Section 80 Investments: A guide to saving taxes and building wealth

Team AckoFeb 27, 2024

Taxes can be a heavy burden on your finances, but there's a way to lighten it up! Investing in Section 80 can help you save on taxes and make the most of your money. But what exactly is Section 80, and how can you invest in it? This guide is here to answer all your questions.

Contents

• What are Section 80 Investments?
• How do Section 80 Investments work?
• What are the benefits of Section 80 Investments?
• What are the limitations of Section 80 Investments?
• How to Invest in Section 80?
  • Step 1: Choose the right investment plan
  • Step 2: Check eligibility criteria
  • Step 3: Invest before the deadline
  • Step 4: Keep track of your investments
• Features of Income Tax Deduction: 
  • What are the different subsections of Section 80C?
• Overview of Section 80D
• Overview of Section 80E
• Overview of Section 80GG
  • Section 80TTA - Deduction of Interest on Savings Account 
  • Section 80TTB – Interest From Deposits Held by Senior Citizens
  • Section 80EEA – Interest on Home Loan For First-Time Home Owners
  • Section 80 Income Tax Deductions
  • Section 80D – Deduction on Medical Insurance Premium
  • Section 80DD – Deduction for Medical Treatment of a Dependent with Disability
  • Section 80DDB – Deduction for Medical Treatment
  • Section 80U – Deduction for Disabled Individuals
  • Section 80G – Income Tax Benefits Towards Donations for Social Causes
  • Section 80GGB – Company Donation to Political Parties
  • Section 80GGC – Deduction on Donations By a Person to Political Parties
  • Section 80RRB – Deduction on Income via Royalty of a Patent
• Income Tax Deduction under Chapter VI A of Income Tax Act
• Tax Benefits under Section 80G: Encouraging Charitable Contributions
  • Tax Deductions under Section 80 IA
  • Tax Deductions under Section 80J
  • Tax Deduction under Section 80LA
  • Tax Deduction under Section 80P
  • Tax Deductions under Sections 80QQB and 80RRB
  • Tax Deductions under Sections 80TTA and 80U
• Understanding the Taxable and Non-Taxable Parts of Your Salary
  • Non-Taxable Components
• Income Tax Exemptions for Salaried Employees in 2023-24
  • Under the new tax regime, there are a few deductions that are still allowed:
  • Some common ones from this list include:
• Conclusion
• Frequently asked questions

What are Section 80 Investments?

Section 80 investments refer to the investments made under Section 80C, Section 80D, Section 80E, Section 80GG, etc. of the Income Tax Act, 1961. These investments are eligible for tax deductions of up to Rs 1.5 lakh annually. Section 80C covers investments in various instruments, such as, Public Provident Fund (PPF), National Pension System (NPS), Equity-Linked Saving Schemes (ELSS), tax-saving fixed deposits, and more. Section 80CCC covers investments made in pension plans, while Section 80CCD covers investments made in the NPS.

How do Section 80 Investments work?

When you invest in Section 80, the amount invested is deducted from your taxable income. For example, if your taxable income is Rs 10 lakh per annum and you invest Rs 1.5 lakh in a tax-saving instrument under Section 80, your taxable income will be reduced to Rs 8.5 lakh per annum. This, in turn, reduces your tax liability and helps you save taxes.

What are the benefits of Section 80 Investments?

There are several benefits of investing in Section 80. Here are a few examples.

• Tax Savings: Section 80 investments help you save taxes by reducing your taxable income.

• Long-term wealth creation: Many Section 80 instruments, such as ELSS and PPF, offer high returns and help you build long-term wealth.

• Diversification: Section 80 investments allow you to diversify your portfolio and reduce the risk of losses.

• Retirement Planning: Section 80 investments such as NPS help you plan for your retirement and secure your future.

What are the limitations of Section 80 Investments?

While Section 80 investments offer several benefits, they also have some limitations. Here are a few examples.

1. Limited investment options

Section 80 investments have limited investment options. While there are several tax-saving instruments available, they all have their own pros and cons. You need to choose the right instrument based on your financial goals and risk appetite.

2. Lock-in period

Most Section 80 instruments come with a lock-in period, which means that you cannot withdraw your money before a certain period. For example, ELSS has a lock-in period of three years, while the PPF has a lock-in period of 5 years. This can limit your liquidity and flexibility.

3. Lower returns

Some Section 80 investments offer lower returns compared to other investment options. For example, tax-saving fixed deposits offer lower returns compared to equity or mutual fund investments.

How to Invest in Section 80?

Investing in Section 80 is a straightforward process. Here are the steps you need to follow.

Step 1: Choose the right investment plan

The first step to investing in Section 80 is to choose the right investment plan. Consider your investment goals, risk appetite, and the lock-in period of the plan before making a decision.

Step 2: Check eligibility criteria

Before investing, check the eligibility criteria for the investment plan before investing. Some plans have restrictions based on age, income, and other factors.

Step 3: Invest before the deadline

Investments in Section 80 must be made before the deadline, which is usually March 31st of every financial year. Make sure you invest in time to claim the tax deduction for that financial year.

Step 4: Keep track of your investments

It's important to keep track of your investments and ensure they comply with the rules of Section 80. This will help you maximise your tax benefits and avoid any penalties or fines.

Features of Income Tax Deduction: 

Section 80C of the Income Tax Act provides a valuable tax deduction opportunity for individuals and Hindu Undivided Families (HUFs). It allows taxpayers to reduce their taxable income by up to ₹1.5 lakh per year through various specified investments and expenses. Here's a breakdown of the key investments and expenditures eligible for deduction under Section 80C:

Life Insurance Premium: Premiums paid for life insurance policies covering oneself, one's spouse, or children (whether minor or major) qualify for deduction. However, premiums paid for parents are not eligible for this deduction. In the case of HUFs, premiums for any member are eligible.

Sukanya Samriddhi Scheme: Any amount invested in the Sukanya Samriddhi Scheme, held in the name of a daughter or any girl child for whom the taxpayer is the legal guardian, is eligible for deduction.

Contributions to Various Funds and Schemes: Taxpayers can claim deductions for contributions made to a range of financial instruments and funds, including:

   - Public Provident Fund (PPF)

   - Approved superannuation fund

   - Unit-linked Insurance Plan (ULIP) as per 1971 regulations

   - ULIP from LIC Mutual Fund

   - Approved annuity plan from LIC

   - Pension fund established by a mutual fund or administrator or specified company

   - National Housing Bank Term Deposit Scheme 2008

   - Additional account under the National Pension System (NPS)

   - Senior Citizens Savings Scheme Rules 2004

Subscriptions to Various Schemes: Deductions can be claimed for subscriptions made to:

   - National Savings Certificates (VIII issues)

   - Units of any mutual fund or from the administrator or specified company

   - Notified deposit scheme of a public sector company involved in housing finance or other housing-related deposit schemes

   - Specified equity shares, debentures, or units of mutual funds

   - Notified bonds issued by NABARD

Five-Year Fixed Deposits (FD): Investments in five-year fixed deposits with scheduled banks or the Post Office also qualify for deductions under Section 80C.

Repayment of Housing Loan Principal: Taxpayers can claim deductions on the principal amount repaid for a housing loan, including stamp duty, registration fees, and other related expenses.

Payment of Tuition Fees: Deductions are allowed for payments made towards the tuition fees of up to two children studying in any recognized educational institution in India, including colleges, schools, universities, and other educational establishments.

What are the different subsections of Section 80C?

The following table helps with an overview of different subsections of the Section 80C.

It is important to note that the maximum combined deduction under Sections 80C, 80CCC, and 80CCD (1) cannot exceed Rs. 1.5 lakh per financial year and are available under the old tax regime.

Overview of Section 80D

One of the most important expenses in life is medical insurance. Fortunately, the Indian Income Tax Act allows individuals and Hindu Undivided Families (HUF) to claim deductions on their medical insurance premium payments. Section 80D of the Indian Income Tax Act allows individuals or HUFs to claim a deduction of up to Rs. 25,000 on the premium paid towards insurance for themselves, their spouse, and dependent children.

For those who have also taken out insurance for their parents, an additional deduction of up to Rs. 25,000 is available, provided their parents are below 60. In cases where the parents are aged above 60 years, the deduction amount is increased to Rs. 50,000. This deduction amount was increased from Rs. 30,000 in the 2018 Budget.

If the taxpayer and their parent(s) are aged 60 or above, a deduction of up to Rs. 1 lakh is available under this section. This is an essential tax benefit for those taking care of their elderly parents' medical expenses.

Overview of Section 80E

Individual taxpayers can claim a deduction for the interest paid on loans taken for pursuing higher education. This deduction is available for loans taken for the taxpayer, their children, their spouse or the student's legal guardian.

The 80E deduction can be claimed for a maximum of eight years starting from the year the interest repayment begins or until the entire interest is paid, whichever is earlier. The amount can be claimed without restrictions, and taxpayers can claim the entire interest paid.

This deduction is a significant relief for taxpayers who have taken loans for education, making the repayment process easier and more manageable.

Overview of Section 80GG

Under Section 80GG of the Income Tax Act, you can still claim a deduction for rent paid, even if you do not receive House Rent Allowance (HRA). However, certain requirements must be met to qualify for this deduction.

Firstly, the taxpayer, their spouse, or minor child cannot own any residential property at the place of employment. Additionally, the taxpayer should not have any self-occupied residential property elsewhere. Furthermore, the taxpayer must be living on rent and paying rent.

This deduction is available to all individuals, but the amount of deduction that can be claimed is the lowest of the following three options.

1. Rent paid minus 10% of the adjusted total income 

2. Rs 5,000/- per month 

3. 25% of adjusted total income

It is worth noting that the deduction limit has been increased to Rs 5,000 per month since FY 2016-17, up from Rs 2,000 per month. To simplify filing your Income Tax Return (ITR), use online ITR e-filing software that automatically calculates the limits.

Section 80TTA - Deduction of Interest on Savings Account 

Section 80TTA encourages individuals to save by offering deductions for interest income earned on savings accounts held with banks, cooperative societies, and post offices. Taxpayers can claim deductions of up to ₹10,000 on such interest income. This deduction promotes savings while providing a tax benefit.

Section 80TTB – Interest From Deposits Held by Senior Citizens

Who Can Claim: Resident Senior Citizens (age 60 or more) can claim deductions under Section 80TTB.

Maximum Deduction: ₹50,000 against interest income from banks, post offices, or cooperative societies engaged in banking business. This also raises the TDS threshold for senior citizens to ₹50,000.

Section 80EEA – Interest on Home Loan For First-Time Home Owners

Conditions (FY 2017-18 and FY 2016-17): Available if the loan was taken in FY 2016-17, for individuals owning only one house property worth less than ₹50 lakh, with a home loan below ₹35 lakh sanctioned between April 1, 2016, and March 31, 2017.

Deduction: An additional deduction of ₹50,000 on home loan interest, over and above the ₹2 lakh under Section 24.

Section 80 Income Tax Deductions

Income tax deductions under Section 80 of the Income Tax Act are an essential aspect of financial planning in the country. These deductions are designed to incentivize savings, investments, and responsible financial behavior by offering taxpayers a way to reduce their taxable income. 

Let's delve into some of the key deductions available under Section 80 in more detail:

Section 80D – Deduction on Medical Insurance Premium

Eligibility: Taxpayers can claim deductions for health insurance premiums for self, spouses, and their dependent children. Additional deductions are available for parents.

Maximum Deduction: Varies based on the insured individual's age and coverage, up to ₹1 lakh for senior citizens and ₹25,000 for others. An extra ₹5,000 is allowed for preventive health checks.

Section 80DD – Deduction for Medical Treatment of a Dependent with Disability

Eligibility: Available to resident individuals or HUFs.

Deduction: Covers expenses for medical treatment, nursing, training, and rehabilitation of a handicapped dependent relative. Deduction amounts depend on the level of disability.

Section 80DDB – Deduction for Medical Treatment

Eligibility: Available to resident individuals or HUFs for medical expenses incurred on themselves or dependents.

Deduction: Amounts vary based on age and expenses incurred.

Section 80U – Deduction for Disabled Individuals

Deduction: Available to individuals with physical disabilities or mental retardation. Amounts depend on the level of disability.

Normal Disability - 40% - 79% - ₹ 75,000

Severe Disability - 80% or more - ₹ 1,25,000

Section 80G – Income Tax Benefits Towards Donations for Social Causes

Donations: Deductions available for donations to specified funds, trusts, or institutions. Donations exceeding ₹2,000 should not be in cash to qualify.

Categories: Donations categorized as 100% deduction without any limit, 50% deduction without limit, and 100% deduction up to 10% of adjusted gross total income.

Section 80GGB – Company Donation to Political Parties

Eligibility: Available for Indian companies for contributions to political parties or electoral trusts. Deduction allowed for non-cash contributions.

Section 80GGC – Deduction on Donations By a Person to Political Parties

Eligibility: Available to individual taxpayers for donations to political parties or electoral trusts, excluding cash donations.

Section 80RRB – Deduction on Income via Royalty of a Patent

Eligibility: Available to individual patentees who receive royalty income from a patent registered on or after April 1, 2003, under the Patents Act 1970.

Deduction Limit: Up to ₹3 lakh or the income received, whichever is less. A certificate from the prescribed authority is required.

These sections provide taxpayers with opportunities to reduce their taxable income while promoting savings, supporting social causes, and encouraging homeownership, education, and healthcare. Understanding and utilizing these deductions can lead to substantial tax benefits.

Income Tax Deduction under Chapter VI A of Income Tax Act

Note: The following information is presented in simple and clear language to provide comprehensive and credible insights into the topic.

Income Tax Deduction under Chapter VI A of Income Tax Act

Income Tax Deduction under Chapter VI A of the Income Tax Act is a set of provisions that offer taxpayers the opportunity to reduce their taxable income, thereby lowering their overall tax liability. These deductions are designed to promote savings, investments, and certain expenses that benefit both individuals and the economy as a whole.

Here's a brief overview of some key deductions available under Chapter VI A:

• Section 80C Investments:

• Individuals and Hindu Undivided Families (HUFs) can claim deductions for various investments and expenses.

• Eligible investments include Equity Linked Saving Schemes (ELSS), Life Insurance Premiums, and more.

• The maximum deduction allowed is ₹1.5 lakh annually.

• An additional deduction of ₹50,000 is permitted under Section 80CCD(1B).

Section 80D Medical Insurance:

• This deduction applies to individuals and HUFs.

• It allows deductions for premiums paid on medical insurance policies.

• The deduction limit varies based on whether the policy covers the taxpayer's family, parents, or both.

• An additional deduction of ₹5,000 is available for preventive health check-ups.

Section 80E Interest on Education Loan:

• Individuals can claim a deduction on the interest paid on education loans for higher studies.

• The deduction is not capped, making it highly beneficial for those pursuing education.

Section 80G Donations:

• Taxpayers can avail deductions for donations made to specified charitable organizations.

• The deductions range from 50% to 100% of the donated amount, subject to certain conditions.

• Cash donations exceeding  ₹2,000 are not eligible for deductions.

Section 80U Deduction for Disabled Individuals:

• This deduction benefits individuals with disabilities.

• Normal disabilities (40% - 79%) are eligible for a deduction of ₹75,000, while severe disabilities (80% or more) can claim up to ₹1,25,000.

These deductions provide taxpayers with opportunities to save on income tax while simultaneously encouraging investments, insurance, education, charity, and support for disabled individuals. It's essential to understand the specific criteria and limits for each deduction to maximize tax benefits while remaining compliant with tax laws.

In summary, Income Tax Deductions under Chapter VI A are a vital part of India's tax framework, offering taxpayers a way to reduce their tax liability while contributing to various sectors of the economy. These deductions are not only beneficial for individuals and families but also play a crucial role in fostering economic growth and social welfare.

Tax Benefits under Section 80G: Encouraging Charitable Contributions

100% Deduction without Limit: Donations made to specific funds like the National Defence Fund, Prime Minister's Relief Fund, National Illness Assistance Fund, and others are eligible for a 100% deduction without any upper limit. This means the entire donated amount can be deducted from your taxable income.

100% Deduction with Qualifying Limits: Contributions to local authorities, associations, or institutes aimed at promoting family planning and the development of sports can also benefit from a 100% deduction. However, this deduction is subject to certain qualifying limits.

50% Deduction without Qualifying Limits: Donations to funds like the PM's Drought Relief Fund, Rajiv Gandhi Foundation, and similar entities qualify for a 50% deduction without any specific upper limit.

50% Deduction with Qualifying Limit: Contributions to religious organizations, local authorities for purposes other than family planning, and various charitable institutions are eligible for a 50% deduction, subject to specific qualifying limits. The qualifying limit is calculated as 10% of the taxpayer's gross total income.

Tax Deductions under Section 80 IA

Section 80-IAB: SEZ developers can claim deductions on profits from SEZ development, provided the SEZs were notified after April 1, 2005.

Section 80-IB: Taxpayers generating profits from diverse sectors such as hotels, ships, multiplex theaters, cold storage plants, housing projects, scientific research and development, convention centers, etc., can benefit from Section 80-IB.

Section 80-IC: Taxpayers earning profits from specific states categorized as special, including Assam, Manipur, Meghalaya, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Mizoram, Tripura, and Nagaland, can utilize Section 80-IC for deductions.

Section 80-ID: This section offers deductions to taxpayers with profits or gains from hotels and convention centers located in designated areas.

Section 80-IE: Assessees with undertakings in North-East India are eligible for deductions under Section 80-IE, subject to specific conditions

Tax Deductions under Section 80J

Section 80 JJA: Assessees engaged in processing, treating, and converting bio-degradable waste into biological products like bio-fertilizers, bio-pesticides, and bio-gas can claim a 100% deduction on profits for five consecutive assessment years.

Section 80 JJAA: Indian companies manufacturing goods in factories can deduct 30% of the salary paid to new full-time employees for three assessment years. Chartered accountants must audit the accounts of these companies to verify the returns.

Tax Deduction under Section 80LA

Section 80LA allows Scheduled Banks with offshore banking units in Special Economic Zones, entities within International Financial Services Centers, and banks established outside India to claim deductions. These deductions include 100% of income for the first five years and 50% of income for the subsequent five years, subject to regulatory compliance.

Tax Deduction under Section 80P

Section 80P targets cooperative societies and provides deductions based on their income source:

• Cooperative societies involved in activities like cottage industries, fishing, banking, sale of agricultural harvest, and milk supply can claim a 100% deduction.

• Other cooperative societies are eligible for deductions ranging from Rs 50,000 to Rs 1 lakh, depending on their business type.

The deductions can be claimed on various income sources such as warehouse rentals, interest on money lent, and interest from securities or properties.

Tax Deductions under Sections 80QQB and 80RRB

• Section 80QQB allows resident Indian authors to claim deductions on royalty income from the sale of books, up to Rs 3 lakhs, with specific criteria for eligible royalties.

• Section 80RRB provides tax relief to patent owners and residents receiving royalties from patents, subject to certain conditions, including the recovery of overseas royalties.

Tax Deductions under Sections 80TTA and 80U

• Section 80TTA permits Hindu Undivided Families and individuals to claim deductions of up to Rs 10,000 annually on interest earned from bank savings accounts.

• Section 80U offers deductions to resident individuals with disabilities, with a maximum of Rs 75,000 for those with at least 40% disability and Rs 1.25 lakh for severe disabilities, as determined by medical authorities.

Understanding the Taxable and Non-Taxable Parts of Your Salary

Taxable Components

Basic Salary: This forms the core of your salary and is fully taxable, with the tax rate applied as per your country's tax laws.

House Rent Allowance (HRA): HRA is provided to employees living in rented homes. Its tax treatment depends on the employee's residential status, whether they rent, own, or reside with their parents.

Conveyance Allowance: This allowance covers commuting expenses between home and work. In some places, a portion may be tax-exempt.

Bonus: Unless specific bonuses are exempt under tax laws, periodic or annual bonuses are entirely taxable.

Non-Taxable Components

Provident Fund (PF) Contributions: Employer contributions to the Employee Provident Fund (EPF) are typically tax-exempt, with conditions. However, interest earned on EPF may become taxable if withdrawn prematurely.

Gratuity: A lump-sum payment from the employer upon retirement or resignation, gratuity's tax treatment varies depending on the country's tax regulations and years of service.

Medical Allowance: Reimbursements for medical expenses incurred by the employee or their family can be tax-exempt, up to specified limits dictated by tax laws.

Education Allowance: Some countries offer tax exemptions for education allowances, assisting employees in covering their children's educational costs.

Income Tax Exemptions for Salaried Employees in 2023-24

In the latest tax regime, tax rates remain the same for all categories of taxpayers, regardless of age—whether they are individuals, Hindu Undivided Families (HUF) under 60 years, senior citizens above 60, or super senior citizens above 80. 

This means that the basic exemption limit hasn't increased for senior and super-senior citizens.

Taxpayers now have two options, they can opt for the new tax regime, with lower tax rates but without certain income tax exemptions and deductions, or they can stick with the old tax regime, which has higher rates but allows for specific deductions and exemptions.

Under the new tax regime, there are a few deductions that are still allowed:

1. Specially-abled individuals can claim a deduction for transport allowance, covering expenses incurred while traveling to work, akin to a conveyance allowance.

2. Section 80CCD(2) permits deductions for investments in the National Pension Scheme (NPS) or other Notified Pension Schemes.

3. Section 80JJAA offers deductions for newly appointed employees.

4. Depreciation of assets (machinery), as per Section 32, is allowed, except for additional depreciation expenses incurred due to employee transfers or travel for work-related purposes.

However, 70 exemptions and deductions are not part of the new tax regime. 

Some common ones from this list include:

- Professional tax

- House Rent Allowance (HRA)

- Children's education allowance

- Leave Travel Allowance (LTA)

- Expenses during employment-related relocations

- Conveyance allowance

- Interest on housing loans under Section 24

- Various special allowances (Section 10(14)), helper allowance, and standard deductions on salary.

Conclusion

In summary, Section 80 of the Income Tax Act in India offers a range of deductions to taxpayers, covering areas like investments, healthcare, education, and charitable donations. These deductions help individuals and businesses reduce their taxable income, ultimately lowering their tax liability. While some deductions have specific limits, others offer more flexibility, making tax planning an essential aspect of financial management for individuals and organizations alike.

Frequently asked questions

Here are some common questions about Section 80 of the Income Tax Act.

Can a taxpayer claim deductions under both Section 80C and Section 80D of the Income Tax Act?

Yes, a taxpayer can claim deductions under both Section 80C and Section 80D of the Income Tax Act. Section 80C allows deductions on investments in tax-saving instruments, while Section 80D allows deductions on expenses incurred on medical treatments.

Can a taxpayer claim deductions under Section 80 of the Income Tax Act if he/she has not invested in tax-saving instruments?

Yes, a taxpayer can claim deductions under Section 80 of the Income Tax Act even if he/she has not invested in tax-saving instruments. Deductions can also be claimed for expenses incurred on medical treatments, education loans, and donations made to charitable organisations.

Is it mandatory to submit proof of investments made for claiming deductions under Section 80 of the Income Tax Act?

Yes, it is mandatory to submit proof of investments made for claiming deductions under Section 80 of the Income Tax Act. Failure to do so may result in rejection of the claim or penalty imposition.

Is Section 80 of the Income Tax Act applicable to only Indian residents?

No, Section 80 of the Income Tax Act is applicable to both Indian residents and Non-Resident Indians (NRIs) who have earned income in India. However, the tax benefits and deductions may vary for NRIs.

What is Section 80TTA of the Income Tax Act?

Section 80TTA of the Income Tax Act allows deductions on interest earned on savings account deposits up to Rs. 10,000 in a financial year.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.  Please ensure the tax deductions are applicable to your tax regime before investing.

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