Points To Remember While Claiming Deduction Under Section 80C

Points to remember while claiming deduction under section 80C

When it comes to availing tax benefits, Section 80C is one of the most popular tools to reduce tax liability. It is particularly popular among salaried individuals who cannot claim the deduction for any expense from the salary income.  Under section 80C one can claim tax relief up to the maximum of Rs. 1,50,000. There are many options available for claiming this deduction like investment in PPF, Mutual Fund, NSC etc. The deduction can also be claimed for certain expenses like tuition fees, repayment of Home Loan etc. However, there are certain conditions which every taxpayer must know while claiming any tax relief under this section.

Deduction on Repayment of Home loan:

  • No deduction for repayment of a home loan is allowed if such loan is taken from relatives or friends.
  • It may be noted that the deduction is available for residential property only and is not for commercial property.
  • This deduction can only be claimed after you have obtained possession of the house even though the repayment might have begun before completion of construction.
  • In case you sell the property within five years from the end of financial year in which possession of the property was taken, all the deductions allowed earlier shall be reversed and is treated as income of the year in which the property is transferred.

Deduction on Life Insurance Premium:

  • Deduction for Life Insurance Premium payment can be availed in respect of self, spouse and children whether dependent on you or not.
  • However, no deduction can be claimed for payment of life insurance premium for parents. So you as a parent can claim tax benefits for life insurance premium of your children but your child can not claim tax benefits for life insurance premium paid for parents.
  • The HUF can pay and claim the deduction for premium for any of its members.
  • There is also a lock-in period of two years till then you cannot terminate or let the policy lapse failing which the deductions allowed in earlier are reversed and added to your income of the current year.

Deduction on Education Expenses

  • Deduction for education expenses can be claimed only in respect of payment of tuition fees.
  • Such tuition fees can be claimed only for up to two children.
  • Such tuition fees must have been paid for a full-time course in an educational institution situated in India.
  • In case of more than two children, the deduction for other children can be claimed by the spouse from his/her taxable income.

Deduction on PPF Account contributions:

  • The deduction can be claimed for contribution towards PPF account of self, spouse and children whether dependent or not.
  • A HUF cannot open a PPF account in its name. However, it can contribute towards PPF account of any of its members and can claim a deduction for the same.

Deduction on Deposits under Senior Citizen Scheme:

  • Senior Citizen Savings Schemes must be maintained for five years. If money is withdrawn from such scheme before five years, any contribution towards for which tax deduction had been claimed in earlier years becomes taxable.
  • However, the amount received by legal hair on pre-mature closure of senior citizen saving scheme account due to the demise of account holder does not create any tax liability towards tax benefits claimed earlier.

Section 80C deduction on ELSS contributions:

  • ELSS (Equity Linked Saving Schemes) of Mutual Funds have gained popularity among tax saving instruments under this section.
  • However, it must be noted that such a deduction is allowed an only subject to a lock-in period of three years.
  • Three years are calculated individually for each SIP installment starting from the date of contribution.

Please keep all of above points while claiming deduction under section 80C and make sure you do not end up claiming the wrong deduction.

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