Maximize Your Savings: Understanding Section 80 Deductions 💰

Come tax season, and we're all on the lookout for ways to trim down our tax bills. Enter Section 80C, 80CCC, and 80CCD of the Income Tax Act – the holy grail of tax-saving deductions that can significantly reduce your taxable income and, consequently, your tax outgo. 

As taxpayers in India, it's natural to want to make the most of these deductions to ease our financial burdens. The beauty of claiming deductions under these sections lies in their ability to put more money back in your pocket while ensuring compliance with tax laws.

Choose the Old tax Regime

Keep in mind that in order to avail these benefits you need to choose the old tax regime.

The government introduced a new tax regime in India to simplify the tax filing process, reduce reliance on deductions, and encourage higher compliance by offering lower tax rates but with fewer exemptions. The new regime is ideal for individuals with minimal deductions or those who prefer simplicity in tax filing.

However, it's the old tax regime that allows you to save taxes through various financial instruments, and significant investments, like life and health insurance, tuition fee of children, home loan etc. It can reduce taxable income substantially with the tax benefits it offers.

Let's dig deeper. 

Section 80C Tax Deduction: 

Under Section 80C, you can claim deductions of up to ₹1.5 lakh on your taxable income by investing in various tax-saving instruments and investments. This provision applies to individuals and Hindu Undivided Families (HUFs). 

So, what qualifies for deductions under 80C? Here's a rundown: 

• Employee Provident Fund (EPF): Both you and your employer contribute an equal amount (12% of your basic salary) to this retirement benefits scheme. 

• Public Provident Fund (PPF): A long-term investment option offered by the Government of India. 

• Health Insurance Premiums: Premiums paid towards individual or family health insurance plans. 

• Equity Linked Savings Scheme (ELSS): An open-ended mutual fund primarily investing in equities for higher returns and tax benefits. 

• National Savings Certificate (NSC): A secure savings scheme provided by the postal department. 

• Life Insurance Premiums: Premiums paid for life insurance plans. 

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• Children’s Tuition Fee: Tuition fees for your children's education in India. 

• Housing: Repayment of home loan principal and expenses like registration and stamp duty.

• Post Office Fixed Deposit: Similar to a bank fixed deposit, with the five-year deposit qualifying for deductions. 

• Infrastructure Bonds: Government-approved infra bonds issued by entities like India Infrastructure Finance Company. 

• NABARD Rural Bonds: Only Bhavishya Nirman Bonds and NABARD Rural Bonds qualify for deductions under Section 80C. 

• Senior Citizen Savings Scheme: A scheme aiding senior citizens in retirement savings. 

Section 80CCC Tax Deduction:  

Section 80CCC focuses on deductions for contributions made towards pension plans. This subsection streamlines tax planning by offering more benefits. Keep in mind: 

• Interest or Bonuses: Earnings from these plans aren't eligible for deductions. 

• Surrendered Plan Amounts: These attract taxes. 

• Taxation on Pension: Received amounts are taxable. 

Section 80CCD Tax Deductions: 

This section deals with contributions to Government pension schemes like the National Pension Scheme (NPS) and Atal Pension Yojana (APY). It's divided into two parts: 

• Section 80CCD (1): Offers deductions for employees of different sectors, with salary earners and self-employed individuals benefiting.

• Section 80CCD (2): Covers the employer's contributions to an employee's NPS account. 

In addition, Section 80CCD (1B) allows an additional tax benefit of ₹50,000 for NPS investments, taking the total potential tax savings up to ₹2 lakh

Let's delve into a practical example to understand how tax is calculated: 

Meet Nikhil, an IT professional with an annual salary of ₹10.5 lakh. Besides his salary, he earns ₹15,000 from a savings account and receives ₹13,000 as interest from a fixed deposit (FD).

Nikhil is proactive about tax planning and has invested ₹50,000 in a Public Provident Fund (PPF) and ₹20,000 in tax-saving mutual funds. Additionally, he has paid ₹80,000 towards a life insurance policy and ₹10,000 for retirement planning.

Notably, Nikhil has also contributed ₹50,000 to the National Pension Scheme (NPS) or Atal Pension Yojana (APY). 

Now, let's calculate Nikhil's gross total income and deductions: 

Annual Salary = ₹10,50,000 

Other Sources (Savings account + FD) = ₹28,000 

Gross Total Income = ₹10,78,000

Moving on to his deductions: 

80C (PPF + ELSS + Insurance policy) = ₹1,50,000 

80CCC (Retirement/Annuity plan) = ₹10,000 

80CCD (NPS + APY) = ₹50,000 

Total = ₹2,10,000

With these figures in mind, Nikhil's gross total income stands at Rs. 10,78,000, while his total deductions amount to Rs. 2,10,000. 

That was easy! We hope this will help you calculate your taxes. You can start by calculating your life insurance cover using Bandhan Life's insurance need calculator.

Don't hesitate to consult an expert financial planner, for more help!