Taxpayers investing in term insurance plans in India often look to maximize their tax benefits under Section 80C. What is Section 80C, and what does it include? It is not only about term insurance tax benefits but also covers several other investment options which can get you deductions on your tax payments. Here is a brief look at how Section 80C is a true boon for most taxpayers.
A Deeper Look At Section 80C- How It Benefits Taxpayers
Section 80C offers deductions up to Rs. 1.5 lakh on various investment options. These may be availed by HUFs and individuals, while partnership firms, companies, and LLPs cannot get these benefits. Section 80C comes with sub-sections like 80CCC, 80CCD (1b), 80CCD (1), and 80CCD (2). The total limit is Rs. 1.5 lakh with only an extra deduction of Rs. 50,000 permissible under Section 80CCD (1b).
Here are some core points that you should keep in mind about Section 80C:
- Section 80C permits deductions for investments made in paying premiums for life insurance policies, principal amount repayments for home loans, costs of registration charges and stamp duty, EPF and PPF contributions, and ELSS (equity-linked savings scheme). AN exhaustive list is mentioned in a later section of this article.
- 80CCC is where deductions are allowed for payments made for annuity pension plans. Pension from the amount received on surrendering the annuity or the annuity, inclusive of bonuses and interest, will be taxable in the receipt year.
- 80CCD offers deductions for NPS investments. The employee’s contribution under this section means that the maximum allowed deductions will be 10% of salary (if the taxpayer is an employee), 20% of the gross income (for self-employed), and the limit will be Rs. 1.5 lakh.
- 80CCD (1b) gives an extra deduction of up to Rs. 50,000 for NPS account deposits. Deductions are also permissible for contributions to the Atal Pension Yojana.
- 80CCD (2) enables deductions for NPS. Employers’ contributions allow deductions to 10% of the basic salary with a dearness allowance. Benefits are only allowed for salaried individuals and not those who are self-employed.
Investment types covered under Section 80C
Here are the types of investments permitted for deductions under Section 80C:
- Provident Fund for retirement planning
- PPF (Public Provident Fund) for long-term fixed-income or retirement planning
- NSC (National Saving Certificate) for long-term fixed-income
- Tax-saving 5-year Fixed Deposits (FDs) for long-term debt
- Post Office Time Deposits (POTD) for five years
- SCSS (Senior Citizen Saving Scheme) for long-term debt
- NHB Deposit Scheme for long-term debt
- Life insurance premiums, including life coverage and investment
- New Pension Scheme (NPS) and Atal Pension Yojana for retirement
- ELSS (Equity Linked Savings Scheme) for equity mutual funds
- Pension Plans from insurance companies for retirement annuities
- ULIPs (unit-linked insurance plans) for investment and life coverage
- Tuition fees for two children
- Registration costs and stamp duty for homes at the time of purchase
- Repayment of home loan principal while buying a home on a loan
The minimum holding period for ULIPs, repayment of home loan principal/home construction, SCSS, and post office time deposits is five years. It is two years for term life insurance plans. The holding periods are six years for PPF and three years for ELSS, while NPS investments have a holding period till retirement. You should note the applicable holding period to avail of tax deductions under Section 80C for each investment beforehand.
Section 80C is thus a boon for taxpayers, helping them reduce their tax liabilities through a sizable deduction of up to Rs. 1.5 lakh. However, since it covers various kinds of investments, most of which are preferred options for citizens, one should balance them out smartly to maximize the benefits. Hence, those looking for term insurance tax benefits can get up to Rs. 1.5 lakh as deductions on their premium payments.
It will cover premiums paid on policies not just for the primary policyholder but also on premiums paid for spouses, children, and parents, subject to the total limit. At the same time, there is a deduction of Rs. 25,000 on health insurance coverage premiums under Section 80D, which can increase to Rs. 50,000 for senior citizens. You can avail of this deduction by adding a critical illness rider to your term insurance policy. In this manner, you can get both Section 80C and Section 80D benefits for greater tax efficiency.