Articles deals with deduction under Section 80C of the Income Tax Act and explains,who is eligible for deduction, Eligible Investments, Limit for deduction, who can invest for whom and time period for investment.
National Savings Certificate (NSC) :
NSC is a time-tested tax saving instrument with a maturity period of Five and Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80 % Per Annum on 10 year NSC. Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of upto Rs 150,000 p.a. under Section 80C. Further more,the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.
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Background for deduction under Section 80C of the Income Tax Act (India) What are eligible investments for Section 80C:
Section 80C replaces the Section 88 with more or less same investment mix available in Section 88. The new section 80C has become effective from 1st April, 2006 Even the section 80CCC on pension scheme contributions was merged with the above Section 80C. However, this new section has allowed a major change in the method of providing the tax benefit. Section 80C of the Income Tax Act allows certain investments
and expenditure to be tax-exempt. One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit.
From financial year- 2014-15, the maximum limit of deduction under section 80C is 1.50 lakh.under this headimg , there are many schemes for tax saving like LIC,public provident fund,national saving certificate,specifies gov.infrastructure bonds etc.
This section is very important for tax-saving.This benefit is available to everyone, irrespective of their income levels.Thus, if you are in the highest tax bracket of 30%, and you invest the full Rs. 1.50 Lakh, you save tax of Rs. 45,000. Isn’t this great? So, let’s understand the qualifying investments first.
Investments Qualifying for deduction under section 80C:
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). Current rate of interest
is 8.5% per annum (p.a.) and is tax-free.
Public Provident Fund (PPF):
Among all the assured returns small saving schemes,Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is
Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed.
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.
Public Provident Fund (PPF):
Among all the assured returns small saving schemes,Public Provident Fund (PPF) is one of the best. Current rate of interest is 8.70% tax-free (Compounded Yearly) and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is
Rs 1,50,000. A point worth noting is that interest rate is assured but not fixed.
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.
National Savings Certificate (NSC) :
NSC is a time-tested tax saving instrument with a maturity period of Five and Ten Years. Presently, the interest is paid @ 8.50% p.a. on 5 year NSC and 8.80 % Per Annum on 10 year NSC. Interest is Compounded Half Yearly. While the minimum investment amount is Rs 100, there is no maximum amount. Premature withdrawals are permitted only in specific circumstances such as death of the holder. Investments in NSC are eligible for a deduction of upto Rs 150,000 p.a. under Section 80C. Further more,the accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.
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