PROSPERR.IO

Tax season can be daunting, but one way to significantly reduce your tax liability in India is by claiming deductions under specific sections of the Income Tax Act, 1961. 

This article will be your guide to understanding four key sections: 80C, 80CCC and 80CCD.

Understanding the Basics of Tax Deductions

Section 80C: Deduction in respect of LIC premium, Provident Fund, deferred annuity, etc., reducing your tax burden. The more deductions you claim (subject to your eligibility), the lower your taxable income becomes, potentially pushing you into a lower tax bracket. 

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Section 80C: Deduction in respect of LIC premium, Provident Fund, deferred annuity, etc.

• This is the most popular deduction for various investments and expenses allowable under the Old Tax Regime.
• You can claim a deduction (subject to the fulfillment of conditions) for the total amount paid or invested up to ₹1,50,000 in a financial year.
• Eligible investments and expenses include:
• Life insurance premiums for oneself, one's spouse, and one's children
• Contributions to provident funds (PF)
• Tuition fees for your children's education, up to two children
• Repayment of home loan principal
• Investments in Equity Linked Savings Schemes (ELSS) and other specified schemes
• Sukanya Samriddhi Account contributions

Section 80CCC: Deduction in respect of a contribution to certain pension funds.

• This section offers a deduction under the Old Tax Regime for contributions made towards specific annuity plans from LIC or other insurers, subject to prescribed conditions 
• The maximum deduction allowable is ₹1,50,000. 
• No deduction on the same amount in section 80C 

Section 80CCD: Deduction in respect of contribution in the National pension Scheme, etc

This section is for contributions made towards government-sponsored pension schemes like National Pension System (NPS) or Atal Pension Yojana (APY).

There are two parts to this section:

• Sub-section (1): Individuals employed by the Central Government or any other employer can claim a deduction of up to 10% of their salary for contributions. Others can claim up to 20% of their gross total income. An additional deduction of ₹50,000 under sub-section (1B) is permissible. These deductions are not permissible under the New Tax Regime.
• Sub-section (2): If your employer contributes to your NPS account, you can claim a deduction for their contribution amount as well, subject to specific limits, i.e., 14% of salary in the case of State and Central Government employees and 10% of salary in the case of other employees. The deduction under this sub-section is allowable in both tax regimes.

Also Read- Tax Deductions for Disabled Individuals- Section 80U

Limit on aggregate deduction u/s 80CCE

The aggregate deduction under section 80C, 80CCC and 80CCD(1), however, is not to exceed ₹1,50,000/-

Example-

Assume an individual, Mr. Sharma, has made the following investments and expenditures during the financial year:

• Life Insurance Premiums: ₹40,000
• Contribution to PPF: ₹60,000
• Principal Repayment of Home Loan: ₹50,000
• Contribution to NPS (Section 80CCD(1)): ₹30,000
• Contribution to Pension Fund (Section 80CCC): ₹20,000
• Additional Contribution to NPS (Section 80CCD(1B)): ₹50,000

Calculation under Section 80CCE

• Total Investments/Expenditures under Section 80C:
• Life Insurance Premiums: ₹40,000
• Contribution to PPF: ₹60,000
• Principal Repayment of Home Loan: ₹50,000
• Total: ₹1,50,000
• Investment under Section 80CCC: ₹20,000
• Investment under Section 80CCD(1): ₹30,000
• Investment under Section 80CCD (1B): ₹50,000

The aggregate of the deductions based on the above information works out to ₹2,50,000 (₹150,000 u/s 80C +₹20,000 u/s 80CCC +₹30,000 u/s 80CCD(1)) + ₹50,000 u/s 80CCD(1B) However, as per Section 80CCE, the maximum allowable deduction excluding the deduction under Section 80CCD(1B) is ₹1,50,000/-; hence, including additional deduction under Section 80CCD(1B), the deduction allowable will be ₹2,00,000

Conclusion

Understanding these tax deductions is a powerful tool for managing your finances. But with various investment options and contribution limits, navigating them effectively can be overwhelming. By strategically utilizing Sections 80C, 80CCC, and 80CCD, you can significantly reduce your taxable income and achieve your long-term financial goals. Remember, tax planning is an ongoing process. Regularly review your investments and contributions to ensure they align with your current financial situation and tax-saving needs. Consider using an online tax calculator or consulting a financial advisor to create a personalized tax-saving plan that maximizes your deductions under these sections.

[Disclaimer: The article is only for educational purposes and is not to be construed as tax advice. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]