Home Tax Law How Do I Save Tax Under Sec 80C?

How Do I Save Tax Under Sec 80C?

Introduction

As taxpayers, we are all aware of the various sections that allow us to save taxes. However, one of the most popular sections that we can use to save tax is Section 80C.

Section 80C of the Income Tax Act, 1961, is one of the most widely used and popular tax-saving provisions. Under Section 80C, an individual can claim deductions of up to Rs. 1.5 Lakh from their gross total income, which can significantly reduce their overall tax liability.

In this article, we will discuss everything you need to know about Section 80C and how you can save tax under this section.

What is Section 80C?

Section 80C of the Income Tax Act, 1961, allows individuals to claim deductions on their gross total income of up to Rs. 1.5 Lakh. This means that if you invest up to Rs. 1.5 Lakh in any of the eligible investment avenues, you can claim deductions on that amount from your taxable income.

The section was introduced to encourage savings and investments in the country. By providing tax benefits on these investments, the government aims to promote long-term savings and investments among taxpayers.

Eligible Investments Under Section 80C

There are numerous investment avenues available under Section 80C that are eligible for tax benefits. Here are some of the most popular investments that are eligible under Section 80C:

i) Employee Provident Fund (EPF)

Employee Provident Fund is a mandatory contribution to the employee’s account by the employer. Under Section 80C, contributions made towards EPF are eligible for tax benefits.

ii) Public Provident Fund (PPF)

Public Provident Fund is a popular small savings scheme that allows individuals to save for the long term. The contributions made towards PPF are eligible for tax deductions under Section 80C.

iii) Equity Linked Saving Scheme (ELSS)

Equity Linked Savings Scheme is a mutual fund that invests in equity and equity-related instruments. ELSS comes with a lock-in period of three years and is eligible for tax deductions under Section 80C.

iv) National Pension Scheme (NPS)

National Pension Scheme is a government-backed pension scheme that aims to provide regular income to individuals after their retirement. Contributions made towards NPS are eligible for tax deductions under Section 80C.

v) Senior Citizen Savings Scheme (SCSS)

Senior Citizen Savings Scheme is a small savings scheme that offers regular income to senior citizens. Contributions made towards SCSS are eligible for tax deductions under Section 80C.

vi) Tax-Saving Fixed Deposits

Tax-Saving Fixed Deposits are fixed deposits that come with a lock-in period of five years. These deposits are eligible for tax deductions under Section 80C.

vii) Life Insurance Premiums

Life insurance premiums paid towards any of the eligible life insurance policies are eligible for tax deductions under Section 80C.

viii) Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a small savings scheme that is launched by the government to encourage parents to save for the girl child’s education and marriage. Contributions made towards Sukanya Samriddhi Yojana are eligible for tax deductions under Section 80C.

ix) National Savings Certificates (NSC)

National Savings Certificates are a popular small savings scheme launched by the government to encourage savings among investors. Contributions made towards NSC are eligible for tax deductions under Section 80C.

x) Tuition Fees

Tuition fees paid towards the education of the individual’s children for any full-time course are eligible for tax deductions under Section 80C.

How Much Can You Save Under Section 80C?

As mentioned earlier, an individual can claim deductions of up to Rs. 1.5 Lakh under Section 80C. Let us understand this with the help of an example:

Suppose Ramesh earns Rs. 10 Lakh per annum and invests Rs. 1.5 Lakh under Section 80C. His taxable income will be calculated as follows:

Gross Total Income: Rs. 10,00,000

Less: Deductions under Section 80C: Rs. 1,50,000

Taxable income: Rs. 8,50,000

Tax Liability for Ramesh considering the old tax regime is mentioned below:

Annual Income Tax Rate Tax LiabilIty
Up to Rs. 2.5 Lakh No Tax Nil
Rs. 2.5 Lakh – Rs. 5 Lakh 5% Rs. 12,500
Rs. 5 Lakh – Rs. 7.5 Lakh 10% Rs. 25,000
Rs. 7.5 Lakh – Rs. 10 Lakh 15% Rs. 37,500
Total Tax Liability Rs. 75,000

If he invests in any of the eligible avenues under Section 80C, he can save up to Rs. 46,800 in taxes (considering the old tax regime), which is a significant amount.

New Tax Regime

The government recently introduced a new tax regime in the Union Budget, 2020. Under the new tax regime, taxpayers who opt for it will have to forgo certain tax deductions and exemptions, including those under Section 80C.

Under the new tax regime, taxpayers cannot claim any tax deductions or exemptions, including those under Section 80C. However, if the taxpayer chooses to continue under the old tax regime, they can claim deductions under Section 80C.

Let us understand this with the help of the same example as above:

Suppose Ramesh earns Rs. 10 Lakh per annum and invests Rs. 1.5 Lakh under Section 80C. His taxable income under the new tax regime will be calculated as follows:

Gross Total Income: Rs. 10,00,000

Less: Deductions under Section 80C: No deduction allowed

Taxable income: Rs. 10,00,000

Tax Liability for Ramesh considering the new tax regime is mentioned below:

Annual Income Tax Rate Tax Liability
Up to Rs. 2.5 Lakh No Tax Nil
Rs. 2.5 Lakh – Rs. 5 Lakh 5% Rs. 12,500
Rs. 5 Lakh – Rs. 7.5 Lakh 10% Rs. 25,000
Rs. 7.5 Lakh – Rs. 10 Lakh 15% Rs. 37,500
Total Tax Liability Rs. 75,000

As you can see, under the new tax regime, the taxpayer cannot claim any deductions under Section 80C. Therefore, it is advisable to compare the tax liability under both the old and new tax regimes before making a decision.

Conclusion

Section 80C is one of the most widely used and popular tax-saving provisions in the country. With significant tax benefits, individuals can invest and save for the long term while simultaneously reducing their overall tax liability.

With numerous eligible investment avenues available under Section 80C, individuals can choose the one that suits their financial goals and risk appetite.

Lastly, with the introduction of the new tax regime, taxpayers now have the option to choose between the old and new tax structures. Therefore, it is advisable to evaluate and compare the tax liability under both the regimes before making a decision.


There are various ways to save tax under sec 80c. Knowing the various tax exemptions that fall under section 80c that that you may qualify for when completing your taxes. Knowing the the exemptions of section 80c will provide you with the maximum benefit of your tax planning.

To save tax under sec 80c you must have the have one of the following types of deductions:

Life Insurance Premium – having made any sort of contribution to a Life insurance policy will help you to save tax under sec 80c. Your spouse and children are also eligible to save tax under sec 80c with your life insurance premium.

Tuition Fees– when filing taxes if you have tuition fees they can be listed in section 80c. Any amount paid in regards to tuition for the education of one or more children is considered a tax deduction and will help you save tax under sec 80c.

Prinicple Part of a Home Loan– your home loan can also be a viable deduction used  under section 80c. There are 2 parts to your home loan. The prinicple part of of the loan can be used as a tax exemption and help you to save tax under sec 80c.

ULIPs (Unit Linked Insurance Plans) – another deduction that can be used under sec 80 is your ULIP. A ULIp is an insurance plan that combines a life insurance plan with either a stock market investment or mutual fund investment.

There a number of deduction options listed above that you can take advantage of when filling out sec 80c of your tax filing. Contact tax lawyers for legal advice and assistance.