Exemptions available under section 80C and others under the Old Tax Regime

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The first quarter of the year is the time when employees are required to submit documents as proof of investment to their employers to deduct tax before 31 March. A tax deduction is a requirement that every taxpayer has to go through. However, there are options to save tax by investing in various tax savings investment options. The income tax department promotes savings through numerous sections under Chapter VI A of the IT Act. Section 80C is primarily used for deductions by taxpayers, especially for taxpayers who opt for the Old Tax regime.

In this post, let us discuss the maximum tax exemptions that one can claim u/s 80C and various other sections of the IT Act by the taxpayer under the old tax regime.

New Tax Regime

The new tax regime was introduced in the 2020 budget, and till March 2023, taxpayers had the option to choose between the old tax slab or the new tax slab. However, in budget 2023, the new tax regime was made the default tax regime. Now, taxpayers who do not specify the option of tax deduction while filing tax returns will be calculated as per the new tax regime as the default one. However, the old tax slab is available for taxpayers if they choose it as their preferred slab for a tax deduction.

You may note that deductions under Chapter VI-A under various sections, such as Section 80C, 80D, 80E, etc., are not available for taxpayers who opt for the new tax regime. However, taxpayers who are on salary can avail of two claim deductions under the new tax regime, including the standard deduction and the deduction under section 80CCD (2) for NPS contributions.

Investment Proof Submission for Tax Exemptions u/s 80C 

Deductions u/s 80C support the taxpayers, including individuals and HUFs, to lower their taxable income. However, firms, organizations, and LLPs are not qualified for this deduction. INR 1.5 lakh is the maximum tax deduction limit that taxpayers can claim combinedly u/s 80C, 80CCD (1), and 80CCC, etc.

In addition, taxpayers also have an opportunity to claim an extra deduction of INR 50,000 under income tax Section 80CCD(1B), as mentioned in this section.

Given below are some investments that are likely to fetch exemptions to taxpayers under Section 80C:

1. Provident Fund

Provident funds such as Public Provident Funds (PPFs) and Employees Provident Funds (EPFs) are there to support taxpayers in reducing their taxable income. You may note that EPF contributions of employees are eligible for tax benefits u/s 80C.

Similarly, PPFs in India allow taxpayers to enjoy the EEE or Exempt-Exempt-Exempt Tax status for the amount deposited into their PPFs each financial year. Even the earned interest on such deposits is tax-free, along with the maturity amount.

2. Life Insurance Premiums 

Tax benefits are also available on the life insurance premiums paid towards your life insurance policy. You may claim the premium paid on your life insurance policy for section 80C deductions. If the claimant is an individual, the deduction can be availed by the policyholder or their spouse or kids in whose name the policy is being purchased.

Further, taxpayers are eligible for an INR 25,000 tax deduction per FY on medical insurance premiums u/s 80D of the IT Act. Besides, you can also earn a deduction of INR 5,000 on preventive health check-up expenses under this section.

3. Equity Linked Saving Schemes (ELSS)

ELSS or Equity Linked Saving Scheme are also suitable investment options used for tax exemptions. Tax exemption under ELSS mutual funds is available u/s 80C of the Income Tax Act, 1961, with a tax rebate limit of INR 1,50,000 per year.

With this, a taxpayer can save up to INR 46,800 in taxes per year. The lock-in period of ELSS is three years. The profit earned after this period is called LTCG or Long-Term Capital Gains. If the LTCG exceeds INR 1 lakh, a tax rate of 10 % is applicable.

4. Home Loan Principal Sum

The principal amount paid towards a home loan also fetches tax deductions to taxpayers. As per section 80EE of the IT Act, taxpayers can benefit from tax exemptions on the interest of home loans for up to INR 50,000 per FY.

5. Infrastructure Bonds

Section 80C of the Income Tax Act also covers investments in infrastructure bonds as equivalent to or higher than INR 20,000 on stamp duty and registration charges for property ownership. The INR 1.5 lakh deduction under section 80C applies to these long-term secured bonds. However, you may note that you can claim this deduction in the year when you pay the duties. Otherwise, it will not qualify for u/s 80C deduction.

6. Small Savings Schemes 

Even small schemes such as SSY or the Sukanya Samriddhi Yojana can support the investor to save tax on such investments. SSY is a government saving scheme that allows parents the option to invest for their girl child. The maturity of the SSY takes place as the girl child turns 21. The investment limit under this plan is INR 1.5 lakh, and the accrued interest is compounded annually. The rate of interest of Sukanya Samriddhi Yojana (SSY) for the first quarter of 2024 has been increased from 8 % to 8.2 %.

Similarly, NPS or the National Pension Scheme is another option that can fetch you tax exemption. This market-linked investment product is a mix of government debt, equity, alternative assets, and corporate debt. You may avail of the deduction u/s Sec 80 CCD (1), as well as it can be availed within the overall ceiling of INR 1.5 lakh u/s 80 CCE. Furthermore, an additional deduction of up to INR 50,000 in NPS (Tier I account) is also available for subscribers of NPS under the 80CCD (1B) subsection.

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Conclusion 

Most tax exemptions u/s 80C are unavailable to taxpayers opting for the New Tax regime. However, as mentioned above, the new tax regime allows salaried employees to claim two deductions, including the deduction u/s 80CCD (2) for NPS contributions and the standard deduction.

You may note that a taxpayer with up to INR 7.5 lakh income per year may not pay any taxes. Also, the new tax regime allows salaried employees with up to INR 15.5 lakh or beyond income per year can avail of a benefit of INR 52,500.

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FAQs: Exemptions available under section 80C

What is section 80c of the Income Tax Act, 1961?

Section 80C is a section of the Income Tax Act of India that permits some investments to be availed by the taxpayer to exempt tax. If a taxpayer plans investments well on options like NSC, ULIP, PPF, etc., they can claim deductions up to INR 1,50,000.

What is a proof of investment for income tax under section 80C?

You can submit a copy of your policy document or a receipt of acknowledgment from the insurance company as proof of investment to avail of tax deduction under section 80C.

How much is the section 80c limit?

INR 1.5 lakh is the maximum deduction offered under section 80C of the Income Tax Act in a year that can be availed by a taxpayer on his/her total income.

Shall I submit the proof of investment while filing tax returns?

You must submit the poofs of your investment to your employer before the set deadline and not while filing a return.

What is the procedure to submit a declaration of investment?

You can submit a declaration of investment on Form 12BB and submit it to your employer as per the set date by the employer.

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Jan 15, 2024
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