If you are a taxpaying individual, then you must review your income tax liability every year, as the union budget always brings in some changes to the taxation rules. For example, in 2023, new tax slabs were announced that aimed to provide more rebates to taxpayers in the lower-income slabs. However, if your portfolio already has some tax efficient investments, like life insurance, ELSS funds, etc., keeping the old tax regime as an option can still be beneficial, chiefly because it allows for tax deductions under Section 80 of the Income Tax Act.
Several tax exemptions are provided by the Government of India, allowing taxpayers to reduce their tax payments. These exemptions are detailed in several parts of the Income Tax Act of 1961. However, if you do not fully comprehend the Income Tax Act, you might pay more taxes than necessary.
With that in mind, let's look at the tax deductions available under sections 80C and 80CCC of the Income Tax Act and see how they differ.
Section 80C- A Closer Look
Section 80C offers specific tax deductions to individual taxpayers or HUFs (Hindu Undivided Families). The maximum deduction available is up to Rs. 1,50,000 annually under Section 80C. Section 80C applies to the following tax-saving instruments:
- Equity-Linked Savings Plans (ELSS)
The ELSS scheme is a form of mutual fund scheme. They invest in equities, as the name implies. You can deduct up to INR 150,000 from the amount you deposit each year.
- Premiums for Life Insurance
Whatever premium you pay for life insurance plans, including term insurance plans, is tax-free, up to INR 1,50,000 per year. Individuals can claim a deduction for premiums paid on plans for themselves, their spouses, and their children. In the case of a HUF, there is an exemption for premiums paid on plans for any member of the HUF.
- Employee Provident Fund (EPF)
Contributions to your Employee Provident Fund (EPF) also qualify for the Section 80C exemption of INR 1,50,000 per year.
- Certificate of National Savings
The Indian Postal Department provides investing options through the National Savings Certificate. Section 80C exempts the amount invested from taxation.
- Fixed Deposits at the Post Office
The post office offers five-year fixed deposit accounts, and the money deposited is tax deductible under Section 80C. It is vital to understand that only 5-year fixed deposits are tax deductible.
- Tuition Costs for a Child
If you pay your child's fees for full-time study at any college, university, school, or other educational institution in India, you can claim deductions of up to INR 1,50,000 per year for up to two children.
- Home Loan
The amount you spend towards your house loan principal repayment can be deducted from your taxable income as an exemption up to INR 1,50,000 under Section 80C.
Section 80CCC- What does it entail?
Section 80CCC of the Income Tax Act deals specifically with the purchase of annuities and pension schemes. Insurance firms provide these products to assist individuals in planning their retirement finances. Because this clause is interpreted in conjunction with Section 80C, you can claim a maximum deduction of INR 1,50,000 each year. This deduction is available if the annuity or pension fund is eligible under Section 10. (23AAB). Residents and non-residents can claim the deduction under Section 80CCC, but not Hindu Undivided Families.
The deduction may be availed by non-residents and residents, although HUFs (Hindu Undivided Families) cannot claim benefits under this section. Deductions cannot be claimed for any bonuses or interest received from the plan. The surrender value and annuity plan proceeds will both be taxable without any exemptions in this case.
Are Can You Claim Deductions Simultaneously Possible under both Sections?
Suppose you have invested in a pension plan/annuity and also deployed investments in term insurance and other tax-saving instruments which are eligible for tax deductions under Section 80C. The good news is that you can get tax deductions under both these Sections, namely 80C and 80CCC. However, the cumulative deduction amount must be at most Rs. 1,50,000.
Summing Up the Differences
Hence, the differences between Section 80C and Section 80CCC can be summed up succinctly for your understanding.
- Section 80C is the key to obtaining tax deductions on various investments. From your term insurance premiums to premiums for other life insurance policies, NSC, PPF, EPF, tax-saver FDs, tuition fees of children, and principal repayment on home loans, there are several options for investors under this section. Section 80CCC is slightly different in this regard.
- You can only claim deductions up to Rs. 1,50,000 (as you claim under Section 80C) for premium payments for annuity or pension plans eligible under the section. This is the only type of deduction considered under this section. In reality, Section 80CCC may be called a sub-section of Section 80C.
- HUFs are eligible for tax deductions under Section 80C, although they are not eligible for the same under Section 80CCC, which is another key difference.
Looking beyond tax savings, life insurance is critical for any portfolio as it provides financial protection for your family in case of your untimely demise. If you wish to scale up your tax benefits even further, you can get a term plan with a crucial illness or any health-related rider. Health insurance premiums are tax deductible up to Rs. 25,000/50,000 (depending on your age) under Section 80D. Your term policy can thus help you get some additional tax savings in the bargain!
You can efficiently plan your tax savings by learning about the various provisions of the Income Tax Act. You can use the knowledge to make wise investments while lowering your tax burden. Start planning for the new financial year today!
Swati Tumar - Travel & Finance Writer
Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.