Deduction u/s 80C – Some fine Points.

Deduction u/s 80C – Some fine Points


Deduction u/s 80C – Some fine Points

Tax planning can be done by making or channelizing the payment in an organized & planned way. There are lot many taxpayers who even fail to make optimum usage of section 80C which is one of the most commonly used deduction in the Income Tax Act. Though maximum deduction permissible u/s 80C is Rs. 1.50 Lakh, payment by taxpayers exceeds Rs. 1.50 Lakh in most of the cases.

One can suitably plan & channelize the payment & investment in such a way that optimal gain is availed.

Let us consider the case of Mr. Ram whose family consists of himself, his wife, 2 minor child, mother & father. His mother & father have rental/interest income whereas wife is earning through vocational/tuition classes. He has an annual LIC premium commitment of Rs. 2 Lakh whereas he is investing Rs. 1.50 Lakh in PPF account & Rs. 1.50 Lakh in Mutual Funds-ELSS (Equity Linked saving Scheme). He is also paying tuition fees of his child to the tune of Rs. 1.50 Lakh. As such, his total payment which is within the four corners of section u/s 80C is Rs. 6.50 Lakh.

In such a scenario it is important to plan the investment so as to take the optimum tax advantage with following points in mind:

  1. Deduction towards ELSS is available only if the person in whose name investment is done pays the amount. In short, deduction towards investment in ELSS cannot be claimed by spouse or mother. Ideally, Mr. Ram should pay the amount of ELSS through his account only. He can claim Rs. 1.50 Lakh towards investment in ELSS.
  2. Tuition fees deduction is available only to the parents and not to the grandparents or child. In such a scenario, it is advisable that the payment of tuition fees be done by Mrs. Ram only as Mr. Ram has used his 80C limit by investing in ELSS. As a result of this, Mrs. Ram would be able to claim deduction of Rs. 1.50 Lakh. Payment of tuition fees by mother and father of Mr. Ram would not have resulted in any tax benefit.
  3. His mother (or father) can deposit the amount of Rs. 1.50 Lakh in the PPF Account of Mr. Ram and as a result can claim deduction of Rs. 1.50 Lakh u/s 80C. Likewise, his father (or mother) can pay the insurance premium of Mr. Ram and can validly claim deduction u/s 80C to the tune of Rs. 1.50 Lakh. It may be noted that the deduction towards life insurance premium can be claimed towards the premium paid in respect of policy taken in the name of children (whether minor or major) or spouse. In short, mother, father or spouse can claim deduction u/s 80C by paying the insurance premium of son/spouse.

Some important points with regard to deduction under Chapter VIA:

  1. Whether HUF can claim deduction by investing in the PPF Account?

    PPF rules do not permit account opening of account by HUF. As a result, the PPF account cannot be opened in the name of the 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.

  2. Additional Deduction of Rs. 50,000/- towards investment in National Saving Scheme (NPS):

    Investment in National Pension Scheme (NPS) provides deduction u/s 80CCD(1B) of Rs. 50,000/- which is over and above the deduction of Rs. 1.50 Lakh u/s 80C. Deduction is available only towards the payment done by the taxpayer for his own NPS A/c (Spouse or parents cannot claim deduction by paying the NPS amount of son/Spouse).

  3. Senior Citizen Saving Scheme (SCSS), 5 Years Specified term deposits with scheduled bank, National Saving Scheme (N.S.C.), 5 years term deposits with Post Office.

    Deduction is available only if the person invests in his own name. If a person invests in the name of spouse or child, no deduction is admissible. In case of Sukanya Samridhi Account, deposit can be made in the name of individual or any girl child of that individual.

“What’s in a name? That which we call a rose by any other name would smell as sweet” by  William Shakespeare may not be true when it comes to income Tax Act-1961. Name, Relation & source of payment do matters as far as deduction under the Income Tax Act is concerned.