The Indian tax laws include certain provision to give incentives to achieve creation socio economic objectives. These provisions are included under Section VIA and are in the form of deductions (80 C to 80 U). Deductions are for certain personal expenditure, social security expenditure for various purposes and that aims to support economic development. There are some basic rules to avail these deductions as well.
Section 80 C
Section 80 C is the most popular provision and it aims to encourage savings in the economy by extending several incentives under it. The section allows income tax deductions for certain types of payments, subscriptions and investments/savings made by the tax payer. As per budget 2016, a maximum of Rs 150000 can be deducted by a normal person under this section. Following are the tax deduction items under the section.
- Payment to Employment Provident Fund and Public Provident Fund.
- Housing loan repayment- Repayments of Principal: Repayment of Principal amounts done towards a housing loan are also considered under 80C deductions. But this property should not be sold within 5 years from the end of the financial year.
- National Savings Certificates: Investments in National Savings Certificates (NSC) are also considered under 80 C. These investments are available from the Indian Postal Services or Post offices. These are issued for a period of 5 years or 10 years.
- Life Insurance Premium: An individual or an HUF can claim deduction for life insurance premium paid. An individual can claim deduction for life insurance policy on life of himself, his spouse or his children.
- Educational Expenses: Education Expenses or children’s tuition fee is eligible under Section 80C, but with some conditions. ‘Tuition Fee’ here means school, college or university fees.
- Fixed Deposits: Fixed Deposits of 5 years or more with a scheduled bank are also eligible for deduction under section 80C.
- Unit Linked Insurance Plans: Investments in ULIPs of UTI and of LIC Mutual Fund and other such ULIPs which are specifically sold as 80C savings instruments also form part of the deductions.
- Equity Linked Savings Schemes: ELSS are a type of mutual funds. These tax saving funds are sold with a lock in period of 3 years. 9. Since these funds invest in equity mostly, they come with higher returns albeit higher risk.
- Subscriptions to Senior Citizen Savings Scheme or notified bonds of NABARD (National Bank for Agriculture and Rural Development) say the Rural Development Bonds of NABARD are also eligible for deduction under section 80C.
- Sukanya Samridhi Yojana
- Senior Citizen Savings Scheme (SCSS).