very useful, which can be easily claimed and are helpful in reducing the tax burden. 

What do you mean by Tax Deductions ?

Tax deduction helps to reducing your tax-liabilities. It decreases your overall tax liabilities and save tax and grow savings. However, depending on the type of tax deduction you claim, the amount of deduction varies. You can claim tax deduction for amounts spent in tuition fees, medical expenses and charitable contributions. Also, you can invest in various schemes such as life insurance plans, retirement savings schemes, and national savings schemes etc. to get tax deductions. The government of India offers tax exemptions for various expenses incurred in different activities to encourage individuals and commercial institutions take part in activities having social benefits.

A number of day-to-day expenditures qualify for deductions, with information about them being crucial to help us save money. Tax deduction can be claimed on money spent for education, medical expenses, charitable contributions, investments in insurance, retirement schemes, etc. These deductions have been put in place to encourage members of the society to participate in certain useful activities, helping everyone involved in the process.

The following e-Book helps you to know more about Income Tax Deductions u/s. 80C to 80U.

e-Book about Income Tax Deducation u/s. 80C to 80U

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Increase in personal income tax exemption limit to Rs.2.5 lakh for savings sought

Increase in exemption limit to Rs.2.5 lakhs for savings under the Income Tax Act, interest rates on small savings schemes to be fixed at five-year government Security yields and an end to the dividend distribution tax — these are among the suggestions the Union Finance Minister Arun Jaitley received on Tuesday at a pre-budget consultative meeting with the representatives of banks and financial institutions (FIs).

The experts have also demanded that Corporate Social Responsibility (CSR) expenses should be treated as business expenditure for taxation purposes.

The suggestions received also include issue of off-shore INR bonds by banks for raising funds for infrastructure requirements, according to an official statement. The regulatory treatment of these bonds is sought to be at par with the domestic infra bonds guidelines, the statement said.

Other suggestions included broad based FDI in agriculture sector, the introduction of a new crop insurance scheme backed by technology and fully integrated financial inclusion and biometric authentication initiatives of the Government. The new crop insurance scheme, said the financial sector experts at the meeting, needs to be redesigned so that the compensation covers not only the cost of cultivation but also some part of the farmer’s prospective income.

Digitization of land records to compensate farmers swiftly, direct distribution of fertilizer subsidies to farmers through Direct Benefit Transfers and savings have also been sought. The savings thus accrued from the reduced leakages could be channelised for increasing public capex spending, it was recommended.

The alignment between G-Secs and small savings schemes rates could be done on a quarterly basis, the experts said. This is so that small savings rate does not become an impediment in the monetary transmission process.

It was also suggested that the Government focus on promoting growth and increase public spending till private sector investment in the economy picks-up. It could consider listing of non-life insurance public sector undertakings while retaining majority Government control, the experts said.

Amendment of Section 41 (4A) of the Income Tax Act to specify a period of retaining the transfer amounts in special reserves to fulfil the purpose of granting long term finance and release of capital in the financial system for deployment purposes was also sought.

In his opening remarks, the Finance Minister said that as part of the governance reforms in Public Sector Banks (PSBs), the Government Bank Board Bureau (BBB) will replace the Appointment Board for appointment of whole time directors as well as non-executive chairman. Government has replaced the earlier mechanism of statement of intent on annual goals for these banks with key performance indicators to make the targets generic and not bank specific so that the need to interact with bank is eliminated or minimised.

The pre-Budget consultative meeting was also attended by Minister of State for Finance Jayant Sinha, Finance Secretary RP Watal, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Dr. Hasmukh Adhia, Secretary, Financial Services Ms. Anjuly Chib Duggal and Chief Economic Adviser Dr. Arvind Subramanian.

Representatives of banks and financial institutions included Reserve Bank of India Deputy Governor Urjit Patel, SBI Chairman Ms Arundhatti Bhatacharya and Bank of Baroda Executive Director BB Joshi. Axis Bank MD&CEO Ms Shikha Sharma, CITI Bank CEO Pramit Jhaveri and HDFC Bank MD Adtiya Puri also attended the meeting.

Source: www.thehindu.com

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Limit and Qualifying Investment for Deductions under Section 80C for Asstt. Year 2015-16

Under this section, you can invest a maximum of Rs 1.50 lakh (1 Lakh upto AY 2014-15) and if you are in the highest tax bracket of 30%, you save a tax of Rs 45000. The various investment options under this section include:

Public Provident Fund (PPF):  Interest earned is fully exempt from tax without any limit. Annual contributions qualify for tax rebate under Section 80C of income tax. Contributions to PPF accounts of the spouse and children are also eligible for tax deduction. Balance in PPF account is not subject to attachment under any order or decree of court. But, Income Tax authorities can attach the account for recovering tax dues. The highest amount that can be deposited is 1,50,000. Tax bracket for PPF is EEE (i.e. Exempt,Exempt,Exempt). So contribution is exempted under 80C, Interest earned is tax exempted and withdrawal is also tax exempted.
 

One can withdraw the investment made in 1st year only in 7th year. However, loan against investment is available from 3rd financial year. If liquidity is not an issue, you should invest as much as you can in this scheme before looking for other fixed income investment options.

Life Insurance Premiums: Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here.

Equity Linked Savings Scheme (ELSS): There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. Equity Linked Saving Schemes (ELSS) of mutual funds are diversified equity funds that have a lock-in period of three years and provide tax benefit. Since a major portion of the corpus is invested in equities / equity stock markets , the earning potential is higher (though at a higher risk) as compared to other tax saving investments. Investors can invest up to 1,50,000 in an ELSS fund and deduct the investment from their taxable income u/s 80C of Income Tax Act, thereby effectively reducing their tax liability. Long-term capital gains and dividends received on these investments are tax-free in the hands of the investor as per the current tax laws.

Provident Fund (PF) & Voluntary Provident Fund (VPF) : PF is automatically deducted from your salary. Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF).

Home Loan Principal Repayment: The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.

Stamp Duty and Registration Charges for a home: The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house.

National Savings Certificate (NSC): National Savings Certificates popularly known as NSC is a saving bond , primarily used for small saving and income tax saving investment in India, part of the Postal savings system of Indian Postal Service (India Post). These can be purchased from a post office by an adult in his own name or in the name of a minor, a minor, a trust, two adults jointly.These are issued for five and ten year maturity and can be pledged to banks for availing loans.  The interest accrued every year is liable to tax (i.e., to be included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.

Infrastructure Bonds: These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh.This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh.

5-Yr bank fixed deposits (FDs): Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

Senior Citizen Savings Scheme 2004 (SCSS): A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. An individual who has attained the age of 60 years or above on the date of opening of a/c or an individual who attained the age of 55 years or more and who has retired under VRS/SPL. VRS, can open an account individually or jointly with spouse. A retired personnel of Defence Services (excluding Civil Defence Employees) can subscribe to the scheme irrespective of the age limit subject to fulfilment of specificed conditions. Account can be closed after expiry of 5 years from the date of opening of account and account can be extended for next 3 years. Premature closure is permissible after one year subject to certain conditions. Deposits qualify for deduction u/s 80-C of Income Tax Act on the deposits made in new accounts opened on or after 8th December 2007.

Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Deposits in 5 year time deposit qualify for deduction under section 80-C of Income Tax Act on the deposits made in new accounts opened on or after 8th December 2007. The Interest is entirely taxable.

NABARD rural bonds:  The Finance Act, 2007 inserted clause (xxii) in sub-section (2) of section 80C of the Income-tax Act to provide that deposits made in  bonds issued by the National Bank for Agriculture and Rural Development, as the Central Government may, by notification in the Official Gazette, specify in this behalf, shall be eligible for deduction under the said section. There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Unit linked Insurance Plan: ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments. They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term.

• Contribution for participating in the unit-linked insurance plan (ULIP) of LIC Mutual Fund (i.e. Dhanraksha plan of LIC Mutual Fund)
• Payment for notified annuity plan of LIC (i.e. Jeevan Dhara, Jeevan Akshay New Jeevan Dhara ,etc ) or any other insurer.
• Contribution for participating in the Unit-Linked Insurance Plan (ULIP) of Unit Trust of India.

Tuition Fees : Any sum paid as tuition fees to any university/college/educational institution in India for full time education. Nowadays most of  income tax payee have to incur quite high payments towards the education fees of their children. The expenditure incurred on education fees is eligible for a deduction under Income Tax Act, So, if you are incurring expenditure towards education fee of your children, please check whether these are eligible for deduction under the IT Act.

Source: www.caclubindia.com

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Detailed Procedure to get Tax benefit u/s. 80CCG of Rajiv Gandhi Equity Savings Scheme, 2013.

A new retail investor who has invested in accordance with the Rajiv Gandhi Equity Savings Scheme, 2012 shall continue to be governed by the provisions of that Scheme to the extent it is not in contravention of the provisions of this Scheme and such investor shall also be eligible for the benefit of investment made in accordance with this Scheme for the financial years 2013-14 and 2014-15.

This Scheme shall apply for claiming deduction in the computation of total income of the assessment year relevant to a revious year beginning on or after the 1st day of April, 2013 on account of investment in eligible securities under sub-section (1) of section 80CCG of the Income-tax Act, 1961(43 of 1961).

The deduction under the Scheme shall be available to a new retail investor who complies with the conditions of the Scheme and whose gross total income for the financial year in which the investment is made under the Scheme is less than or equal to twelve lakh rupees.

Procedure for investment under the Scheme:A new retail investor shall make  investments under the Scheme in the following manner, namely:-

• the new retail investor may invest in one or more financial years in a block of three consecutive financial years beginning with the initial year;
• the new retail investor may make investment in eligible securities in one or more than one transaction during any financial year during the three consecutive financial years beginning with the initial year in which the deduction has to be claimed;
• the new retail investor may make any amount of investment in the demat account but the amount eligible for deduction under the Scheme shall not exceed fifty thousand rupees in a financial year;
• the new retail investor shall be eligible for the tax benefit under the Scheme only for three consecutive financial years beginning with the initial year, in respect of the investment made in each financial year;
• if the new retail investor does not invest in any financial year following the initial year, he may invest in the subsequent financial year, within the three consecutive financial years beginning with the initial year, in accordance with the Scheme;
• the eligible securities brought into the demat account, as declared or designated by the new retail investor shall be under a lock-in for a period of three years in accordance with the provisions of paragraph 7;
• the eligible securities brought into the demat account, in respect of which the assessee is eligible for deduction under the Scheme, shall be under a fixed lock-in during the first year, as per the provisions of the paragraph 7, unless the new retail investor specifies otherwise, and for such specification, the new retail investor shall submit a declaration in Form B, either in electronic or physical form, to the depository participant indicating that such securities are not to be included within the above limit of investment;
• the new retail investor shall be eligible for a deduction under sub-section (1) of section 80CCG of the Act in respect of the actual amount invested in eligible securities and in respect of which a declaration in Form B has not been made, subject to the maximum investment limit of fifty thousand rupees in a financial year;
• the new retail investor who has claimed a deduction under sub- section (1) of section 80CCG of the Act in any assessment year shall not be allowed any deduction under the Scheme for the same investment for any other assessment year;
• the new retail investor shall be permitted a grace period of seven trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the demat account and such securities shall be deemed to have been acquired in the financial year itself;
• the new retail investor can make investments in securities other than the eligible securities covered under the Scheme and such investments shall not be subject to the conditions of the Scheme nor shall they be counted for availing the benefit under the Scheme;
• the deduction claimed shall be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the Scheme is contravened by the new retail investor.

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Small Investment Big Tax Saving Benefit?

You have very short period to save Income Tax by Investments.  Now the Question is arise where tax payee invest to get Tax saving more. In this matter a New Tax Saving (Benefit) Scheme introduced by the Ministry of Finance i.e. The Rajiv Gandhi Equity Savings Scheme (RGESS) for equity investment in select stocks, mutual funds and ETFs.  In this scheme, you are a first time investor with a gross annual income less than`10 lakh, then up to `50,000 of your investments in the stock market will be eligible for tax deduction under section 80-CCG.

Highlights of Rajiv Gandhi Equity Savings Scheme (RGESS):

1. The Taxpayee (Only Individuals) can take advantages of this scheme. This scheme not for HUF and other Taxpayee i.e. Firm, Company etc.
2. This scheme is allowed only New Investors not applicable for equities earlier.
3. A such Taxpayee can get benefit of this scheme whose Taxable Income is not grater than 10 lacks.

Tax benefits u/s. 80CCG:
The exemtion tax amount is deducted u/s. 80CCG excluding u/s. 80C.  The limit of Deduction amount is 25000/- Per Annuan or 50% on Investment money.

Eligible Securities :
You can pick the below listed stocks from four categories: CNX 100, BSE 100, Maharatna and Navaratna & ETFs 

1.Securities in CNX 100(list can be changed by NSE)
2. Securites in BSE 100
3 MAHARATNA & NAVARATNA COMPANIES
a)MAHARATANA Coal India Limited
    Indian Oil Corporation Limited
    NTPC Limited
    Oil & Natural Gas Corporation Limited
    Steel Authority of India Limited
b)NAVRATNA Bharat Electronics Limited
    Bharat Heavy Electrical Limited
    Bharat Petroleum Corporation Limited
    GAIL (India) Limited
    Hindustan Petroleum Corporation Limited
    Mahanagar Telephone Nigam Limited
    National Aluminium Company Limited
    NMDC Limited
    Neyveli Lignite Corporation Limited
    Oil India Limited
    Power Finance Corporation Limited
    Power Grid Corporation of India Limited
    Rural Electrification Corporation Limited
    Shipping Corporation of India Limited

4..ETF(exchange traded Funds)

Birla Sun Life Nifty ETF* BSLNIFTY
Goldman Sachs Banking Index Exchange Traded Scheme BANKBEES
Goldman Sachs Nifty Exchange Traded Scheme NIFTYBEES
Goldman Sachs Nifty Junior Exchange Traded Scheme JUNIORBEES
Goldman Sachs S&P CNX Nifty Shariah Index Exchange Traded Scheme SHARIABEES
IIFL NIFTY ETF* IIFLNIFTY
Kotak Nifty ETF* KOTAKNIFTY
Motilal Oswal MOSt shares M50 ETF* M50
Quantum Index Fund QNIFTY
R*Shares Banking Exchange Traded Fund* RELBANK
Religare Nifty Exchange Traded Fund RELGRNIFTY

A New Tax Saving (Benefit) Scheme introduced by the Ministry of Finance as The Rajiv Gandhi Equity Savings Scheme (RGESS) for equity investment in select stocks, mutual funds and ETFs.

As far as saving is concerned, earlier the start, better the miracle of interest compounding. The importance of saving cannot be overruled at any point of time. Make hay while the sun shines and the money saved is money earned hold true at all the time. The other reason that you should start saving early is that you will need to save less money.

Under this scheme, if you are a first time investor with a gross annual income less than`10 lakh, then up to `50,000 of your investments in the stock market will be eligible for tax deduction under section 80-CCG.

Highlights of Rajiv Gandhi Equity Savings Scheme (RGESS):

1. The Taxpayee (Only Individuals) can take advantages of this scheme. This scheme not for HUF and other Taxpayee i.e. Firm, Company etc.
2. This scheme is allowed only New Investors not applicable for equities earlier.
3. A such Taxpayee can get benefit of this scheme whose Taxable Income is not grater than 10 lacks.

Tax benefits u/s. 80CCG:
The exemtion tax amount is deducted u/s. 80CCG excluding u/s. 80C.  The limit of Deduction amount is 25000/- Per Annuan or 50% on Investment money.

Where you Invest?

Name of the Mutual Fund	Name of the Scheme	Available for Subscription up to
DSP BlackRock Mutual Fund	DSP BlackRock RGESS Fund	08-Mar-13
IDBI Mutual Fund	IDBI Rajiv Gandhi Equity Savings scheme	09-Mar-13
LIC Nomura Mutual Fund	LIC Nomura MF - RGESS Fund	25-Feb-13
UTI Mutual Fund	UTI Rajiv Gandhi Equity Savings Scheme	08-Mar-13

Read more about Rajiv Gandhi Equity Saving Scheme (RGESS). (Click Here)

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Who get Tax Exemptions Benefit and How much u/s. 80CCG for Asstt. Year 201-3-14?

As we suggest in our last post to save Income Tax with small Investment u/s 80CCG (RGESS).  But question is arrise that who get benefit of this scheme? This is news scheme and it is available only for New Retail Investors, identified on the basis of their PAN numbers.

Who are considered as “New Retail Investor” under the RGESS: 

• any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme;
• any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme, and
• any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this Scheme

In some specific case, taxpayee already have a demat account and have done the transactions as well, you will not be considered as “New Retail Investor” and will not be entitled for deduction u/s 80CCG.

As far as saving is concerned, earlier the start, better the miracle of interest compounding. The importance of saving cannot be overruled at any point of time. Make hay while the sun shines and the money saved is money earned hold true at all the time. The other reason that you should start saving early is that you will need to save less money.

As far as the investment from the income tax perspective is concerned, tax payer can invest -

Rs. 1 Lacs in the PF/PPF/LIC/ELSS depending upon the returns and risk appetite of the individual investor. The investment of Rs. 1 Lacs  will be eligible for deduction u/s 80C.

Rs. 15,000/- investment can be done on the Mediclaim policy to have deduction u/s 80D.

Further, a new retail individual investor who has not opened a demat account and has not made any transaction in the derivative segment so  far or who has opened a demat account but has not made any  transaction in the equity segment or the derivative segment, can further  have the benefit of deduction u/s 80CCG up to a maximum of Rs.  25,000/- on investment of Rs. 50,000/- The deduction is available  only if the income of assessee doesn’t exceed Rs. 10 Lacs &  the investment is done in “Eligible Securities”.

For More Details on RGESS (Click Here)

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