Tax savings: How rockstar Section 80C is the protagonist of Old Tax Regime; check all deductions

Tax-saving investments: Many taxpayers opt for the section 80C benefit as their preferred tax-saving avenue. Section 80C of the Income Tax Act of India exempts various expenses and investments from Income Tax. Individuals can claim a maximum deduction of Rs 1.5 lakh for the fiscal year 2024-25 under Section 80C of the Income Tax Act, 1961, if they choose the old tax regime. Those selecting the new tax regime are not eligible for this deduction.

Each year, taxpayers anticipate an increase in the Section 80C limit in the Union Budget. However, the limit has not been adjusted to reflect rising incomes and expenses. Consequently, many taxpayers exhaust the entire 80C limit.

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The Rs 1.5 lakh limit for Section 80C has remained stagnant for several years. Taxpayers anticipated a raise in the previous Budget, and this hope persists for Budget 2025. An increase in this limit could promote higher savings and improved financial planning.

Section 80C the rockstar

Previously, the Income Tax department implemented various deductions from taxable income in Chapter VI A. One of the most popular deductions is Section 80C, primarily utilized by individuals under the Old Tax regime. This deduction allows for up to Rs 1.5 lakh in eligible investment claims.

After applying all suitable tax exemptions and deductions to the gross total income, the net taxable income is determined. It is on this amount that an individual calculates the tax owed.

Investments that qualify for exemptions under Section 80C:

1. Taxable income

Individuals and Hindu Undivided Families (HUFs) can benefit from the Section 80C deduction which reduces their taxable income. Unfortunately, companies, partnership firms, and Limited Liability Partnerships (LLPs) do not qualify for this deduction. The maximum deduction that can be claimed under Sections 80C, 80CCC, and 80CCD(1) combined is Rs 1.5 lakh.

For individuals looking to further reduce their taxable income, there is an opportunity to claim an additional deduction of Rs 50,000 under Section 80CCD(1B). This provision allows individuals to avail of further benefits and reduce their taxable income.

2. Investing in PFs

Investing in Provident Funds like Employees' Provident Fund and Public Provident Fund can help individuals lower their taxable income. It is important to note that contributions made by employees to the EPF account are eligible for deduction under Section 80C. While the employer's contribution is tax-free, it does not qualify for deduction under Section 80C.

3. PPF

The Public Provident Fund (PPF) is a unique investment scheme in India that offers the advantage of Exempt-Exempt-Exempt (EEE) tax status. Contributions made to the PPF account during each financial year are eligible for tax exemption, as well as any interest earned on the deposit. Upon maturity of the account, both the principal amount and the accrued interest remain tax-free.

Under Section 80C of the Income Tax Act, 1961, PPF contributions are eligible for tax deductions. The maximum investment limit is Rs 1.50 lakh per fiscal year, with a current interest rate of 7.1 percent.

4. Life insurance

Additionally, payments made towards life insurance premiums can also provide tax benefits. Premiums on life insurance policies can be claimed as deductions under Section 80C, with deductions available for policies taken in the name of the taxpayer, their spouse, or their children.

5. Medical insurance

Individuals in India can avail of tax deductions under Section 80D of the Income Tax Act for medical insurance premiums, with a maximum deduction of Rs 25,000 per fiscal year. Additionally, expenses on preventive health check-ups can be deducted up to Rs 5,000. The overall deduction limit is capped at either Rs 25,000 or Rs 50,000, depending on the situation.

6. ELSS

Investing in Equity Linked Saving Schemes (ELSS) is another avenue for tax savings. ELSS mutual funds are unique in that they qualify for tax exemption under Section 80C of the Income Tax Act, 1961. The maximum tax rebate available is Rs 1,50,000 annually, potentially resulting in tax savings of up to Rs 46,800 per year. ELSS investments come with a lock-in period of three years, after which any income and profits earned are classified as Long Term Capital Gains (LTCG). LTCG exceeding Rs 1 lakh is subject to a 10% tax rate.

7. Home loan

Deductions can be claimed on payments made towards the principal amount of a home loan under Section 80EE. This section allows individuals to avail income tax benefits based on the interest component of their residential property loan, sourced from banks or financial institutions. You can claim a deduction of up to Rs 50,000 per financial year for home loan interest payments under this provision.

8. Infra bonds

Investments in infrastructure bonds are also eligible for deductions under Section 80C of the Income Tax Act, provided the investment amount is Rs 20,000 or more. The 80C deduction limit of Rs.1.5 lakh applies to these long-term secured bonds as well.

9. Property ownership

When it comes to property ownership, stamp duty and registration charges are significant expenses that can impact your finances. The government offers a tax deduction on these charges within the 80C exemption limit. It is important to remember that this deduction can only be claimed in the year when the duties are paid, or else it will not be eligible for consideration under Section 80C deduction.

10. Small savings schemes

Investing in small savings schemes, like the Sukanya Samriddhi Yojana, can also provide you with tax deductions. The Sukanya Samriddhi Yojana is a scheme supported by the Government of India, designed for parents with a girl child. The scheme matures when the girl child turns 21, with an investment limit of Rs 1.5 lakhs. The interest earned on this account, compounded annually, is also exempt from tax under Section 10 of the Income Tax Act.

11. National Pension Scheme

By choosing to invest in the National Pension Scheme (NPS), individuals can benefit from tax deductions. The NPS is an investment option that includes a mix of equity, government debt, corporate debt, and alternative assets.

Tax deductions can be claimed under Section 80 CCD (1) up to a maximum limit of Rs. 1.5 lakh under Section 80 CCE. Additionally, NPS subscribers are eligible for an extra deduction of up to Rs. 50,000 in their NPS Tier I account under subsection 80CCD (1B).

12. Donations

Investors are eligible to receive deductions under Section 80G for donations made to approved institutions such as the Ram Temple committee and others. A deduction of Rs 10,000 can be claimed on interest earned from savings bank accounts under Section 80TTA. Senior citizens are eligible to claim up to Rs 50,000 deduction on interest earned from specified deposits.