Deduction u/s 80C* (Terms & Conditions Apply)


Deduction u/s 80C*

(Terms & Conditions Apply)

Nothing is for free. Income tax Act offers benefit in the form of deduction, exemptions, concession, all with a rider. There are terms & conditions attached to it & non compliance or ignorance will result in additional tax burden. One of the most commonly used section for tax benefit is section 80C which offers deduction up to Rs. 1.50 Lakh to an Individual & HUF towards certain investments or expenses. Let us have a look at the rider attached to some of the deduction in section 80C:


Housing Loan Repayment

  1. Housing Loan offers dual benefit i.e., deduction towards interest U/s 24(b) as well as principal repayment u/s 80C. There is a condition of 5 years for holding the house property if deduction is claimed u/s 80C. If the house is ‘transferred’ within a period of 5 years from the end of the financial year in which possession was taken then all the deductions allowed earlier shall be reversed and it will be treated as income of the year in which such house is transferred. Carefully note that the word used is “transfer” and not sale. Not transfer by way of gift, settlement etc will also result in tax liability. There is no prohibition not on pre-payment of home loan which can be done even before 5 years. It may interestingly be noted that there is no such provision for reversal of deductions for interest even if you the house property is transferred within 5 years.
  2. Deduction u/s 80C is available only if the loan is availed from the specified financial institutions like banks or housing finance companies. Even loans availed by employee from their employer which is a public limited company, central Government, State Government or board, a corporation or university can claim deduction towards principal repayment. No deduction is available towards principal repayment of loan taken from other sources (like from relatives, friends). It may be noted that Interest paid on loan taken for purchase / construction of house property is eligible for deduction u/s 24(b). Deduction u/s 24(b) is available in respect of loan taken from anyone and not restricted to the categories as mentioned in section 80C.
  3. Even the stamp duty, registration expenses etc paid for purchase of house property is eligible for deduction u/s 80C. The above rule of 5 years also applies for such deduction.

Life Insurance Premium 

  1. Payment of life insurance premium of self, spouse or children is eligible for deduction u/s 80C. Deduction u/s 80C can be claimed by parents by making the payment of premium of their children (whether dependent or not) but reverse is not allowable. Children cannot claim deduction by making payment of their parent’s policy. Deduction is available to the person who makes the payment & so it is advisable to make the payment from the account of the person who intends to claim the deduction. Further, no deduction is available to the grandparents for the premium paid for their grandson.
  2. The investments in Life insurance policy have a lock in period of 2 years for single premium policy.  If amount is withdrawn within 2 years then deduction allowed earlier will be required to be reversed. Further, if taxpayer terminates participation in (a) Unit Linked Insurance Plan (ULIP) within 5 years or (b) in other life insurance policies within 2 years, then the deduction claimed in earlier year u/s 80C will be deemed to be the income of the taxpayer.
  3. Further person shall be eligible for deduction only to the extent of 10% (20% for policy taken up to 31.03.2012) of the actual capital sum assured. It is a special precaution which should be taken by the person opting for single premium policy. The person paying the insurance policy need to ensure that the premium is not exceeding 10% (15% for person with disability u/s 80U/80DDB w.e.f. 01.04.2013)of the sum assured..

Education Expenses 

“Tuition fees” paid for education of children fee is eligible u/s 80C but the deduction is restricted for 2 children & it is for full time course in an educational institution situated in India only. In case taxpayers have more than 2 children then deduction in respect of other 2 children can be claimed by the spouse. Plan well. Deduction is available for tuition fee paid only & donation/development charges etc will not be eligible for this deduction.

PPF Account contributions: 

PPF rules do not permit account opening by HUF. However, section 80C doesn’t place any restrictions for investment by HUF in the PPF A/c of its members. Effectively, HUF can also claim deduction u/s 80C by depositing the amount in the PPF account of its members.

Deposits under Senior Citizen Saving Scheme (SCSS): 

Senior Citizens are eligible for deduction u/s 80C for amount deposited in SCSS which has to be maintained for 5 year. If amount is withdrawn before 5 years then the amount withdrawn becomes taxable in the year of withdrawal. Exception: Any money received by the nominee or legal heirs due to death of the account holder even before five years is not liable to be taxed.

Not only 80C, there are riders in almost all the exemptions, deductions, concession provision. Taxpayer needs to keep themselves updated so as to take the optimum benefit of tax provisions.

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