Section 80C: The deadline for filing Income Tax Return (ITR) for the last financial year 2020-21 (Assessment Year 2021-22) is 31 December 2021. As the last date is approaching, taxpayers are doing all the calculations related to their income, investments and savings to save maximum tax. Individual taxpayers get exemption on various types of expenses and investments under Section 80C of the Income Tax Act. However it has a limit. Under the Income Tax Act, the benefit of tax exemption can be taken on expenditure and investment up to Rs 1.5 lakh. However, keep in mind that it is necessary to take care of some things before making a claim under section 80C, otherwise the claim will not be accepted.
Under section 80C, the benefit of deduction is available on PPF, EPF, LIC premium, ELSS, children’s fees, principal amount payment of home loan, stamp duty on purchase of property and registration charges etc. Keep in mind here that the contribution made in the name of your children in PPF also gets the benefit of tax deduction, even if it is Employed i.e. Independent. At the same time, you can claim tax deduction only on NSC purchased in your name.
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There will be no benefit on withdrawal during the lock-in period
Under Section 80C of the Income Tax Act, the benefit of tax deduction is available on investments in schemes like Equity Linked Savings Scheme (ELSS) and ULIPs and tax saving FDs. However, if the withdrawal is made within the lock-in period, then the benefit of deduction will not be available. This means that the lock in period of tax saving FD is 5 years and if you break it before this lock in period then you will have to pay tax considering it as income.
Deduction in children’s fees only on tuition fees
Under section 80C, taxpayers get the benefit of tax deduction on the education expenses of up to two children. Although this benefit is not available on the full amount of fees, but the deduction is available on the part of the tuition fee in the entire fee. There is no benefit of deduction on development fee or donation fee. Keep in mind here that if the tuition fee of the children is so high that they are not able to claim the claim on the entire part, then the husband and wife can take the benefit of deduction in parts i.e. through separate receipt.
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No benefit on return of personal loan for home
Tax exemption can be claimed under section 80C on repayment of the principal amount of the home loan. However, it should be kept in mind that if you have taken this loan from friends or relatives, then if you return the money to them, then you cannot take advantage of tax exemption on it. To claim deduction, it is necessary to take a loan from a bank, cooperative bank, National Housing Bank etc.
No claim on stamp duty on registration of commercial property
Under section 80C, deduction is available for expenses such as stamp duty, enrollment fees paid during the transfer of a residential property. However, if the property is commercial, then you cannot claim deduction under section 80C.
If the house sold before five years will not benefit
If you have bought a house with a home loan, then if you sell it within five years, then the benefit of deduction that has been taken can be reversed. This will be considered as five years from the financial year in which the loan is availed.
There is a fixed limit on life insurance premium
The premium earned on life insurance policy of self, children and spouse is eligible for tax deduction. However, you can claim exemption only on a maximum of 10 percent of the sum assured. For example, if the sum assured is Rs 5 lakh, then you can claim deduction only on premium up to Rs 50 thousand. If the premium is made 55 thousand rupees, then you cannot claim deduction on 5 thousand rupees (55 thousand rupees-50 thousand rupees).
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No benefit on EMI paid before possession
Home loan interest is eligible for tax deduction under section 80C. However, keep in mind that EMIs paid before getting possession of the same will not be considered as tax deduction claim.
Tax benefits on NPS Tier 2 only for central employees
Contributions made in NPS Tier 2 account also get the benefit of tax deduction but only to Central Government employees. State government employees do not get any tax benefit on the contribution made to the NPS Tier 2 account.
Life insurance policy is required to last for 2 years
If you have availed tax deductions on a life insurance policy, then the policy on which the claim has been made must be valid for at least two years. If the policy is surrendered before two years, then the claim which has been received earlier can be reversed.
(This story is based on a conversation with Balwant Jain, a tax expert.)
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