Tax Saving under Section 80C
The Drawing and
Disbursing Officers are responsible to deduct accurate amount of Tax Deduction
at Source (TDS) from the salaries of the employees. Most of the employees ask
DDOs to advise upon tax savings and each DDO before giving advice, should be
clear the instruments, investments, payments associated with the section 80C.
The ‘Professional Guidance’ webpage is providing full detail in simplest way
for complete understanding of section 80C. The major deduction which attracts
taxpayers is still under section 80C of Income Tax Act, however it is still
restricted up to Rs. 1,50,000. The taxpayers invest a certain amount to claim
this deduction and all insurance companies, financial companies, banking
companies targets the taxpayers (individuals and Hindu Undivided Family – HUF)
to attract them for their plans to claim deduction under section 80C. Which of
the option is good for the taxpayers and why; that is still a matter of concern
and every individual considers the pros and cons of each investment before
making investment.
Tax Deduction under Section 80C |
Options to select for claiming Deduction under Section 80C:
For claiming deduction
under section 80C, the individual and HUF can consider various options and
payments should be made up to 31st March of the financial year.
An individual / HUF can
take a life insurance policy (for self, spouse and children including annual
plans, deferred annuity plans, and Unit Linked Insurance Plans - ULIP) and
claim deduction on payment of its premium during the financial year. He can
deposit amount in Provident Fund (Public Provident Fund, Recognized Provident
Fund, Superannuation Fund), National Saving Certificate / Kisan Vikas Patra,
Mutual Funds (Equity Linked Saving Schemes or Notified Pension Funds), UTI
funds, specific Bank Fixed Deposits or bonds (infrastructure bonds, notified
bonds of NABARD, Senior Citizen Saving Scheme, Five Years-Time Deposit with
Post Office etc.) and other investments entitled to claim deduction under
section 80C. Apart from it, the deduction can be claimed for payments of
tuition fees of two children, repayment of housing loan (only principal
component), stamp duty or registration charges paid for purchase or
construction of residential house etc.
(a) Life Insurance Premium under Section 80C for Individuals and HUF:
If amount is paid for
annuity plan of Life Insurance Policy, that can be claimed as a deduction under
section 80C. Such premiums paid for self, spouse and children can be claimed
under section 80C and the premium paid for policy of father, mother, or others
cannot be claimed as deduction under section 80C.
Here the point is whether the amount received on maturity of the ULIP will be taxable in the year of receipt or not?
It depends upon the
amount of premium and sum assured value of the policy. In case, the premium
paid is less than 10% of the sum assured value of the policy then amount
received on maturity of the policy will be exempt under section 10 (10D),
otherwise it will be taxable.
(b) Employee’s Provident Fund Investments under Section 80C for Individuals and HUF:
The salaried people
usually pay a part of their monthly salary as a contribution to Employee’s Provident
Fund. Such contributions in Provident Fund Investments are eligible to claim
deduction under section 80C. The employers also deposit equal amount of
contribution in the account of employee’s provident fund.
Here the point is,
whether the contribution of employer and interest earned on provident fund
during the year is taxable in the hands of employee or not?
The employee and employer’s
contribution to provident fund accumulate a corpus and interest is earned upon
the same. Such interest earned up to 9.5% is not taxable in the hands of the
employee. The interest earned above the limit of 9.5% per annum will be
taxable. Further, if the employer contributes more than 12% of employee’s
salary in employee’s Provident Fund Account, then the excess will be taxable in
the hands of employee.
What will happen if an employee decides to contribute more than 12% in his provident fund?
If an employee
contributes more than 12% of his salary in provident fund, then such
contribution is known as Voluntary Provident Fund (VPF) and such contribution
is also eligible for deduction under section 80C.
Whether the interest earned on maturity of provident fund is taxable or not?
The interest earned and
maturity amount is exempt.
(c) Public Provident Fund Investment under Section 80C for Individuals and HUF:
An individual or HUF can
open a Public Provident Fund (PPF) Account in post office or bank and the PPF
account has a lock-in period of 15 years however, partial withdrawals can be
made after 7 years of opening the account. The minimum amount required to be
deposited in PPF account is Rs. 500 per year and the maximum amount can be
deposited up to Rs. 1,50,000.
Here the point is whether the interest earned on PPF account is taxable or not?
The banks and post office
provide interest on PPF account on annual basis means it is compounded yearly.
It is exempt in the hands of recipient.
(d) Sukanya Samriddhi Yojana (SSY) investment under Section 80C:
An individual only if he
/ she is one of the parents or legal guardian of one or two girl children with
age up to 10 years, can open Sukanya Samriddhi Yojana Account in post office or
bank and contribution in this account can be made up to Rs. 1,50,000 per year.
The lock-in period of the account is up to the age of 21 years of the girl
child and the amount to be deposited in this account is for 15 years thereafter
amount is not deposited in this account. Such contribution can be claimed as
deduction under section 80C.
Here the point is whether the interest earned on SSY account is taxable or not?
The interest earned on
SSY account is compounded annually and it is exempt in the hands of recipient. The
interest rate on SSY account is usually declared higher than the PPF account’s
interest rate. Both the interest rates are revised every year by the
Government.
To continue the
understanding, please go through the next part: Tax Deduction under Section80C.
*Copyright © 2018 Dr. Lalit
Kumar. All rights reserved.
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