In Time to start your tax planning, we explained why Section 80C is better than Section 88.
Over here, we tell you what qualifies for exemption under Section 80C.
The investments
1. Contribution to Provident Fund
2. Contribution to Public Provident Fund
3. Payment of life insurance premium
4. Investment in pension plans
5. Investment in Equity Linked Saving Schemes of mutual funds
6. Investment in Infrastructure bonds
7. Investment in National Savings Certificate
The expenditure
1. Payments towards the principal amount of your home loan are eligible for an income deduction.
2. Payments towards the education fees for children are also eligible for an income deduction.
The limit
Overall, the limit under Section 80C is Rs 1,00,000. Unlike Section 88, there are no sub-limits.
This is irrespective of how much you are earn and under which tax bracket you fall.
However, there may be individual limits under each.
For instance, the maximum that you can invest in PPF is Rs 70,000 per annum.
Also, under Section 80CCC, the contribution made to pension funds is subject to a maximum of Rs 10,000.
Barring these exceptions, you can choose to invest the entire amount in ELSS or infrastructure bonds. The choice is entirely up to you as to how you want to reach this limit.
Or, if you are repaying a home loan and the principal repayment amounts to Rs 1,00,000, you can claim the entire amount as a deduction.
Similarly, the deduction for tuition fees under Section 80C is available towards payment of education fees for children upto a ceiling of Rs 1,00,000. However, in order to avail of this deduction, you will have to produce the fee receipt.
The calculation
Let's take an example to better explain the tax working:
|
Net taxable income |
Tax rate |
|
Upto Rs 1,00,000 |
Nil |
|
Rs 1,00,001 1,50,000 |
10% |
|
Rs 1,50,001 2,50,000 |
20% |
|
Rs 2,50,001 onwards |
30% |
Salary income: Rs 3,20,000
Home loan interest payment: Rs 1,20,000
Home loan principal repayment: Rs 80,000
NSC investment: Rs 30,000
|
Salary (a) |
320,000 |
|
Income from house property (b)* |
120,000 |
|
Gross total income (c) (c = a b) |
200,000 |
|
|
|
|
Home loan principal repayment |
80,000 |
|
NSC investment |
30,000 |
|
Section 80C investments |
1,10,000 |
|
|
|
|
Limit for Section 80C deduction (d) |
1,00,000 |
|
Taxable income (c d) |
100,000 |
|
Tax on taxable income |
Nil |
* The tax man views the home loan interest payment as negative income from house property.
You don't have a long way to go for the financial year to come to an end (March 31, 2006). So, if you have not already done your tax planning, get cracking.
