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Tuesday, June 14, 2011

Deduction under section (80C, 80CC, 80CCD,) 80CCF and 80D for financial year 2011-12



There are different tax deductions available to an individual under different Sections of the IT Act. Section 80C for example has a deduction limit of Rs. 1 lakh per annum.


You can save tax by making use of the various deductions available to you under different sections of the IT Act i.e. investing in these instruments.


The maximum deduction under (80C, 80CC, 80CCD), 80CCF and 80D put together is Rs. 150000 that is
Investment limit for financial year 2011-12 under section 80C (Rs.1,00,00)+ (80CCF) 20,000 + (80D)30,000

Under section 80C which cover the following sub sections and details of sub sections
  
Section 80C and other sub sections i.e 80CCC, – (Maximum limit one Lakh)

Also Refer this

National Saving Certificate - Tax treatment on Maturity Amount!


Which Mutual Fund Schemes are eligible for tax deduction under section 80C?


Section 80C: savings for deduction under income tax and their limits.
Section 80CCC: Deductions in respect of contribution to certain Pension Funds
Section 80CCD: Deduction in respect of contribution to new pension scheme
 Section 80CCE: Limit of deduction under section. 80C, 80CCC and 80CCD

As per this section, the maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC and 80CCD will be limited to Rs 100,000.


 Section 80CCD


Section  80CCD(2) : With effect from 1st April 2012, which gives a benefit to the National Pension System (NPS).


Section 80CCD(2) contributions will not be part of the Rs. 1 lakh tax deduction limit under Section 80C, your employer's contribution on your behalf will be a tax free benefit for you.

Refer this
Understanding the NPS scheme offered by employer

This section covers both salaried and non-salaried individual.
But it primary discusses the tax treatment of the amount contributed by the employee / other individuals and employer in the pension scheme.

Deduction for employee’s contribution is available subject to a maximum of 10% of salary.
 In case of self employed individual, the contribution limit is restricted to 10% of gross total income. 


Employers’ contribution is also subject to the said limit of 10% of salary. It is important to note that employer’s contribution shall not be counted for computing the overall limit of Rs.100000. 
However, no deduction is available in respect of employer’s contribution which is in excess of 10 percent of the salary of the employee. Employer’s contribution will be fully taxable in the hand of employee as perquisite. 

Thereafter the employee can claim deduction for the same under 80CCD.

Also refer

Income Tax Rates for 2012-13 (Tax Reckoner 2012-13)


 Section 80C and other sub sections i.e 80CCC,    categorized under two:

1. Investment option deductions (market linked + Fixed income)
2. Expenses related deductions
Investment options deductions are as follows

Public Provident Fund (PPF) (section 80C)
Employees Provident Fund (section 80C)
Life Insurance Premium (section 80C)
Equity Linked Savings Schemes(ELSS Funds of Mutual Fund) (section 80C)
Unit linked Insurance Plans
Infrastructure Bonds
National Saving Certificates (NSC) 5 years
Bank and Post office Time Deposit Schemes
Pension Funds (section 80CCC)
New Pension Scheme Under 80CCD
NABARD rural bonds

Equity-linked savings scheme

Mutual funds that invest in equities and equities-related securities can be used to claim tax deduction under Section 80C. The lock-in period for ELSS investments is only 3 years compared with a minimum five years for other tax-saving instruments. You do not need to pay capital gains tax at redemption.


Ulips

 Investments up to Rs 1 lakh in Ulips can be claimed for deductions under Section 80C. Maturity proceeds of a Ulip investment are tax-free. Though, high up-front charges and mortality rates make Ulips an expensive investment.

Life Insurance Premium (section 80C)


Life Insurance Premium up to Rs 1,00,000 is allowed for yourself, your spouse or your children.
No. Life insurance premium paid for your parents or your in-laws is not eligible for deduction.
If you are paying premium for more than one insurance policy, all the premiums can be included, subject to the limit of Rs. 1 lakh.

5-Yr post office time deposit (POTD) scheme 

Post Office Time Deposit are similar to bank fixed deposits.
Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C.

The current rate of interest on the 5 year POTD is 7.50% p.a., compounded quarterly. The minimum investment amount is Rs. 200, there is no maximum investment amount. Interest on these deposits is calculated quarterly and paid out annually.


 5 Year Bank FD
 The 5-year tax-saving bank deposit gives tax benefit under Section 80C as the amount you invest in the 5 year FD is deducted from your taxable income. However interest received on the FD is taxable.

A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above. Investor gets a lump sum (principal + interest) at the maturity of the deposit.

 Senior Citizens Savings Scheme 


If you are 60, you can invest in Senior Citizens' Savings Scheme while earning a higher return. Currently, senior citizens get a 9.3 per cent annual interest on deposits. The investment qualifies for deduction under Section 80C but the interest is taxable.The amount invested into SCSS is eligible for tax deduction under Section 80C thus reducing your taxable income in the year of investment.


2. Expenses related deductions 



1. Children tuition fees.
Deduction from taxable income under Section 80C is available to individual taxpayers up to a maximum amount of Rs1 lakh for education expenses incurred for one's children. 
Only the tuition fee paid is eligible for deduction. Other expenses, such as transport charges, library charges, hostel charges, development fees or donation, are not covered. This deduction can be availed of on the basis of actual payment made, irrespective of the period to which the fee may pertain.

Each parent can claim the deduction for the tuition fees paid for up to two children each, thereby covering a maximum of four children in a family.

This deduction is available to the parent who has made the payment, to the extent of the tuition fee actually paid or Rs1 lakh, whichever is lower.

The deduction can be claimed only for full-time courses including( pre-nursery and play school). Part-time, distance learning courses, private tuitions and coaching classes are not covered.

2. Repayment of Housing Loan (principal)
The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest. 

The principal component of the EMI qualifies for deduction under Sec 80C.

Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act.

What is allowed under repayment of loan
The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C in the year of purchase of the house. 
Principal amount with the max limit of 1,00,000 and other deductions which are also entitled are as follows:
Expenses incurred on purchase of house property, stamp duty, registration fees and legal expenses incurred for the purpose of purchase of house property.
  • Any payment towards the cost of purchase/ construction of a new residential property is eligible for deduction under this section. This includes repayment of the principal amount of loan which taken from Government, banks, cooperative bank, LIC, National housing bank, Taxpayer’s employer where such employer is Public sector company/University/Cooperative society.
  • Cost of purchase, Stamp duty charges, registration charges and other expenses for the purpose of transfer of such house property to the tax payer. Interest payment on such loan taken on house purpose is not eligible for deduction under this section. cost of repair, renovation of residential property not eligible for section 80C deduction.
So what is section 24 is all about :. DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY.
 The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 under the head “income from house property” upto 1,50,000/- for self occupied property and full amount in case of let-out property.

So for an individual who has availed of a home loan, she can get a deduction for its repayment from her taxable income up to Rs 1 lakh. She benefits the most as apart from getting debt free, gets benefits from two sections of income tax.

  1. First, for deduction in respect to interest on home loan under section 24
  2. Secondly, deduction in respect to repayment of home loan under section 80C.


Section 80CCF: Infrastructure Bonds – (maximum Limit Rs. 20,000) 

Budget 2010 has introduced one more avenue for you to save tax – Infrastructure Bond,
This is an extension of Section 80C. The Income Tax Act allows you an additional rebate (in addition to the limit allowed under Section 80C), An investment upto a maximum of Rs. 20,000 in infrastructure bonds would be deductible from your taxable income. Thus, your taxable income would reduce by the investment you make in these infrastructure bonds, subject to an upper limit or ceiling of Rs. 20,000.
 
 This section is a boost for infrastructure development in the country. There is an expectation that the investment limit in this section may be raised for the next year.


Please remember that this is over and above the Rs. 1,00,000 allowed under Section 80C.

The budget did not specify the exact bonds that qualify for investment under section 80 CCF – these would be notified by the government from time to time.

However, infrastructure bonds issued by both public sector / state owned companies as well as private sector companies would qualify for investment under this section. This is unlike the past trend – till now, only government entities were allowed to issue infrastructure bonds.

The money raised through these bonds would be primarily invested in infrastructure projects – building of roads, ports, airports, power plants, etc. These investments are of long term duration, and therefore, these bonds too are expected to have long tenures – 10 years or more.

The bonds are likely to carry an interest rate of 7.00 – 7.50%. Bonds issued by private companies are expected to offer a slightly higher interest rate of 8.00 – 8.50%.

Update for Section 80CCF: (April 11, 2012)
80CCF is not longer available for deduction.
80CCF deduction for infrastructure bonds of Rs 20,000 been discontinued
From 2012-13

Based on the current draft of the Finance Bill 2012, the deduction under section 80CCF has not been extended. This implies that, the deduction is discontinued from FY 2012-13.





Section 80D:  Deduction in respect of Medical Insurance Premium i.e Contribution to Central Government Health Scheme (maximum limit Rs. 15000 for self, spouse, dependant children & additional 15,000 for parents) 




You can invest a sum up to Rs 30,000 under section 80D. As per the provisions of the Act, you can claim Rs 15,000 for self, spouse and dependent children. You can also claim additional of Rs 15,000 for parents contribution.

The CGHS facility is similar to the hospitalization and other healthcare facilities covered under insurance policies issued by health insurance companies.

As per the provisions of the Act, an individual can claim deduction for payment of health insurance premium of Rs 15,000 if the insurance is for himself, spouse and dependent children. The individual will get an additional deduction of Rs 15,000 if the contribution is made for his parents. The deduction in case of a senior citizen is Rs 20,000.

The government has now sought to extend the benefit of deduction to contributions made under the CGHS and is welcome change for the retired government employees. This deduction shall be covered within the overall limit of existing deductions under the Act which was not there earlier.

Premiums paid by assessee by any mode other than cash out of his taxable income to effect or to keep in force an insurance on the health of following persons:
In case of individual assessee – Himself/Herself, spouse, dependent children and parent or parents. The condition of dependency of parent has been removed from FY 2008-09. In other words, even if the parent is independent, the individual can pay the premium and claim the deduction. In case of HUF assessee – any member of HUF

Conditions for claiming deduction u/s 80D 


The deduction can be claimed on total income computed for calculation of income tax, of an amount paid as a premium for medical insurance if the following conditions are satisfied:
Insurance premium is made to a general insurance company against a medical insurance (Mediclaim).
Payment should be made by an individual, for himself or his family, or a Hindu Undivided Family (HUF), for its members.Payment is made by any mode, other than in cash.For this purpose, family means spouse, parents and dependent children.

31 comments:

  1. Postal Recurring Deposit comes under 80c or not can u clarify

    ReplyDelete
    Replies
    1. no recurring deposit is not comes under 80c

      Delete
  2. Hi jyothi

    The investment in a recurring deposit is not considered for deduction u/s 80C
    There is no income tax benefit available for a recurring deposit.
    Please note that sec 80C benefit is not available even if the recurring deposit is for a period of 5 years or more.


    Post Office Time Deposit Account opened for 5 years enjoys the benefits under section 80C of the Income Tax Act.

    ReplyDelete
  3. 80 (c) limit should be increased.That's where most of people get hit. As base salary increases , a substantial (if not all) amount under 1 lakh 80 c limit gets covered with PF , Now a days minimal insurance amount doesn't help. Insurance , ULIp also comes under 80 (C). As if this is not enough, Even home loan part also come under 80 c , So essentially you end up saving very less if you compare to what all you have invested under 80 c. More than 90% of investments by a average indian falls under 80 c . 1 lakh limit on 80c is grossly under par.

    ReplyDelete
  4. Is investment in scss earn a rebate?

    ReplyDelete
  5. Sorry i am not very good with abbreviation.
    I guess SCSS stands for Senior Citizens Savings Scheme and if yes then answer is yes.

    While investment in this scheme is eligible for tax deduction under Section 80C, interest earned shall be taxable in the hands of the investor.


    Senior Citizens Savings Scheme is added under section 80C in 2009
    that is in march 2009 (CIRCULAR NO. 1/2009, F.NO. 142/09/2009-TPL, dated 27.03.2009) EXPLANATORY NOTES TO THE
    PROVISIONS OF THE FINANCE ACT, 2008


    80C (xxiii) & (xxiv) which is related to Enlargement of the scope of eligible saving instruments under section 80C. 17.1-17.6


    17. Enlargement of the scope of eligible saving instruments under section 80C

    17.1 Section 80C of the Income-tax Act provides for a deduction of upto rupees one lakh to an individual or a Hindu undivided family (HUF) for,-
    (i) making investments in certain saving instruments; or
    (ii) incurring expenditure on tuition fee and repayment of housing loan.

    17.2 With a view to encourage small savings, the scope of eligible saving instruments has been enlarged by inserting two new clauses in sub-section (2) of section 80C. The following investments made by the assessee, during the previous year, shall also be eligible for deduction under section 80C within the overall ceiling of rupees one lakh:-
    (i) five year time deposit in an account under Post Office Time Deposit Rules,1981; and
    (ii) deposit in an account under the Senior Citizens Savings Scheme Rules, 2004.


    17.3 Further, it has also been provided that where any amount is withdrawn by the assessee from such account before the expiry of a period of 5 years from the date of its deposit, the amount so withdrawn shall be deemed to be income of the assessee of
    the previous year in which the amount is withdrawn (sub-section (6A) of section 80C). The amount so withdrawn, accordingly, shall be chargeable to tax in the assessment year relevant to such previous year. The amount chargeable to tax shall also include that part of the amount withdrawn which represents interest accrued on
    the deposit. However if any part of the interest has suffered taxation in any of the earlier years, such amount shall not be taxed again.

    17.4 It has also been provided that the in case the amount is received by the nominee or legal heir of the assessee, on the death of such assessee, the amount so received shall not be taxed in the hand of the nominee or the legal heir. However, if such amount includes any amount of interest which has not been included in the total income of the assessee for the previous year or years preceding such previous year, such interest shall be taxable.

    17.5 It is hereby clarified that if no deduction under section 80C was claimed for investment of an amount in the above mentioned two schemes by an assessee, the withdrawl of such amount ( principal only) will not attract the provision of subsection(6) of section 80C and such amount ( principal only) will not be taxable.


    17.6 Applicability - The amendment shall apply to investments, as above, made during the financial year 2007-08 and subsequent years and the deduction under this section would be available from assessment year 2008-09 and subsequent years.


    Source:
    http://incometaxindia.gov.in/archive/ExplCircularforwebsite_30032009.pdf

    ReplyDelete
  6. How about the contribution made by employer in NPS? It is taxable as it is teated perquisite to the employee? What can be done for the portion contributed by the employer can come as tax free income?

    ReplyDelete
  7. Hi Rajesh,


    As per The Finance Act, 2011, the contributions made by your employer towards your NPS account qualifies for deduction under Section 80CCD (2) without attracting the limit of Rs 1 lakh laid down in Section 80 CCE from the current financial year.

    However, there is only one restriction that only up to 10% of your salary only qualifies for deduction without any monetary limit.

    It works wonders for those in the highest tax bracket, as there is no absolute limit up to which your employer can contribute towards your NPS account for claiming the deduction as long as this is within the limit of 10% of your salary.

    Employers may be willing to include the contribution to the NPS in the pay package and claim 10 per cent of the salary as deduction. Depending on the pay scales, such restructuring may offer a benefit to both the employer and the employee.

    The point to note here is that the amount of 10% contributed by your employer will be treated as salary under Section 17 and will form part of Form No 16 issued to you. However, the employer will grant you deduction for his contribution under Section 80CCD (2) before deducting any income tax from your salary.

    ReplyDelete
  8. 8oc eligible gold mutual funds?

    ReplyDelete
  9. Hi Nikita
    ,
    Gold funds or Gold ETF is not included in 80C for tax benefit.
    To know more about tax treatment of Gold funds or gold etf check this link
    How Gold funds are treated from tax point of view???
    http://mutual-funds-personalfin.blogspot.in/2012/03/how-gold-fund-are-treated-from-tax.html

    Tax treatment for Gold ETF
    http://mutual-funds-personalfin.blogspot.in/2012/03/how-gold-fund-are-treated-from-tax.html

    ReplyDelete
  10. PPF of wife considered for 80cc?

    ReplyDelete
    Replies
    1. Hi Surya,

      Yes, you can..
      Under Section 80C of the Income tax Act, an individual is eligible to claim deduction from total income in respect of contributions to any PPF (belonging to self, husband, wife, any child) subject to an overall limit of Rs 1,00,000 for a Financial Year (FY).

      Under the clause 3 (1) of the Public Provident Fund Scheme, 1968, any individual may, on his behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not more than Rs 1,00,000 in a year.

      So you can consider PPF of your wife, but over all limit in both the accounts (your and your wife's PPF account) should not be more than Rs. one Lakh.

      Delete
  11. sbi scheme scss will be eligible for deduction under income tax act?

    ReplyDelete
    Replies
    1. The investment made in the Senior Citizen Savings Scheme is deductible from your income under section 80C of the Income Tax Act. The interest earned on the deposit is fully taxable.

      Delete
  12. How gold funds are treated from tax point of view, Please provide information as what is tax implication for gold funds?
    Thanks in advance.

    ReplyDelete
    Replies
    1. Vinita,

      I already added link above in one comment as how gold funds are treated from tax point of view.
      I guess you missed that comment....(no issues) :)

      Gold ETF or gold funds are considered as non-equity oriented mutual funds for the purposes of income tax and wealth tax.

      Long-term capital gains are taxed at 10.3% without indexation or 20.6% with indexation.

      Short-term capital gains are taxed as per the slab rates.

      Delete
  13. Does sbi gold fund growth comes under 80C.?

    ReplyDelete
  14. Hi Prabha

    Investment is Gold Savings fund does not qualify for tax benefit under section 80C of Income tax Act.

    ReplyDelete
  15. Anil JUL 20 2012

    Does employers contribution towards PPF entitled tax rebate under sec 80 CCD

    ReplyDelete
  16. Hi Anil,
    Yes, the contributions made by your employer towards your NPS account qualifies for deduction under Section 80CCD (2) without attracting the limit of Rs 1 lakh laid down in Section 80 CCE from the current financial year.

    However, there is only one restriction that only up to 10% of your salary only qualifies for deduction without any monetary limit. It works wonders for those in the highest tax bracket, as there is no absolute limit up to which your employer can contribute towards your NPS account for claiming the deduction as long as this is within the limit of 10% of your salary.

    ReplyDelete
  17. Does lic paid by father in law on behalf of daughter in law be claimed by daughter in law. Father in law paid premium through cheque and the daughter in law later reimbursed him in cash.

    ReplyDelete
    Replies
    1. Yes, your daughter can claim for LIC insurance premium.

      Delete
  18. Hello,
    My father took out a mediclaim policy with my mother as the beneficiary. Do I get a tax rebate under Section 80 D if I pay the premium?

    ReplyDelete
    Replies
    1. Yes, you will get deduction under section 80D

      Delete
  19. Whether 80ccf valid in 2012-13?

    ReplyDelete
    Replies
    1. Hi Neema,

      80CCF is not longer available for deduction.
      80CCF deduction for infrastructure bonds of Rs 20,000 been discontinued
      From 2012-13

      Based on the current draft of the Finance Bill 2012, the deduction under section 80CCF has not been extended. This implies that, the deduction is discontinued from FY 2012-13.

      Good Bye to 80CCF Infra Bonds from FY 2012-13
      Read more: http://www.simpletaxindia.net/2012/03/good-bye-to-80ccf-infra-bonds-from-fy.html#ixzz2KDQzBrjF

      http://www.simpletaxindia.net/2012/03/good-bye-to-80ccf-infra-bonds-from-fy.html

      Delete
  20. reliance growth fund dividend plan can get 80 c deduction?

    ReplyDelete
    Replies
    1. No
      you don't get benefit under section 80C for Reliance Growth Fund -Dividend Plan as this is not Equity Linked Savings Scheme (ELSS).
      Reliance Growth Fund is Equity Diversified Mid Cap Fund.

      Delete
  21. hi,
    if i pay medical insurance premium bought by my wife, will i be able to claim that amount.

    ReplyDelete
    Replies
    1. Yes you can claim medical insurance premium for your wife and If both husband and wife are employed and are tax payers, they can individually claim deduction upto Rs 15,000 towards annual health insurance premium paid.

      Delete

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