Section 80C series of Income Tax Act – Why such deductions is provided by the Government?

Amit Kedia

 

After end of every Financial Year, i.e. after 31^st March Income Tax Department under the guidance of Finance Ministry of GOI issues different Income Tax Return for every class of assesse. In total 7 different ITRs have been notified by the Income Tax so far.

As per the requirement different ITRs have different deadline until and unless extended by the Finance Department of GOI.

In this article we shall discuss about the section 80C series and see how it works and the motive of the Finance Department behind giving such deduction to assessee. Chapter VIA of Income Tax Act contains all the deductions which an assesse can claim while filing the Income Tax return.

The following clears the subsections of 80C which we will discuss:

• 80C – Investment in LIP, Deposit in PPF/SPF/RPF etc
• 80CCC – Contribution to certain Pension Fund
• 80CCCD(1) – Contribution to NPS of Government.
• 80CCE – Aggregate deduction allowed
• 80CCD(1B) – Contribution to NPS notified by the Central Government
• 80CCD(2) – Contribution by Employer to NPS of its Employee.

In a Financial year on the earnings of assessee a particular ITR is filled and on the Gross Total Income determined in computation he is required to pay Income Tax. But here Govt gives an opportunity to the assessee to claim deduction only and only if he has made some investment in the particular Financial Year of which computation is being made. The said Investment up to a certain limit gets deduct from the Gross Total Income (GTI) and tax liability gets reduced which ultimately gives a relief to the assessee.

Here we take a look at 80C series:

1. Section 80C:  Following investment if done by the assessee than the same is eligible for 80C –
   1. Life Insurance Premiums paid for Self, Spouse, Dependent Children etc
   2. Deposit to Public Provident Fund
   3. NABARAD Rural Bond
   4. Unit Linked Insurance Plans (ULIPs)
   5. National Savings Certificate
   6. Tax Saving Fixed Deposit (Min Lock - in Period = 5 Years)
   7. Employee Provident Fund
   8. Infrastructure Bonds (Min Amount invested if Greater than Rs. 20,000 than eligible)
   9. Equity Linked saving Scheme (3 Year lock in Period)
   10. Senior Citizens Savings Scheme
   11. Principal repayment made towards home Loan
   12. Stamp duty and registration Charges
   13. Sukanya Samridhi Yojana

The Maximum Limit all together an assessee can claim is – Rs. 1,50,000

 

1. Section 80CCC: Few Pensions Fund has been listed, if an assessee is investing or renewing the same fund then the assessee is eligible to claim deduction in the said section.

The Maximum Limit all together an assessee can claim is – Rs. 1,50,000

 

1. Section 80CCD(1): If the assessee in the financial year invest in Specified Pension Fund than to a limit of the investment deductions can be claimed. As of now Atal Pension Yojana (APY) has been notified by the government.
   • If the individual is employed by the Central Govt on or after 01.04.2004
   • An individual is employed by any other employer
   • Any other individual – 20% of GTI

 

1. Section 80CCE: This section provide an aggregate deduction which is as follows:

80C + 80CCC + 80CCD(1) = Maximum Deduction can be allowed is Rs. 1,50,000

 

1. Section 80CCD(1B): Provides additional deduction to assessee other than 80CCE if assessee invest in National Pension Scheme notified by Central Government.

The Maximum Limit all together an assessee can claim is – Rs.50,000

 

1. Section 80CCD(2): Two cases stated which are as follows:
   1. If the contribution is done by the Central Government to its NPS of their employees: Deduction will be 14% of the Salary.
   2. If the contribution is done by any other employee to its NPS of their employees: Deduction will be 10% of the Salary.

If we see after a discussion max deduction which can be claimed by an assessee is:

• 80CCE = Rs. 1,50,000      (+)
• 80CCD(1B) = Rs. 50,000  (+)
• 80CCD(2) = 14% or 10% of the Salary as the case may be

Till now we have discussed about the Benefit of an assessee if proper tax planning is done by him. Now if we see from Government point of view why such deductions is provided by the government, the answer might be as follows:

1. To claim such deduction an assessee need to invest in the sachems, hence with the help of above investments Banking sector received money which is used for re-investment on which further income is generated in the form of Interest Income.
2. The same invested money Govt will put in infrastructure plans and will get benefited on completion.
3. Due to this cycle of circulation of money, economy of the country gets a positive affect and moves upward way.
4. With the money invested in the above schemes Govt can expand different projects, Funds existing projects and as a developing country the soon the projects are completed the more the economy grows.
5. As we can see deduction is also available on premium paid on LIC, which encourages assessee to take Life insurance from a recognized Insurance Company. With this the assessee gets the Life Insurance cover of a lumsum amount and Insurance company gets a monthly fixed amount which they re-invest in projects hence the same leads to an economic development.

The crux of providing deduction under section 80C series is to motivate the assessee for investing into the recognized schemes, Bonds, insurance scheme so that the best use of that money can be done through a proper legalized way to earn the maximum value out of it. Hence at the outset, through this process of investment and re-investment an overall development of Indian Economy takes place which is the requirement of the country as well.

It is advisable to the assessee if possible than make a habit of investment so that you can earn interest on principal amount and deduction from Gross Total Income (GTI) as well.

Happy Reading!!