Tax Investment Options under Section 80C of the Income Tax Act

Each year most of the people eagerly wait for the budget proposals to be announced for various reasons. One of the reasons is to know what all instruments of investments and deductions are available are included in Section 80C of the Income Tax Act, 1961 (the Act) so that they can plan their tax savings accordingly and maximize the benefits.

Section 80C of the Act replaced the existing Section 88 of the Act with more or less the same investments available in Section 88.  The new section 80C has become effective with effect from 1st April, 2006.  However, this new section has allowed a major change in the method of providing the tax benefit.  Section 80C of the Act allows certain investments and expenditure to be tax-exempt.  One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit.

Main provisions of Section 80C

  • Deduction under section 80C is available only to an individual or a Hindu Undivided Family (HUF).
  • Deduction is available on the basis of specified qualifying investments/ contributions/deposits/payments (referred to as “gross qualifying amount”) made by the taxpayer during the previous year.
  • The gross qualifying amount would be allowed as deduction irrespective of the fact whether (or not) such amount is paid or deposited by the taxpayer out of his income chargeable to tax.
  • The maximum amount deductible under section 80C is Rs. 1,00,000 i.e., amount of deduction under section 80C is Gross qualifying amount or Rs. 1,00,000, whichever is lesser.

Moreover, the aggregate amount of deduction under section 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000.

Gross Qualifying Amount

Gross qualifying amount is the aggregate of the following payments:

  • Life Insurance premium of policy taken on his own life, life of the spouse or any child (including payment made by the Government employees to the Central Government Employees insurance scheme and payment made by a person under children’s deferred endowment assurance policy) [subject to a maximum of 20% of sum assured (sum assured does not include any premium agreed to be returned or any benefit by way of bonus)].
  • Payment in respect of non-commutable deferred annuity. This annuity plan should be taken in the name of the individual, spouse or any child of such individual.
  • Any sum deducted from salary payable to a Government employee for the purpose of securing him a deferred annuity (subject to 20% of salary). It should be for the benefit of the individual, his wife or children.
  • Contribution (not being repayment of loan) towards statutory provident fund and recognized provident fund.
  • Contribution (not being repayment of loan) towards 15 year public provident fund (PPF). Under PPF scheme, the maximum contribution is Rs. 70,000.
  • Contribution towards an approved superannuation fund.
  • Subscription to National Saving Certificates (VIII Issue). Accrued interest (which is deemed as reinvested) is also qualified for deduction for first 5 years.
  • Contribution for participating in the Unit Linked insurance plan (ULIP) of Unit Trust of India. ULIP should be taken on his own life, life of the spouse or any child.
  • Contribution for participating in the Unit Linked insurance plan (ULIP) of LIC Mutual Fund (i.e., formerly known as Dhanraksha plan of LIC Mutual Fund. ULIP should be taken on his own life, life of the spouse or any child.
  • Payment for notified annuity plan of LIC (i.e., Jeevan Dhara and Jeevan Akshay) or any other insurer (i.e., immediate Annuity Plan of ICICI Prudential Life Insurance Company, Tata AIG Easy Retire Annuity Plan of Tata AIG Life Insurance Company).
  • Subscription towards notified units of Mutual Fund or UTI.
  • Contribution to notified pension fund set up by Mutual Fund or UTI (i.e., Retirement Benefit Unit Scheme of UTI and Kothari Pioneer Pension Plan of Kothari Mutual Fund).
  • Any sum paid (including accrued interest) as subscription to Home loan Account Scheme of the National Housing Bank or contribution to any notified deposit scheme pension fund set up by the National Housing Bank.
  • Any sum paid as subscription to any scheme of –
    • Public sector company engaged in providing long-term finance for purchase/construction of residential houses in India(i.e., Public Deposit Scheme of HUDCO);
    • Housing board constituted in India for the purpose of planning, development or improvement of cities/towns.
    • Any sum paid as tuition fees (not including any payment towards development fees/ donation/payment of similar nature), whether at the time of admission or otherwise to any university/college/educational institution situated in India for full time education of any two children of an individual.
    • Any instalment or part payment towards the cost of purchase/construction of a residential house property to a housing board or co-operative society (or repayment of housing loan taken from Government, Bank, Cooperative Bank, LIC, National Hosing Bank, assessee’s employer where such employer is public company/public sector company/university/co-operative society).
    • Amount invested in approved debentures of, and equity shares in, a public company engaged in infrastructure including power sector or units of a mutual fund proceeds of which are utilized for the developing, maintaining, etc. of a new infrastructure facility.
    • Amount deposited in a fixed period for five years or more with a scheduled bank in accordance with a scheme framed and notified by the Central Government.
    • Subscription to any notified Bonds of NABARD.
    • Amount deposited under Senior Citizens Savings Scheme.
    • Amount deposited in Five Year Time Deposit Scheme in Post Office.

A review of the various options for savings under this section indicates you can not only save tax by investing your savings in specified investment options, but also on certain types of expenditure which you have to normally incur.  Therefore, it is necessary to understand the full section so that in case you are short of funds, you can claim tax benefits even for certain expenditure incurred by you.

Tax Returns for Financial Year 2010 -11 (March 2011) has started.  Just mail us Form16/ Salary Certificate and details of other income, at . We would take it from there to file your return of income. provides complete online taxation solutions for individuals ( Tax Returns + Tax Support + Tax Planning ) – please see this – Services Offered. Providing Complete Online Tax Solutions for Individuals, Not Just Returns .

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