Tax Relief Unveiled

Nothing in life is guaranteed, except death and taxes. Over here, we are not going to discuss the former, just the latter.

Tax saved is money earned. And if you handle it wrongly, it can drain you financially and mentally. Of course, one cannot implement a discussion on tax planning without mentioning Section 80C.

What falls under Section 80C?

Section 80C is not just about investments but also expenditure. The total of these should amount to Rs 1 lakh - the limit under this section.

Investments
· Employees' Provident Fund
· Public Provident Fund
· National Savings Certificate
· 5-year bank fixed deposits
· Infrastructure bonds
· Investment in pension plans
· Life insurance premium
· Equity-Linked Saving Schemes

Expenditure · Principal amount of home loan
· Education fees for children

Start with the expenses
If you are investing under Section 80C, you should start with any expense you have that will fall under it.

There are just two categories of expenses that qualify. Payments towards the education fees of children and payment towards the principal amount of your home loan are eligible for an income deduction.

If you qualify on any of the above (or both) criteria, then you should calculate the total. Deduct this amount from the Rs 1 lakh limit to arrive at the figure you need to consider for investing.

Let's work it out (all the figures below are in Rs).

Salary income: 3,20,000
Home loan interest payment: 1,20,000
Home loan principal repayment: 80,000
PPF: 40,000

Gross total income?
Gross total income = 3,20,000 - 1,20,000
= 2,00,000
Home loan interest payment is viewed as negative income from house property

How much is invested in Section 80C?
Home loan principal repayment: 80,000
PPF: 40,000
This exceeds the Section 80C limit of Rs 1 lakh

Taxable income?
Gross total income - Section 80C limit
= 2,00,00 - 1,00,000
= 1,00,000

Tax on taxable income?
Nil

Are there any limits under Section 80C?

A question that many grapple with is whether or not there are individual sub-limits under the overall Rs 1 lakh limit.

In the erstwhile Section 88, there were such limits. And when Section 80C replaced Section 88, those limits were done away with.

Ø Section 88 was a rebate. Section 80C is a deduction from your total income

Ø The actual amount of rebate under Section 88 depended on the income slab. Section 80C is applicable to everyone, irrespective of how much you earn and under which tax bracket you fall under.

Ø Section 88 has various sub-limits. Section 80C has none. Individual investments have their own limits. For instance, the maximum that you can invest in PPF is Rs 70,000 per annum. Under Section 80CCC, the contribution made to pension funds is subject to a maximum of Rs 10,000. And of course, your contribution to the EPF will be fixed.

Barring the above, how you want to distribute your money among the investments is totally left to your discretion.