From your Gross Total Income deductions are made under Chapter VIA - one of those is Deduction Under Section 80C.
If your gross income is Rs 7,00,000 and your 80C deductions are Rs 1,00,000
Under Section 80CRs 1,00,000 Total Income Rs 6,00,000 On this Total Income of Rs 6lakhs. Tax Slabs shall be applied
Section 80C allows deductions up to a maximum of Rs 1,00,000. This limit is available to you irrespective of your tax bracket. That is a neat way to save your hard earned money! Consider this – If you fall in the highest tax bracket of Rs 10,00,000 - a 100% deduction claimed by you under 80 C could result in a tax saving of Rs 30,000. Besides the tax you save it also means you may end up directing some of your money to savings which could hold you in good stead.
Several options are available to claim the 80C deduction. Luckily, since there are no sub limits for these options, you can do all of Rs 1,00,000 in one of them or allocate to many. You may also end up investing more than Rs 1,00,000 in these; however your deduction in total will be limited to Rs 1,00,000.
Let’s take a look at what are these investments or expenses that qualify under this section -
• Employee Provident Fund: Provident Fund deductions that your employer makes from your salary - which simply means your contribution (employee’s contribution) forms part of 80C. Also include any Voluntary Provident Fund that you are contributing additionally.
• Public Provident Fund: Money deposited by you in your PPF account. Each year, the money that you deposit in your PPF account can be added to form part of your 80C deduction. Note that each year a maximum of Rs 1,00,000 can be deposited in your PPF account.
• Tuition Fees: If you have paid ‘Tuition Fees’ towards full time education of your children, this expense can be claimed as part of 80C deduction. This deduction can be availed for a maximum of 2 children. ‘Tuition Fee’ here means school, college or university fees. When this has actually been ‘paid’ only then will this expense qualify for deduction. If you have paid tuition fees for your own education or your spouse’s education, in that case this deduction shall not be available.
• Repayments of Principal: Repayment of Principal amounts done by you towards a housing loan are also considered under 80C deductions. However, you need to make sure this property is not sold by you within 5 years from the end of the financial year in which you took possession of this property. If that happens deductions claimed by you under Section 80C will be added back to the taxable income of the year in which you sell the property.
• National Savings Certificates: Investments in NSC or National Savings Certificates are also considered under 80C. These investments are available from the Indian Postal Services or Post offices. These are issued for a period of 5 years or 10 years and you will be able to find out about them from your local post office.
• 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. Since these funds invest in Equity mostly, they come with higher returns albeit higher risk. You can choose a growth or a dividend option when you purchase these ELSS. If you choose growth option you get a lump sum payout at the end of 3 years. With dividend option, if the fund declared a dividend returns are received each year. Returns from this ELSS scheme are tax free.
• Life Insurance Premium: Life insurance premium paid by you to keep in force a policy is allowed as a deduction under this section. This premium must have been actually paid in the year in which deduction is being claimed. You can claim this deduction when you pay the premium for life insurance of yourself, your spouse or your children. Your children may be dependent or not, married or unmarried. You may have more than one life insurance policy and premium paid for all of them shall be eligible for deduction under this section.
• 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.
• 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.
• Tuition Fees: If you have paid ‘Tuition Fees’ towards full time education of your children, this expense can be claimed as part of 80C deduction. This deduction can be availed for a maximum of 2 children. ‘Tuition Fee’ here means school, college or university fees. When this has actually been ‘paid’ only then will this expense qualify for deduction. If you have paid tuition fees for your own education or your spouse’s education, in that case this deduction shall not be available.
• Repayments of Principal: Repayment of Principal amounts done by you towards a housing loan are also considered under 80C deductions. However, you need to make sure this property is not sold by you within 5 years from the end of the financial year in which you took possession of this property. If that happens deductions claimed by you under Section 80C will be added back to the taxable income of the year in which you sell the property.
• National Savings Certificates: Investments in NSC or National Savings Certificates are also considered under 80C. These investments are available from the Indian Postal Services or Post offices. These are issued for a period of 5 years or 10 years and you will be able to find out about them from your local post office.
• 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. Since these funds invest in Equity mostly, they come with higher returns albeit higher risk. You can choose a growth or a dividend option when you purchase these ELSS. If you choose growth option you get a lump sum payout at the end of 3 years. With dividend option, if the fund declared a dividend returns are received each year. Returns from this ELSS scheme are tax free.
• Life Insurance Premium: Life insurance premium paid by you to keep in force a policy is allowed as a deduction under this section. This premium must have been actually paid in the year in which deduction is being claimed. You can claim this deduction when you pay the premium for life insurance of yourself, your spouse or your children. Your children may be dependent or not, married or unmarried. You may have more than one life insurance policy and premium paid for all of them shall be eligible for deduction under this section.
• 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.
• 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.
Source: http://in.finance.yahoo.com
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