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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?

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!

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