Filing income taxes can pose a problem for people who do not understand exemptions. First time employees may find the income tax rules pretty complex. However, if the income tax filing exercise is once undertaken then the format becomes clearer and changes in rates and slabs just fall into place. Income tax filers should not definitely miss out on the exemptions under section 80 C.
Under section 80 C Income tax payers (individuals and HUF) can claim a tax exemption up to Rs 1.5 lakh and an additional Rs 50 K exemption under section 80 CCD (1 B) is available for tax payers who invest in government notified pension plans which include the National Pension Scheme and Atal Pension Yojna at present.
It is recommended that maximum exemption should be availed against those items which have direct bearing on the income tax payer benefit and this could differ. For example a person who wants to purchase a home would most benefit from exemption on home loan principal amount whereas a person who wants to build a retirement corpus would most benefit from investing in long term savings scheme and pension plans. An individual may have more than one tax saving preferences. For a complete list of exempted items under section 80 C tax payers can refer IT department website. Let us see the five major exemptions which tax payers can avail from section C of the IT Act.
Exemption on Home Loan (Principal Amount)
Having one’s own home is perhaps the foremost among other aspirations in an individual’s life time. Individuals can claim exemption on the principal component of home loan under section 80 C of the Income Tax act. This exemption can only be claimed for a house or flat for which the completion of construction certificate has been issued. Any repayment of principal amount before completion of construction is not eligible for exemption. Also it is important to note here that tax payer needs to hold the house property atleast for five years after gaining possession as otherwise the claimed deductions on principal payment will be reversed.
Exemption on Life Insurance Premium
Taking a life insurance plan is the best way to secure the lives of family members even if one is not there for them. Income tax act section 80 C allows exemption on taxes for premiums paid for life insurance policy. Income tax payers can claim deduction on life insurance premium paid during the financial year for self, spouse and children but not for parents or in laws. HUF can claim tax exemption on life insurance premium paid during FY for all the covered members. All life insurance schemes authorized by IRDA are eligible for tax exemptions under section 80 C including LIC and life insurance plans by other insurers.
Exemption on PF and PPF
The portion of salary deducted for PF as well as the employer’s contribution to PF is exempt from taxation under section 80 C. However if employer contribution is over 12 % then the over portion is taxable at source by employer and if interest on PF is over 9.5 % then the over portion is taxable while filing of IT returns by employee.
Individuals who do not have PF account may choose to put some money into PPF account which offers the same tax benefits as the PF account.
Exemption on Tuition Fees of Children
IT act section 80 C also provides exemptions for tuition fees paid by parents for their children’s school education during the financial year. Only tuition fees paid in Indian schools, colleges, institutions and universities are eligible for exemption under section 80 C.
It is important to note here that section 80 C exempts only the tuition fees component of your child’s school or college fees. Admission, transport, annual and other fees are not eligible. For claiming exemption on tuition fees procure fees payment receipt from school accounts section and ensure that the fees payment breakup is clearly mentioned. It is better to get a receipt for the whole year. While filing IT returns for the FY upload the receipt online or attach it with your IT filing form if you are filing your returns physically. In the ITR form, claim deduction under applicable column.
Exemption on Savings and Investment Schemes
Section 80 C also provides for tax exemptions for money invested in various savings and investment schemes. These include the pension schemes, senior citizen savings scheme, Sukannya Samriddhi scheme for the girl child, ELSS or equity linked savings schemes, Five year term deposits or fixed deposits in banks and post offices, National Savings Scheme, Tax saving mutual fund schemes, ULIP or unit linked plans and other notified government schemes. It is important to note here that notified government schemes eligible for exemption may change and tax payers need to keep themselves updated on the yearly changes announced by the government in tax regimen as a part of the budget.