April 2018 is the beginning of the new financial year (FY 2018-19) in India. We have been conducting several sessions for employees on the tax changes for the new year & one question that we have often been asked is “How do I save tax?”. We shall answer this question in a comprehensive way in a series of articles that will be published on our website. Stay tuned to know more!
We start this week with one of the most popular section of the income tax law, Sec. 80C.
Sec. 80C, among others, is part of Chapter VI-A – Deductions to be made at time of computing Total income. 80C encourages taxpayers to invest their money into tax saving schemes or gives benefits on certain types of expenses incurred.
Here are some important points to be considered while claiming benefit under section 80C
- The total deduction that can be claimed under 80C is Rs. 150,000. This will include contribution to provident fund that is deducted from your salary. Many times, employees ignore this contribution and end up making additional investments to save tax. This results in liquidity problems which could have been easily avoided. Please plan for 80C investments after considering contributions to provident fund.
- In addition to contribution to employee provident fund, you can also claim deduction for investment into Public Provident Fund.
- Investment u/s 80C come with a lock in period. For example, tax saving fixed deposits have to be locked in for 5 years. On the other hand, Equity Linked Savings Scheme comes with a lock-in of 3 years. Please compare the returns expected from the investment and the lock-in period. It would be advisable to choose the investment with the shortest lock-in period.
- Housing loan and 80C
- Many of you already know that principal repayment on housing loan is allowed as a deduction under section 80C. But few are aware that even stamp duty & registration fee paid can be claimed as a deduction. Please ensure that you are claiming both the amounts.
- The benefit u/s 80C would be allowed only if the construction of the house is completed. No benefit is allowed while the house is under construction. Interest paid during construction period can however be claimed under a different section; such interest can be claimed over a period of 5 years (20% each)
- Any payment for alteration to, or renovation or repair of a constructed house would not be allowed as a deduction.
- Sale or transfer of the house within 5 years from the year in which it came into the possession of the employe would result in reversal of benefits claimed under 80C
- Deduction of premium paid for life insurance is available u/s 80C. However, this is restricted to policies taken by the individual in his / her name, in the name of his / her spouse and 1 child only.
- Tuition fee (& not payments towards donations or development fee) paid for the purpose of full time education shall be allowed u/s 80C so long as the school, college or university is in India.
These points would be helpful to you at the time of submitting your tax declarations as well as for planning your taxes this year.
If you have any further questions on Section 80C, please do not hesitate to reach out to us on firstname.lastname@example.org. We would be glad to be of your help.