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| Edited By: Balwant Jain |Source: DNA |Updated: Sep 19, 2018, 06:20 AM IST
Section 80 C of the Income Tax Act allows you deduction up to Rs 1.50 lakh in respect of certain items of investments and expenses. These deductions are subject to some restrictions with respect to the persons for whom you can claim these and the lock-in period for which you need to hold the investments. Let us see what these restrictions are.
Deduction for repayment of home can be claimed only if the loan has been taken from specified financial institutions like banks, housing finance companies. You can also avail the benefit if you have availed home loan from your employer, provided your employer is a public limited company, central government, state government or a board, a corporation or a university established by law. In respect of loans taken from your friends and relatives, you can claim deduction under Section 24(b) for interest. But the deduction under Section 80 C for repayment of principal is not available in such case.
Deduction is available for residential property only and not for commercial property. Also, the deduction can only be claimed after you have obtained possession of the house, even though the repayment of home loan might have begun before completion of construction.
In case you sell the property within five years from the end of the financial year, in which possession of the property was taken, all deductions allowed earlier shall be reversed and are treated as income of the year in which the property is transferred. But if the home loan is prepaid , there is no reversal of the tax deduction. It is interesting to note that there is no similar provision for reversing deductions allowed for interest under Section 24(b) even if you sell the house before five years. This means that only the deduction allowed for repayment of principal amount is reversed, but the deduction allowed for repayment of interest stays.
An individual can pay and claim deduction for life insurance premium for himself, spouse and children, whether dependent or not. But children can not claim tax benefits for life insurance premium paid for parents. The Hindu Undivided Family can pay and claim deduction for premium for any of its members.
There is also a lock-in period of two years. You cannot terminate or let the policy lapse before completion of two years. Failing this deductions allowed in the earlier years are reversed and added to your income of the current year.
Your children's tuition fee is eligible under Section 80 C, but only for two children and that, too, for full-time course in an educational institution situated in India only. The deduction is available only for tuition fee paid. So, any amount paid as donation or as development charges will not be eligible for this deduction. In case there are more than two children, the deduction in respect of other children can be claimed by your spouse, if your spouse has taxable income. Even in case of two children, excess fee can be claimed by the other spouse, if the limit of Rs 1.50 lakh gets exhausted for one spouse.
Senior Citizens can claim deduction under 80C for money deposited in "Senior Citizen Savings Scheme" which has to be maintained for five year. If you withdraw the deposit before five years, the amount withdrawn becomes taxable if deduction has been claimed earlier. However, any money received by the nominee or legal heirs on closure of the account, due to death of the account holder, even before five years does not become taxable.
ELSS (Equity Linked Saving Schemes) of mutual funds have gained popularity since these have given good returns over the long period. The units allotted under ELSS schemes have a lock-in period of three years. In case of investment made through Systematic Investment Plan (SIP), three years are calculated from the date of each SIP installment.
These are the restrictions under Section 80 C that one should be aware of while planning your investments.
The writer is a tax and investment expert
