5 popular deductions you can claim under Section 80C in 2023-24

• 80C deductions are available only under the old tax regime.
  
• Different investments which are eligible for deduction u/s 80C have different lock-in periods.
  
• Taxpayers must choose the investments that suit their financial goals and needs.
  

Among all the different sections that provide deductions under the old tax regime, 80C is the most popular. Various expenses and investments qualify for deduction of up to ₹1.5 lakh u/s 80C and thus one can choose from various options according to one’s needs. We look at five of the popular deductions you can claim u/s 80C in 2023-24.

Public Provident Fund

The investment made in Public Provident Fund (PPF) qualifies for tax benefits under Section 80C of the Income Tax Act, and the interest rate currently is 7.1% per annum. PPF comes with a lock-in period of 15 years, but partial withdrawals are allowed from the seventh year, and the investment can be extended for an additional 5 years.

PPF falls under the Exempt-Exempt Exempt (EEE) category, which means that PPF is exempt from tax at three stages - investment, accrual, and withdrawal. Apart from tax deduction available u/s 80C on investment, the interest earned on the investment is also tax-free. Finally, on maturity or withdrawal after the lock-in period of 15 years, the entire amount, including the principal and interest, is exempt from tax.

Equity Linked Savings Scheme

ELSS, short for Equity-Linked Saving Scheme, is a type of mutual fund that invests primarily in equity and equity-related instruments in India. It offers tax benefits under Section 80C of the Income Tax Act and comes with a lock-in period of three years.

With the potential to offer high returns, ELSS is considered a tax-saving investment option for those who are willing to take on some risk in their portfolio. “If someone is looking for short term investment then he/she may go for ELSS funds as it has only 3 years of lock-in period(least among all),” says Atul Sharma, Founder, Lex N Tax, a tax consultancy. ELSS is one of the products in the 80C deduction bucket that offers an exposure to equities.

National Pension System

National Pension System (NPS) is a government-backed pension scheme in India that provides tax benefits to the investors.

Under section 80C of the Income Tax Act, an investor can claim a tax deduction of up to ₹1.5 lakh for the contribution made towards NPS. This deduction is available to both salaried and self-employed individuals.

Additionally, under section 80CCD(1B) of the Income Tax Act, an investor can claim an additional tax deduction of up to Rs. 50,000 for the contribution made towards the NPS. This deduction is over and above the deduction available under section 80C and is available to both salaried and self-employed individuals.

Premiums paid towards life insurance policy

Under Section 80C of the Income Tax Act in India, an individual can claim a tax deduction of up to ₹1.5 lakh on premiums paid towards life insurance policies. This deduction is available for policies that cover the individual, spouse, and children. It is also applicable to policies that have been taken by the individual or as a part of a group insurance plan. The deduction is available for both single and regular premium policies. However, it is important to note that the life insurance policy must have a minimum term of 5 years to be eligible for the tax deduction.

Tax-saving fixed deposit

Under Section 80C of the Income Tax Act in India, an individual can claim a tax deduction of up to ₹1.5 lakh on investments made in tax-saving fixed deposits (FDs) offered by banks or post offices. Tax-saving FDs have a lock-in period of 5 years and offer tax benefits to investors, while the interest earned on them is taxable as per the individual's income tax slab rate. Investing in tax-saving FDs can help individuals save on taxes while also providing a fixed return on their investment.

“Due to the section 87A rebate, the new regime is advantageous for individuals with a taxable income of less than ₹7.50 lakh. Individuals with incomes in excess of 7.5 lakhs must select the optimal tax regime to minimize tax and maximize take-home pay,” says Founder and CEO, EZTax.in, a tax portal. It is important to remember that one can claim 80C deductions only under the old tax regime and one needs to opt for it, as the new tax regime is the default regime.