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

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.

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.

Overview of Section 80C

This section allows for a deduction of up to Rs. 1.5 lakh from an individual's taxable income for investments made in various schemes and instruments such as.

• Payment of life insurance premiums for self, spouse or children

• Equity Linked Saving Schemes (ELSS)

• Payment towards the principal sum of a home loan

• Sukanya Samriddhi Yojana (SSY)

• National Savings Certificate (NSC)

• Senior Citizens Savings Scheme (SCSS)

• Public Provident Fund (PPF)

• Unit-linked insurance plans (ULIPs)

• Five-year fixed deposits with banks and post offices

• Tuition fees paid for children's education

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.

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.