BLOG on Income Tax Management for - AY 2022-23 & 2023-24

Deduction in respect of Life Insurance Premium, Deferred Annuity, Contribution to PF, Subscription fo certain Equity Shares or Debentures etc. [Section 80C]

Section 80C of the Income Tax Act allows individuals to claim deductions on certain investments and expenses, thereby reducing their taxable income. This section is one of the most popular tax-saving provisions in India as it offers various options for taxpayers to reduce their tax liability.

Eligible Investments and Expenses

Under Section 80C, individuals can claim deductions on the following investments and expenses:

Life Insurance Premium:

Premiums paid towards life insurance policies for self, spouse, and children are eligible for deduction.

Deferred Annuity:

Contributions made towards deferred annuity plans are eligible for deduction. These plans provide a regular income stream after retirement.

Contributions to Provident Fund:

Employee contributions to recognized provident funds are eligible for deduction. This includes contributions to the Employees' Provident Fund (EPF) and Public Provident Fund (PPF).

Subscription to Certain Equity Shares or Debentures:

Investments made in specified equity shares or debentures issued by eligible companies are eligible for deduction.

Tuition Fees:

Amount paid as tuition fees for full-time education of up to two children is eligible for deduction.

Housing Loan Principal Repayment:

Repayment of the principal amount of a housing loan is eligible for deduction.

Limit and Conditions

The maximum deduction allowed under Section 80C is ₹. 1.5 lakh per financial year. However, it is important to note that the total deduction under this section cannot exceed the individual's gross total income. Additionally, certain investments have specific conditions and lock-in periods.

Which Assesses are allowed Deduction u/s 80C:

The following assesses are allowed to claim a deduction under Section 80C from their gross total income computed as per provisions of the Indian Income Tax Act, 1961:

(i) an Individual; or

(ii) a Hindu Undivided Family (HUFs).

Deduction Allowed on account of the following Savings / Investment cannot exceed Rs.1,50,000:

The above assessees shall be entitled to a deduction of whole of the amount paid or deposited in the previous year, being the aggregate of sum referred to below as does not exceed Rs.1,50,000:

(i) any sum paid by an individual to effect or to keep in force an insurance on the life of:

(a) an individual himself,

(b) his/her spouse, and

(c) any child of such individual.

The children may be married/unmarried, dependent/not dependent on the individual.

In the case of Hindu Undivided Family the premium should be paid on the life of any member of the family.

Premium paid on Life Insurance Policy exceeding certain percentage of the capital sum assured not eligible for deduction [Section 80C(3)]

Premium paid on insurance policy other than contract of Deferred Annuity	Amount paid eligible for Deduction
(a) for policy issued on or before 31.3.2012	20% of the capital sum assured
(b) for policy issued on or after 1.4.2012	10% of the capital sum assured
(c) for policy issued on or after 1.4.2013 for the insurance on life of a person, who is— (i) a person with disability or a person with severe disability as referred to in section 80U, or (ii) suffering from disease or ailment as specified in the rules made under section 80DDB	15% of the capital sum assured

(ii) any payment made by the individual only to effect or keep in force a contract of a non-commutable deferred annuity (other than mentioned in clause (x) below) on the life of: (a) an individual himself, (b) his/her spouse, and (c) any child of such individual;

(iii) any sum deducted in accordance with the conditions of services from the salary payable by or on behalf of the Government to any individual for the purpose of securing to him a deferred annuity or making provision for his spouse or children. The sum deducted should not exceed 1/5th of the salary;

(iv) any contribution by the employee towards a statutory provident fund or recognised provident fund. The deduction in this respect is allowable to an individual only;

(v) any contribution to a public provident fund by an individual or [JUF. The contribution may be made to an account standing in the name of any person mentioned under clause (i) above;

(vi) any contribution by an employee to an approved superannuation fund;

(vii) any subscription, in the name of any person specified in sub-section (4), to any such security of the Central Government or any such deposit scheme as that Government may, by notification in the Official Gazette, specify in this behalf;

Following schemes have since been notified:

(a) subscription by an individual or HUF to National Savings Scheme, 1992

(b) sum paid or deposited in the name of a girl child under the Sukanya Samriddhi Account Scheme.

For the purpose of clause (b) above, the sum may be paid by the individual for any girl child of that individual, or any girl child for whom such person is the legal guardian;

(viii) any subscription by an individual or HUF to National Savings Certificates (VIII or IX Issue). Any interest accrued on these certificates which is deemed to be reinvested also qualifies for deduction;

(ix) any contribution by an individual or HUF for participation in the Unit Linked Insurance Plan of the Unit Trust of India or Unit Linked Insurance Plan of LIC Mutual Fund referred to in section 10(23D). The contribution may be made in the name of any person mentioned under clause (I) above;

(x) payment made by an individual or HUF to effect or keep in force a contract for notified annuity plan of the Life Insurance Corporation or any other insurer. New Jeevan Dhara. New Jeevan Dhara - I and New Jeevan Akshay, New Jeevan Akshay-I and New Jeevan Akshay-II are the schcmes which have been notified;

(xi) any subscription, by an individual or HUF to notified units of (a) any mutual fund referred to in section 10(23D), or (b) the Administrator or the specified company as referred to in section 2 of the Unit Trust of India. Equity Linked Saving Scheme (ELSS), 2005 has since been notified;

(xii) any contribution by an individual to a notified pension fund set up by any mutual fund referred to in section 10(23D) or by the Administrator or the specified company as referred to in section 2 of the Unit Trust of India. UTI - Retirement Benefit Pension Fund has since been notified;

(xiii) any subscription by an individual or HUF to any deposit scheme or contribution to any pension fund set up by the National Housing Bank. The Home Loan Account Scheme of the National Housing Bank has been notified;

(xiv) a subscription by an individual or HUF to any notified deposit scheme of:

(a) a public sector company which is engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or

(b) any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;

(xv) any sum paid by an individual as tuition fees provided following conditions are satisfied:

(1) Such sum should have been paid as tuition fees excluding any payment towards development fees or donation or payment of similar nature.

(2) It should have been paid at the time of admission or thereafter.

(3) It is paid to any university, college, school or other educational institution situated within India.

(4) It is paid for the purpose of full-time education.

(5) It is paid for any two children of such individual.

(xvi) any payment by an individual or HUF for purchase or construction of a residential house property, the income from which is chargeable to tax under the head ‘Income from house property’. Such payment may be made towards:

(a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or

(b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or

(c) any repayment of the amount borrowed by the assessee from

(1) the Central Government or any State Government, or

(2) any bank, including a Co-operative Bank, or

(3) the Life Insurance Corporation, or

(4) the National Housing Bank, or

(5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction section 36(1)(viii), or

(6) any company in which the public are substantially interested or any co-operative society, where such company or o-operative society is engaged in the business of financing the construction of houses, or

(7) the assessee’s employer where such employer is a public company or a public sector company or a University established by law or a college affiliated to such University or a local authority or a co-operative society;

(8) the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act.

(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

The following payments shall not qualify for deduction:

(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or

(B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or

(xvii) any subscription by an individual or HUF to equity shares or debentures forming part of any eligible issue of capital approved by the Board of wholly public company any public financial institution where such proceeds are utilized for infrastructure company:

(xviii) any sum deposited in a term deposit—

(a) for a fixed period of not less than 5 years with a scheduled bank; and

(b) which is in accordance with a scheme framed and notified by the Central Government in the Official Gazette for the purposes of this clause.

(xix) subscription to such bonds issued by the National Bank for Agriculture and Rural Development (NABARD) as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(xx) any sum deposited in an account under the Senior Citizens Saving Scheme Rules, 2004.

(xxi) any sum deposited as five years-time deposit in an account under the Post Office Time Deposit Rules, 1981.

(xxii) any sum contributed by an employee of the Central Government, to a specified account of the pension scheme referred to in section 80CCD—

(a) for a fixed period of not less than three years; and

(b) which is in accordance with the scheme as may be notified by the Central Government in the Official Gazette for the purposes of this clause.

IMPORTANT NOTES
1. The deduction is allowed only when the specified amount has been actually paid during the previous year.

2. Deduction under section 80C is not available from long-terns capital gains and short-term capital gain covered under section 111A.

3. A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company.

4. Items No. (ii), (iii), (iv), (vi), (xii), (xiii), (xxiii) mentioned above shall be allowed as deduction only to an individual assessee.

EXAMPLE:

Mrs. S who is resident in India provides the following information. Compute her taxable income for the assessment year 2022-23 and tax thereon, if Mrs S:

(a) does not opt to be taxed under section 115BAC

(b) opts to be taxed under section 115BAC

Particulars	Rs.
Gross salary	3,80,000
Rent of House Property	1,20,000
Interest on fixed deposits with bank (gross)	14,000
Deposit in PPF	80,000
Tuition fee paid for 3 children @ Rs.15,000 p.a. per child	45,000
LIP on her life taken on 1-5-20 13 (sum assured Rs.2,00,000)	25,000

SOLUTION:

Computation of total income of Mrs S for the assessment year 2022-23

		Does not opt to be taxed u/s 115BAC	opt to be taxed u/s 115BAC
	Rs.	Rs.	Rs.
Income under the head “Salaries”
Gross Salary	3,80,000
Less : Deduction u/s 16	50,000	3,30,000	3,80,000
Income under the head “House Property”
Annual Rent	1,20,000
Less : Standard Deduction @30%	36,000	84,000	84,000
Income from Other Sources
Interest on Fixed Deposits with Bank		14,000	14,000
Gross Total Income		4,28,000	4,78,000
Less : Deduction u/s 80C		1,30,000	NIL
Total Income		2,98,000	4,78,000
Tax on Rs.2,98,000 / 4,78,000		NIL	NIL
Balance Rs.48,000 @5% / Rs.2,28,000 @5%		2,400	2,400
Less : Rebate u/s 87A		2,400	2,400
		NIL	NIL