Short note: deduction under section 80C (as set, 1961 Act, AY 2016-17)

Who can claim and how much

Section 80C allows an individual or a Hindu undivided family to deduct from gross total income the sums listed in section 80C(2) that are paid or deposited in the previous year. For assessment year 2016-17 the deduction is limited to ₹1,50,000: a footnote to section 80C(1) shows one hundred and fifty thousand rupees substituted for one lakh rupees with effect from 1 April 2015. Only payments actually made in the year count, and section 112(2) does not let the deduction reduce long-term capital gains.

Payments that qualify

The main items of section 80C(2) are:

1. life insurance premium (clause (i)) and premium for a deferred annuity (clause (ii));
2. the employee's own contribution to a recognised provident fund (clause (vi)), to a provident fund under the Provident Funds Act, 1925 (clause (iv)), and to a provident fund set up and notified by the Central Government, such as the Public Provident Fund (clause (v)), where the contribution is to an account standing in the name of a person section 80C(2)(v) allows (the persons of sub-section (4), below);
3. contribution to an approved superannuation fund (clause (vii));
4. subscription to a notified Central Government security or deposit scheme (clause (viii)) and to notified savings certificates such as National Savings Certificates (clause (ix)). (CBDT Notification No. 222/2005 of 3 November 2005 (S.O. 1559(E)), which specifies the Public Provident Fund for section 80C(2)(v) from assessment year 2006-07; CBDT Notification No. 223/2005 of 3 November 2005 (S.O. 1560(E)), which specifies the National Savings Certificates (VIII Issue) for section 80C(2)(ix) from assessment year 2006-07.)
5. contributions to the unit-linked insurance plans of clauses (x) and (xi), and notified annuity plans (clause (xii));
6. units of notified mutual fund schemes and pension funds (clauses (xiii) and (xiv)), and notified deposit schemes of the National Housing Bank and of housing finance bodies (clauses (xv) and (xvi));
7. tuition fees paid to a university, college, school or other educational institution in India for the full-time education of up to two children, excluding development fees, donations and similar payments (clause (xvii) and section 80C(4)(c));
8. repayment of a housing loan taken from the listed lenders for buying or building a residential house, with the stamp duty and registration fee paid on its transfer, but not interest allowable under section 24 (clause (xviii));
9. a term deposit of at least five years with a scheduled bank under a notified scheme (clause (xxi)), notified NABARD bonds (clause (xxii)), the Senior Citizens Savings Scheme and the five-year post office time deposit (clauses
   23. and (xxiv)).

Limits on insurance premium

Premium counts only up to a share of the actual capital sum assured:

Persons for whom the payment may be made

Under section 80C(4), insurance premium (and contributions to the Public Provident Fund and unit-linked plans) may be for the individual, the spouse or any child; for a Hindu undivided family, for any member. Tuition fees are allowed for any two children of the individual.

Withdrawal of the deduction

Section 80C(5) takes back the benefit where:

• a life insurance policy is ended within two years of starting (single premium) or before two years' premiums are paid;
• participation in a unit-linked plan is ended before five years' contributions are paid; or
• the house for which a housing loan repayment was allowed is transferred within five years from the end of the financial year in which possession was obtained.

In that year no deduction is allowed for such payments, and the deductions allowed in earlier years are taxed as income of that year.