Deduction Under Section 80C and 80U

What is Tax Deduction?

Eligible tax deductions reduce your tax liabilities, enabling you to save a considerable percentage of tax that is otherwise applicable on your income bracket. You have to file for tax deductions, with relevant proof to support your claims, to avail the provisions mentioned in the Income Tax Act, 1961. The Government of India offers deductions on expenses that contribute to the social good to garner active participation in such activities from citizens. While your contributions towards charity, medical expenditures and tuition fees is tax deductible, you can also claim deductions and exemptions through investments in relevant schemes like insurance plans, national savings schemes, retirement savings schemes, etc.

Let’s take a look at the tax deductions that an individual is eligible for on investments under Section 80C and Section 80U of the Income Tax Act, 1961.

The extensive list of deductions that an individual can claim under Section 80C has encouraged the creation of a sub-section for enhanced transparency of the provisions to the taxpayers and their better understanding. Here is the list of sub-sections and the tax benefits that an individual can claim.

This section provides tax deductions for investments towards specific pension schemes, as notified by the Central Government. This section serves as a boost for taxpayers to inculcate the habit of savings. Individuals and their employers are eligible for tax deductions that are made under this section, provided the deduction is less than 10% of his/her salary. This sub-section has been categorised into 3 parts –

• Section 80CCD(1): This is applicable to employees who contribute to NPS voluntarily, the tax deduction limit is up to a maximum of 10% of one’s salary (Basic + DA)

• Section 80CCD(1B): An employee who contributes to NPS voluntarily is eligible for claiming an additional deduction of a maximum INR 50,000 subject to 10% off salary (Basic + DA). However, he/she will not be eligible for tax deductions under this section if he/she has already been allowed deductions under 80CCD(1).

• Section 80CCD(2): This is applicable for employees whose employer contributes to the NPS Funds for employees. In that case, the employees will be eligible for a maximum 10% deduction on his/her salary (Basic + DA). Schemes considered for deduction under this section are Atal Pension Yojana and National Pension Scheme.

Tax deductions under this section pertain to investments in equity savings schemes as specified by the government with individuals being eligible for tax deductions of up to 50% of the invested amount, with the maximum deduction being INR 25,000 annually for three consecutive Assessment Years.