Deduction in respect of investment in specified assets [Section 80C] :
(i) Section 80C provides for a deduction from the Gross Total Income, of savings in specified modes of investments.
(ii) Deduction under section 80C is available only to an individual or HUF.
(iii) The maximum permissible deduction under section 80C is Rs 1,50,000.
(iv) The following are the investments/contributions eligible for deduction –
(1) Premium paid on insurance on the life of the individual, spouse or child (minor or major) and in the case of HUF, any member thereof. This will include a life policy and an endowment policy.
In respect of policies issued before 1.4.2012 :
However, where the annual premium on insurance policies, other than a contract for deferred annuity, issued on or before 31.3.2012, exceeds 20% of the actual capital sum assured, only the amount of premium as does not exceed 20% will qualify for rebate.
For the purpose of calculating the actual capital sum assured under this clause,
(a) the value of any premiums agreed to be returned or
(b) the value of any benefit by way of bonus or otherwise, over and above the sum actually assured, shall not be taken into account.
In respect of policies issued on or after 1.4.2012 :
However, the deduction under section 80C for premium or other payment made on insurance policy, other than a contract for a deferred annuity, shall be restricted to the 10% of the actual sum assured, in case the insurance policy is issued on or after 1st April, 2012.
Also, Explanation to section 80C(3A) has been introduced to provide that, in respect of the life insurance policies to be issued on or after 1st April, 2012, the actual capital sum assured shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking into account –
(1) the value of any premium agreed to be returned; or
(2) any benefit by way of bonus or otherwise over and above the sum actually assured which is to be or may be received under the policy by any person.
In effect, in case the insurance policy has varied sum assured during the term of policy then the minimum of the sum assured during the life time of the policy shall be taken into consideration for calculation of the “actual capital sum assured” for the purpose of section 80C, in respect of life insurance policies to be issued on or after 1st April, 2012.
In respect of policies issued on or after 1.4.2013 :
Premium paid in respect of a life insurance policy issued on or after 1st April, 2013, where the insurance is on the life of any person, who is –
(1) a person with disability or person with severe disability as referred to in section 80U; or
(2) suffering from disease or ailment as specified in the rules made under section 80DDB,
would qualify for deduction to the extent of 15% of minimum capital sum assured. In respect of other policies, the deduction of premium paid would continue to be restricted to 10% of minimum capital sum assured.
The following is a tabular summary of the exemption available under section 10(10D) and deduction allowable under section 80C vis-à-vis the date of issue of such policies –
| Exemption u/s 10(10D) | Deduction u/s 80C | |
| In respect of policies issued between 1.4.2003 and 31.3.2012 | Any sum received under a LIP including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 20% of “actual capital sum assured”. | Premium paid to the extent of 20% of “actual capital sum assured”. |
| In respect of policies issued on or after 1.4.2012 but before 1.4.2013
|
Any sum received under a LIP including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 10% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy. | Premium paid to the extent of 10% of “minimum capital sum assured” |
| In respect of policies issued on or after 1.4.2013 | (a) Where the insurance is on the life of a person with disability or severe disability as referred to in section 80U or a person suffering from disease or ailment as specified under section 80DDB. | |
| Any sum received under a LIP including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 15% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy. | Premium paid to the extent of 15% of “minimum capital sum assured” | |
| (b) Where the insurance is on the life of any person, other than mentioned in (a) above | ||
| Any sum received under a LIP including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 10% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy.
|
Premium paid to the extent of 10% of “minimum capital sum Assured”. | |
Illustration
Compute the eligible deduction under section 80C for A.Y.2016-17 in respect of life insurance premium paid by Mr. Ganesh during the P.Y.2015-16, the details of which are given hereunder-
| Date of issue of policy | Person insured | Actual capital sum assured (Rs) | Insurance premium paid during 2015-16 (Rs) | |
| (i) | 1/4/2011 | Self | 2,00,000 | 50,000 |
| (ii) | 1/5/2012 | Spouse | 1,50,000 | 20,000 |
| (iii) | 1/6/2013 | Handicapped Son (section 80U disability) | 4,00,000 | 80,000 |
Solution
| Date of issue of policy | Person insured | Actual capital sum assured | Insurance premium paid during 2015-16 | Deduction u/s 80C for A.Y.2016-17 | Remark (restricted to % of sum assured) | |
| (i) | 1/4/2011 | Self | 2,00,000 | 50,000 | 40,000 | 20% |
| (ii) | 1/5/2012 | Spouse | 1,50,000 | 20,000 | 15,000 | 10% |
| (iii) | 1/6/2013 | Handicapped Son (section 80U disability) | 4,00,000 | 80,000 | 60,000 | 15% |
| Total | 1,15,000 |
(2) Premium paid to effect and keep in force a contract for a deferred annuity on the life of the assessee and/or his or her spouse or child, provided such contract does not contain any provision for the exercise by the insured of an option to receive cash payments in lieu of the payment of the annuity.
It is pertinent to note here that a contract for a deferred annuity need not necessarily be with an insurance company. It follows therefore that such a contract can be entered into with any person.
(3) Amount deducted by or on behalf of the Government from the salary of a Government employee for securing a deferred annuity or making provisions for his spouse or children. The excess, if any, over one-fifth of the salary is to be ignored.
(4) Contributions to any provident fund to which the Provident Funds Act, 1925 applies.
(5) Contributions made to any Provident Fund set up by the Central Government and notified in his behalf (i.e., contribution by an individual to the Public Provident Fund established under the Public Provident Fund Scheme, 1968). Such contribution can be made in the name of any persons mentioned in (1) above. The maximum limit for deposit in PPF is Rs 1,50,000 in a year.
(6) Contribution by an employee to a recognised provident fund.
(7) Contribution by an employee to an approved superannuation fund
(8) Subscription to any such security of the Central Government or any such deposit scheme as the Central Government as may notify in the Official Gazette. Accordingly, Sukanya Samriddhi Scheme has been notified to provide that any sum paid or deposited during the previous year in the said Scheme, by an individual in the name of –
(a) the individual himself or herself;
(b) any girl child of the individual; or
(c) any girl child for whom such individual is the legal guardian would be eligible for deduction under section 80C.
(9) Subscription to any Savings Certificates under the Government Savings Certificates Act, 1959 notified by the Central Government in the Official Gazette (i.e. National Savings Certificate (VIII Issue) issued under the Government Savings Certificates Act, 1959).
(10) Contributions in the name of any person specified in (1) above for participation in the Unit-linked Insurance Plan 1971.
(11) Contributions in the name of any person mentioned in (1) above for participation in any Unit linked Insurance Plan of the LIC Mutual Fund, referred to in section 10(23D) in this behalf.
(12) Contributions to approved annuity plans of LIC (New Jeevan Dhara and New Jeevan Akshay, New Jeevan Dhara I and New Jeevan Akshay I, II and III) or any other insurer (Tata AIG Easy Retire Annuity Plan of Tata AIG Life Insurance Company Ltd.) as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(13) Subscription to any units of any mutual fund referred to in section 10(23D) or from the Administrator or the specified company under any plan formulated in accordance with such scheme notified by the Central Government;
(14) Contribution by an individual to a pension fund set up by any Mutual Fund referred to in section 10(23D) or by the Administrator or the specified company as the Central Government may specify (i.e., UTI-Retirement Benefit Pension Fund set up by the specified company referred to in section 2(h) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 as a pension fund).
| Specified company means a company formed and registered under the Companies Act, 1956 and whose entire capital is subscribed by such financial institutions or banks as may be specified by the Central Government, by notification in the Official Gazette, for the purpose of transfer and vesting of the undertaking
“Administrator” means a person or a body of persons appointed as Administrator by the Central Government. The Central Government shall appoint a person or a body of persons, as the “Administrator of the specified undertaking of the Unit Trust of India” for the purpose of taking over the administration thereof and the Administrator shall carry on the management of the specified undertaking of the Trust for and on behalf of the Central Government. “Specified undertaking” includes all business, assets, liabilities and properties of the Trust representing and relatable to the schemes and Development Reserve Fund. |
(15) Subscription to any deposit scheme or contribution to any pension fund set up by the National Housing Bank i.e., National Housing Bank (Tax Saving) Term Deposit Scheme, 2008.
(16) Subscription to any such deposit scheme of a public sector company which is engaged in providing long-term finance for construction, or purchase of houses in India for residential purposes or any such deposit scheme of any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of ci ties, towns and villages or for both. The deposit scheme should be notified by the Central Government. The Central Government has, vide Notification No.2/2007 dated 11.1.2007, specified the public deposit scheme of HUDCO, subscription to which would qualify for deduction under section 80C.
(17) Payment of tuition fees by an individual assessee at the time of admission or thereafter to any university, college, school or other educational institutions within India for the purpose of full-time education of any two children of the individual. This benefit is only for the amount of tuition fees for full-time education and shall not include any payment towards development fees or donation or payment of similar nature and payment made for education to any institution situated outside India.
(18) Any payment made towards the cost of purchase or construction of a new residential
house property. The income from such property –
(i) should be chargeable to tax under the head “Income from house property”;
(ii) would have been chargeable to tax under the head “Income from house property” had it not been used for the assessee‘s own residence.
The approved types of payments are as follows:
(i) Any installment or part payment of the amount due under any self -financing or other schemes of any development authority, Housing Board or other authority engaged in the construction and sale of house property on ownership basis; or
(ii) Any installment or part payment of the amount due to any company or a cooperative society of which the assessee is a shareholder or member towards the cost of house allotted to him; or
(iii) Repayment of amount borrowed by the assessee from:
(a) The Central Government or any State Government;
(b) Any bank including a co-operative bank;
(c) The Life Insurance Corporation;
(d) The National Housing Bank;
(e) Any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under section 36(1)(viii);
(f) Any company in which the public are substantially interested or any cooperative society engaged in the business of financing the construction of houses;
(g) The assessee‘s employer, where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act;
(h) the assessee‘s employer where such employer is a public company or public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.
(iv) Stamp duty, registration fee and other expenses for the purposes of transfer of such house property to the assessee.
Inadmissible payments: However, the following amounts do not qualify for rebate:
(i) admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming a shareholder or member; or
(ii) the cost of any addition or alteration or renovation or repair of the house property after the completion of the house or after the house has been occupied by the assessee or any person on his behalf or after it has been let out; or
(iii) any expenditure in respect of which deduction is allowable under section 24.
(19) Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company or as subscription to any eligible issue of capital by any public financial institution in the prescribed form.
Eligible issue of capital means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in section 80-IA(4).
A lock-in period of three years is provided in respect of such equity shares or debentures. In case of any sale or transfer of shares or debentures within three years of the date of acquisition, the aggregate amount of deductions allowed in respect of such equity shares or debentures in the previous year or years preceding the previous year in which such sale or transfer has taken place shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
A person shall be treated as having acquired any shares or debentures on the date on which his name is entered in relation to those shares or debentures in the register of members or of debenture-holders, as the case may be, of the public company.
(20) Subscription to any units of any mutual fund referred to in section 10(23D)] and approved by the Board on an application made by such mutual fund in the prescribed form. It is necessary that such units should be subscribed only in the eligible issue of capital of any company.
(21) Investment in term deposit.
(1) for a period of not less than five years with a scheduled bank; and
(2) which is in accordance with a scheme framed and notified by the Central Government in the Official Gazette now qualifies as an eligible investment for availing deduction under section 80C.
The maximum limit for investment in term deposit is Rs 1,50,000.
Scheduled bank means –
(1) the State Bank of India constituted under the State Bank of India Act, 1955, or
(2) a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959, or
(3) a corresponding new bank constituted under section 3 of the –
(a) Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, or
(b) Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, or
(4) any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934.
(22) Subscription to such bonds issued by NABARD (as the Central Government may notify in the Official Gazette).
(23) five year time deposit in an account under Post Office Time Deposit Rules, 1981; and
(24) deposit in an account under the Senior Citizens Savings Scheme Rules, 2004.
Termination of Insurance Policy or Unit Linked Insurance Plan or transfer of House Property or withdrawal of deposit:
Where, in any previous year, an assessee:
(i) terminates his contract of insurance referred to in (1) above, by notice to that effect or where where the contract ceases to be in force by reason of not paying the premium, by not reviving the contract of insurance, –
(a) in case of any single premium policy, within two years after the date of commencement of insurance; or
(b) in any other case, before premiums have been paid for two years; or
(ii) terminates his participation in any Unit Linked Insurance Plan referred to in (10) or (11) above, by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years, or
(iii) transfers the house property referred to in (18) above, before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in (18) above,
then, no deduction will be allowed to the assessee in respect of sums paid during such previous year and the total amount of deductions of income allowed in respect of the previous year or years preceding such previous year, shall be deemed to be income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.
Further, where any amount is withdrawn by the assessee from his account under the Senior Citizens Savings Scheme or under the Post Office Time Deposit Rules before the expiry of a period of 5 years from the date of its deposit, the amount so withdrawn shall be deemed to be the income of the assessee of the previous year in which the amount is withdrawn. Accordingly, the amount so withdrawn would be chargeable to tax in the assessment year relevant to such previous year. The amount chargeable to tax shall would also include that part of the amount withdrawn which represents interest accrued on the deposit. However, if any part of the amount so received or withdrawn (including the amount relating to interest) has been subject to tax in any of the earlier years, such amount shall not be taxed again.
Illustration
Mr. A, aged about 61 years, has earned a lottery income of Rs 1,20,000 (gross) during the P.Y. 2015-16. He also has a business income of Rs 30,000. He invested an amount of Rs 10,000 in Public Provident Fund account and Rs 24,000 in National Saving Certificates. What is the total income of Mr. A for the A.Y.2016-17?
Solution
Computation of total income of Mr.A for A.Y.2016-17
| Particulars | Rs | Rs |
| Profits and gains from business or profession | 30,000 | |
| Income from other sources – lottery income | 1,20,000 | |
| Gross Total Income | 1,50,000 | |
| Less: Deductions under Chapter VIA [See Note below] | ||
| Under section 80C – Deposit in Public Provident Fund | 10,000 | |
| – Investment in National Saving Certificate | 24,000 | |
| 34,000 | ||
| Restricted to | 30,000 | |
| Total Income | 1,20,000 |
Note: Though the value of eligible investments is Rs 34,000, however, deduction under Chapter VIA cannot exceed the gross total income exclusive of long term capital gains, short term capital gains covered under section 111A, winnings of lotteries etc of the assessee.
Therefore, the maximum permissible deduction u/s 80C = Rs 1,50,000 – Rs 1,20,000 = Rs 30,000.
Illustration
An individual assessee, resident in India, has made the following investments during the previous year 2015-16:
| Particulars | Rs |
| Contribution to the public provident fund | 1,20,000 |
| Investment in units of eligible mutual funds | 40,000 |
| Insurance premium paid on the life of the spouse (policy taken on 1.4.2011) (Assured value Rs 1,00,000) | 25,000 |
What is the deduction allowable under section 80C for A.Y.2016-17?
Solution
Computation of deduction under section 80C for A.Y.2016-17
| Particulars | Rs |
| Deposit in public provident fund | 1,20,000 |
| Investment in units of eligible mutual funds | 40,000 |
| Insurance premium paid on the life of the spouse (Maximum 20% of the assured value Rs 1,00,000, as the policy is taken before 1.4.2012) | 20,000 |
| Total | 1,80,000 |
| However, the maximum permissible deduction u/s 80C is restricted to | 1,50,000 |
Note: As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000.