The Investments that are available for deduction under Income Tax

 

In my last post, I talked about investments that you can make in order to avail deduction from your income. These investments can be made by all individuals regardless of their nature of income. The deductions are covered under Chapter VI of the Income Tax Act. Among those, we will be specifically talking about section 80C and its subsections.

Table of Contents

• When should I invest?
• Investment proof for IT Return
• List of eligible investments
• Limit on deduction availability
• Conclusion

When should I invest?

Let me first explain the concept of Financial Year and Assessment Year. In Income Tax, you come across the term “Assessment Year” more than “Financial Year”.

A Financial Year (or Previous Year) that starts in April and ends in March, is the one in which you have actually earned money or incurred expenses. The current financial year is 2022-23. An Assessment Year is the one in which your income is to be assessed and taxed, i.e, the next year. The current Assessment Year is 2023-24.

In order to avail the benefits of investments, you should do so in the respective financial year. It can be monthly, daily, quarterly, or just once in the whole year. It doesn’t matter when you do it as long as it’s in that respective financial year. And for this, the due date doesn’t matter, only the payment date. Suppose you have a LIC premium due in March 2022 for which you made the payment in April 2022. You cannot claim it as a deduction for the FY 2021-22 even though the premium due falls in that year.

Investment proof for IT Return

You don’t need any proof to claim a deduction under this section. But, it is advisable to hold on to the proof in case some problem/scrutiny comes up.

List of eligible investments

Here I will mention some of the popular investment options. This list is not exhaustive.

Section	Investment Type	How to Invest	Return on Investment	Lock-in Period	Is the return on investment taxable
80C	Provident Fund (EPF & PPF)	EPF – by your employer PPF – through banks	EPF – Currently: 8.5% PPF – Currently: 7.1%	5 years for PPF	No
80C	Life Insurance Policy	LIC, banks, and other private insurance providers	Varies a lot. Discuss with the agent before taking the policy	Depends on the terms of the policy	No (in most cases)
80C	Equity Linked Savings Scheme (ELSS) – Mutual Fund	Through apps like PhonePe, Paytm Money, Zerodha, Upstox, etc. No need for a Demat Account for Mutual Funds.	10% to 16%	3 years*	Yes
80C	Tax Saving FD	Banks	5% to 6%	5 years	Yes
80C	National Savings Certificate	Post Office	Currently: 6.8%	5 years	Yes, but allowed as a deduction when re-invested
80C	Sukanya Smriddhi Yojana	Post Office	Currently: 7.6%	Till the girl child reaches 21 years of age	No
80CCD(1)	NPS	Voluntary contribution to NPS or Atal Pension Yojana	8% to 12%	Until you reach the age of 60 years	Yes, on the annual pension part
80CCD(1b)	NPS (but this is allowed as an additional deduction of Rs. 50,000)	Voluntary contribution to NPS or Atal Pension Yojana	8% to 12%	Until you reach the age of 60 years	Yes, on the annual pension part

Limit on deduction availability

There is a limit of Rs. 1,50,000 that is available as a deduction for the investments you have made under section 80C. But, for 80CCD(1b), you will get an additional Rs. 50,000 as a deduction.

Suppose, you have invested Rs. 1,20,000 in investments other than NPS. You still have Rs. 30,000 available in the limit. If you have invested Rs. 40,000 in NPS, then Rs. 30,000 will be used up in the limit of Section 80C deduction; the remaining Rs. 10,000 will be used up in the limit of Section 80CCD(1b). So, a total of Rs. 1,60,000 can be claimed as a deduction.

Suppose, you have invested Rs. 1,50,000 in investments other than NPS. You don’t have any limit left to avail in Section 80C. If you have invested Rs. 80,000 in NPS, then Rs. 50,000 will be used up in the limit of Section 80CCD(1b) deduction. So, a total of Rs. 2,00,000 can be claimed as a deduction.

Conclusion

The investment options mentioned here are, for the most part, less risky. But, be thorough with your research or consult an expert before investing.

I hope I have addressed your doubts. Do reach out to me if you have any questions. And share this with your friends if you found it helpful. Thanks!