In chapter VIA of income tax
act, 1961, the most widely used option to save tax is section 80C. This section
allows an individual and HUF to save tax by investing in or spend on certain
specified avenues. The maximum limit up to which you can claim tax deduction
under section 80C is Rs 1,50,000 for the financial year 2018-19 and 2019-20.
In this article, we will
discuss certain expenses which are allowed as a deduction under section 80C
before calculating tax payable on your taxable income. Before discussing please
note, you can claim deduction only when you have spent money during the
previous year on listed expenses.
Why to claim tax deduction
By claiming tax deduction of
up to Rs 1,50,000, you reduce your taxable income by which you will be required
to pay less or zero tax. For instance if your gross total income for the
financial year 2019-20 is Rs 6,50,000 and you have invested or spent money
during the year on specified avenues, then after taking deduction as per your
eligibility you can reduce your total taxable income to Rs 5,00,000. In
such case, you will not be liable to pay tax as you will be eligible for tax
rebate of Rs 12,500 under section 87A.
Tuition fees for children
Tuition fee paid for children
qualifies for tax benefit under section 80C of the IT Act, 1961 within the
overall limit of Rs 1,50,000.
Tuition fee that is paid at
the time of admission or anytime during the financial year to any registered
university, college, school or educational institution based in India qualifies
for section 80C tax deduction. It can be a private or government institution.
However, please note only
full time education including any play school activities, pre-nursery and
nursery classes are eligible. Tuition fee paid for part time courses are not
eligible for tax deduction.
Section 80C restricted the
deduction for tuition fee to two children per individual. This means you can
claim a tax deduction only up to two children. But if both husband and wife are
paying tuition fee for their child then each of them will be eligible up to 2
children each.
Following fees paid to
registered university, college, school or educational institutions do not
covered for section 80C benefits;
·
Development fee
·
Donation
·
Capitation fee
Tax deduction for principal payment of home loans
Section 80C allow repayment
of principal amount of home loan as a tax deduction up to the maximum limit of
Rs 1,50,000. As discussed in the case of tuition fees, this limit is the total
of all eligible deductions allowed under section 80C including contributions to
public provident fund, sukanya samridhi yojana, payment of life insurance
premium, 5 Years fixed deposits, equity oriented mutual fund, NSC, senior
citizen saving schemes, tuition fees etc.
Tax deduction for principal
payment of home loan is available for the amount which is paid during the
financial year. It does not matter whether payments are related to earlier or
future years.
Please note, tax benefits for
repayment of principal amount of home loan is allowed only when the
construction is complete and the completion certificate has been awarded. This
means, deduction will not be allowed under section 80C for repayment of
principal amount for those years during which the property was under
construction.
In case the assessee
transfers the house property on which he has claimed tax deduction under
section 80C before the expiry of 5 years from the end of the financial year in
which the possession has been obtained by him, then no deduction and tax
benefit on home loan shall be allowed under this section. Aggregate amount of
tax deduction already claimed in respect of previous years shall be deemed to
be the income of the assessee of such year in which the property has been sold.
Therefore, assessee shall be liable to pay tax on such income.
Please note, section 80C
deduction for payment of principal amount on home loan is allowed only when the
loan has been taken for purchase or construction of a new house property. It’s
not allowed as a deduction if loan has been taken for repair or renewal or
reconstruction of a residential house property.
Stamp duty and registration fee for purchase or construction of home
Amount paid towards stamp
duty and registration fees for purchase or construction of home is allowed as a
tax deduction under section 80C within the overall limit of Rs 1,50,000.
It’s not a regular deduction
that you get every year. If you have paid, then that amount can be claimed as a
tax deduction under section 80C in addition to all other eligible deductions
within the limit of Rs 1,50,000.
Apart from these expenses,
you can also invest in any or all of the investment options listed under
section 80C to get the full benefit of section 80C. Here is a list of the 6
most important investment options listed in section 80C to get tax deduction;
·
Public provident fund – PPF
·
Employee provident fund – EPF
·
Unit linked insurance plan – ULIP
·
Life insurance plan
·
Sukanya samridhi yojana – SSY
· Equity-linked saving schemes – ELSS
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