Section 80C of Income Tax Act, 1961 provides an assessee to save tax by investing in different funds such as PPF, ELSS, RGESS etc. for full list of 80C investment refer: Invest and Save Tax u/s 80C
Further an assessee has to remember few important points in the context of investments specified under section 80C:
1. Where an assessee terminates his contract of Life Insurance Policy before the premium for two years have been paid or terminates his contract of insurance in case of any single premium policy, within two years after the date of commencement of insurance, then no deductions shall be allowed in respect of the premium paid in the year of termination. Further, the deduction allowed in the past years shall be deemed to be the income of the assessee for the previous year in which the insurance policy is terminated.
2. If the assessee transfers the house property, in respect of which deduction has been claimed, before the expiry of 5 years from the end of the financial year in which possession of such properties was obtained by him, no deduction shall be allowed in the previous year in which the house property is transferred. The aggregate deductions allowed in the past years shall be deemed to be the income of assessee for the previous year in which the house property is transferred.
3. Any amount including interest accrued withdrawn out of the deposits in Senior Citizen Savings Scheme or Post Office Time Deposit Scheme before the expiry of 5 years from the date of deposit shall be liable to tax. However, in case of demise of the assessee and the legal heir/nominee receives such sum shall not be subject to tax. Withdrawal of interest on these deposits will not be liable to tax provided it is included in the total income of the depositor in the previous years.
4. Deduction for Life Insurance Policy premium is restricted to 20% of the capital sum assured. Similarly, section 10(10D) does not provide for exemption in respect of maturity proceeds of Life Insurance Policy, where, the premium paid in any year exceeds 10% of actual capital sum assured.
5. In respect of Deferred Annuity Plan, the insured shall not receive the annuity by cash payment.
6. Tuition fee paid for part-time education of children does not qualify for deduction. Similarly tuition fee payments made for institute situated abroad are not entitled for deduction but institute situated in India affiliated from foreign is eligible for deduction.
7. Principal Repayment on loan borrowed for acquiring commercial property is not eligible for deduction. Similarly, residential property under construction, for which principal has been repaid does not qualify for deduction.
8. Repayment of Principal on loan borrowed for residential house (whether let-out of self occupied) only entitled for deduction. However, where loan is availed for any addition, alteration, repair or renovation, no deduction can be claimed for principal repayment.
9. Repayment of Loan borrowed for housing from relatives, friends, non-specified employer/institution are not eligible for deduction. However, any interest paid on such loan borrowed is deductible u/s 24, while computing income under the head of “House Property”.
10. In case the term deposit is jointly held, deduction u/s 80C shall be available only to the first holder of deposit. Further, the term deposit in respect of deduction was claimed shall not be pledged to secure loan or as security to any other asset.
11. Tuition fee/School fee paid is limited to maximum of 2 children’s per assessee, means both mother and father can claim deduction for 2 children individually aggregating to 4 children.
12. No individuals limits for various items specified u/s 80C. Therefore, an assessee may opt to invest even in only one item, say insurance premium. However, it shall not in any case exceeds Rs. 1,00,000 for the year.