Section 80CCF

Deductions under Income Tax Act help to lessen the income tax liability by reducing the gross total income. There are many such deductions provided by the Government for the advantage of various types of persons falling in different income groups. One of such benefit provided is deduction under Section 80CCF. It is a special provision for the benefit of investors through government approved infrastructure bonds. This provision is inserted to encourage people to invest in infrastructure projects of the country which thereby, shall result in decreased tax liabilities, as a deduction of such amount invested can be claimed.

What is Section 80CCF?

Chapter VI A of the Income Tax Act provides for deductions to be made from gross total income. Section 80C has a broad list of deductions. Section 80CCF is a subsection under Section 80C. Section 80CCF provides a deduction to the taxpayer with respect to the amount invested by him in specific infrastructure bonds, as approved by Government.

Deductions under Section 80CCF

The maximum amount of deduction that can be availed by an individual under this section is INR 20,000 per annum. A deduction shall be for specified infrastructure bonds and other tax saving bonds. This benefit is over and above the deduction claimed under Section 80C. It helps the taxpayer to reduce his statutory tax liabilities.

Certain basic criteria should be met in order for an investor to truly benefit from the provisions of Section 80CCF. The following are some of the basic eligibility criteria for taxpayers:

• Resident of India: Only those persons who are residents of the country are eligible to claim tax benefits under Section 80CCF. NRIs and foreigners are not eligible to claim deductions under this section.

• Tax payer should be an Individual: This section is open only to individuals and is not available for companies, firms, organizations, associations, etc.

• Hindu Undivided Family: Apart from individual taxpayers, Hindu Undivided Families are also eligible for deductions under Section 80CCF.

• Joint Investment: Investments held in the name of two or more people are allowed. However, one person, the primary stakeholder, only can avail the tax benefits.

• Type of bond: Tax saving bonds issued by banks or corporations are eligible to be invested in. Banks and other eligible corporations issuing such bonds should obtain prior approval from Central Govt.

• Amount to be invested: There is no cap on the amount to be invested in such bonds

• Amount available for deduction: Even though there is no cap for investing in such bonds, the maximum deduction that can be claimed is INR 20,000/-. This is a flat deduction provided by the Government.

• Eligibility to invest: Unlike other investments, any investment made in this bond shall be in the name of the major person. In other words, investment cannot be made in the name of a minor.

Under this section, the benefit can be claimed by investors only through certain investments that are eligible for tax deductions. Not all bonds qualify for deduction under Section 80CCF. The following example provides a framework of how Section 80CCF works. Example:

Mr. A, aged 30 is a resident employee in a MNC.

He is earning a salary of INR 4.9 lakhs per year.

As per the current income tax slabs, he shall be taxable at an amount exceeding INR 2.5 lakh, i.e., his taxable income is INR 2.4 lakhs. In order to reduce his tax burden, he shall invest in a number of schemes which provide deductions under Section 80C. He will make an investment amounting of INR 1.5 lakh which is deducted under Section 80C, making his taxable income INR 90,000 now (INR 2.4 lakh – INR 1.5 lakh). In order to save more tax, he invests in an infrastructure bond offered by a top bank, investing INR 40,000 in the same.

In the current scenario, INR 20,000 out of the INR 40,000 invested can be deducted under Section 80CCF, thereby reducing his total taxable income to INR 70,000 (INR 90,000 – INR 20,000), helping him save a substantial amount of tax.