Deducstion Under Section 80 C come with restrictions

Section 80C>>>

Deductions & Restrictions>>>

This time round the year when we are still grappling with the sky-high prices of onions, petrol and vegetables, the circular of tax deduction claims submission in our mail box has added to the concerns. This  is a fact of life with which we have to deal with and deal smartly.  As you are aware that  Section 80 C allows you deduction upto Rs. 1 lakh from your total income in respect of some of the items of investment and expenses. But what you are not aware is that these  items of deductions are subject to some restrictions with regard to  person in respect of whom you are claiming  these deductions.  Also there is a requirement with regard  to the period of holding of the investment/asset acquired.

In this article I intend to discuss these restrictions in respect to some major  deductions.

Life Insurance Premium

An individual or an HUF can claim deduction for Life Insurance Premium paid. An individual can claim this deduction in respect of  Life Insurance Policy taken on life of  the person himself, his spouse or any of his children. As a parent, you can pay and claim for life insurance of your children whether dependent or independent but  children can not pay and claim the tax benefits in respect of life insurance premium paid in respect of life of parents. The HUF can claim deduction on the  premium paid on  the life insurance policy taken on the life of any of its members.

In addition to the person in respect of whom the Life Insurance Premium can be paid, there is also a lock-in period of two years, till then you cannot  terminate or let the policy lapse.   In case this happens, the deductions allowed in earlier years are added to your income of the current year.

 

Education Expenses

Your children’s tuition fee is also covered  under Section 80 C, but with some conditions. It is restricted to two children only and institution should be in India only.   In case you have more than two children, the deduction in respect of other children can be claimed by your spouse.

Home loan repayment

One can claim deduction in respect of repayment of home loan, but this too is not without some restrictions.  First the deduction can be claimed only if the loan has been taken from specified financial institutions or entities like your employer which is a public limited company, central government or state government or board, corporation, university established by law.

Then there is another restriction with respect to ownership status of the property. You can claim this  deduction only if your are owner of the property. In one of my earlier articles, I have explained that the claim for deduction can only be made after you have obtained possession of the house property though the repayment might have begun while the property is still under construction. The third restriction is about holding of the property which is acquired with the help of a loan and on which deduction under Section 80 C is claimed. In case you sell the property within five years beginning the end of financial year in which possession of the property was taken, all the deductions in respect of this property shall be treated as income of the year in which you transferred the property.

PPF Account contributions

In respect of  PPF contributions there is no ceiling on the deduction under the Income Tax Act however there is a ceiling as per PPF rules.  You can not contribute more than Rs. 70000 in a single account in a financial year. Moreover  you cannot open a PPF account in the name of HUF after May 2005, however as per the provisions of the income tax act, the HUF can still claim deduction in respect of contributions made to the accounts maintained in the name of any member of the HUF.  You can claim deductions in respect of PPF contributions made towards your spouse as well as for your child. Let me bring to your notice that only PPF contribution is the items of pure investments where a parent can claim deductions in respect of  money deposited in the PFF account of your child and spouse. Since gift to your child is exempt and the clubbing provisions will not have impact as the interest on PPF account is exempt, By contributing to PPF account of your child you can help him build a corpus and save taxes at the same time.

Deposits under Senior Citizen Scheme:

Those who have completed 60 years of age, can claim deduction under 80C under Senior Citizen Deposit Scheme.   Moreover these deposits have to be maintained for a period of five year but if you withdraw the deposit before this period, the amount  withdrawn shall become taxable in the year of withdrawal in case deduction in respect of same 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 shall not be taxed when received.

ELSS contributions:

Contribution of ELSS( Equity Linked Saving Schemes) of Mutual Funds, popularly known as tax saving schemes, have gained popularity since these have given better returns in line with the overall returns on investments in equity. Contributions  to these ELSS schemes have a restriction as to holding period of three years. This is the shortest holding period in respect of pure saving based investments qualifying for deduction under Section 80C. In case you sell the units acquired under ELSS before completion of three years, the deduction claimed earlier will become taxable in the year of withdrawal.

In case the investment was made through Systematic Investment Plan, this limit of three years will apply to each contribution.

I hope restrictions applicable have become clear to you in respect of whom you can claim deductions under Section 80C. Besides, you have also understood the importance of holding period of the asset in respect of which you plan to avail the deduction in your tax returns.