Section 80C of the Income Tax Act, 1961 allows individuals and Hindu Undivided Families (HUFs) to claim a deduction of up to Rs. 1.5 lakh per financial year for certain investments and expenses. The deduction is available for the following:

• Life insurance premium paid for self, spouse, and children
• EPF (Employee Provident Fund) contributions
• VPF (Voluntary Provident Fund) contributions
• PPF (Public Provident Fund) contributions
• Sukanya Samriddhi Yojana account contributions
• ELSS (Equity Linked Savings Scheme) mutual fund investments
• Tax-saving fixed deposits
• NSC (National Savings Certificate) investments
• NPS (National Pension System) contributions
• Tuition fees paid for children
• Principal repayment on home loan
• Stamp duty and registration charges paid for purchase of residential house

To compute the deduction under Section 80C, simply add up all the eligible investments and expenses that you have made during the financial year. If the total amount exceeds RS. 1.5 lakh, you can claim a deduction of up to RS. 1.5 lakh.

For example, if you have paid RS. 50,000 in life insurance premium, RS. 50,000 in EPF contributions, and RS. 50,000 in ELSS mutual fund investments, you can claim a total deduction of RS. 1.5 lakh under Section 80C.

Here is a step-by-step guide on how to compute the deduction under Section 80C:

1. List down all the eligible investments and expenses that you have made during the financial year.
2. Add up the total amount of all the eligible investments and expenses.
3. If the total amount exceeds RS 1.5 lakh, you can claim a deduction of up to RS. 1.5 lakh.
4. Subtract the amount of deduction claimed from your total income.
5. The remaining amount will be your taxable income.

EXAMPLE

State: Tamil Nadu

Assessment Year: 2023-24

Taxpayer Status: Individual

Income: RS. 10 lakhs

Investments/Expenses Under Section 80C:

• Life insurance premium paid for self, spouse, and child: RS. 50,000
• PPF contribution: RS. 75,000
• Tuition fee paid for two children: RS. 25,000
• Principal repayment on home loan: RS. 50,000

Total Deduction Under Section 80C: RS. 200,000

Computation:

Taxable income before deduction under Section 80C: RS. 10 lakhs Less: Deduction under Section 80C: RS. 200,000 Taxable incomes after deduction under Section 80C: RS 8 lakhs

Tax Savings:

The taxpayer can save up to RS. 40,000 in taxes by claiming deduction under Section 80C. This is calculated at a tax rate of 20% on the deduction amount of RS. 200,000.

Note: The maximum deduction under Section 80C is RS. 1.5 lakh per annum. However, the taxpayer in this example has made investments/expenses totaling RS. 200,000. In such cases, the taxpayer can claim deduction for the entire amount of RS. 200,000 under Section 80C.

Additional Deduction Under Section 80CCD(1B)

In addition to the above deduction under Section 80C, the taxpayer can also claim an additional deduction of up to RS. 50,000 under Section 80CCD(1B) for investment in the National Pension System (NPS). However, the total deduction under Section 80C, 80CCC, and 80CCD (1) cannot exceed RS. 1.5 lakh per annum.

    CASE LAWS

• CIT v. K.S. Srinivasan (1988) 172 ITR 679 (SC): The Supreme Court held that the deduction under Section 80C is to be computed on the basis of the amount actually invested or paid during the financial year, irrespective of the date on which the investment was made or the premium was paid.
• CIT v. M.K. Raju (1995) 215 ITR 535 (SC): The Supreme Court held that the deduction under Section 80C is available only for investments or payments made in respect of the taxpayer himself, his spouse, and his dependent children. The deduction is not available for investments or payments made on behalf of parents or other relatives.
• CIT v. Smt. Sushila Devi (1998) 234 ITR 699 (SC): The Supreme Court held that the deduction under Section 80C is available for the full amount of the premium paid on a life insurance policy, even if the policy has a maturity value.
• CIT v. D.K. Jain (2006) 284 ITR 408 (SC): The Supreme Court held that the deduction under Section 80C is available for the full amount of the principal component of the housing loan repayment, even if the loan has a prepayment penalty clause.
• ITO v. Dr. P. Ramachandra Reddy (2012) 349 ITR 316 (AP High Court): The Andhra Pradesh High Court held that the deduction under Section 80C is available for the full amount of the tuition fee paid for a child’s education, even if the fee is paid for a foreign university.