Avoid mistakes while claiming deduction under section 80C

The most attractive section of Chapter VI A of the Income Tax Act, 1961 is Section 80C. For specified investments or expenditure, this section allows a maximum deduction of up to Rs. 1.5 lakh from the gross total income. Most of the investment options available in the market are specified in Section 80C and simultaneously, an individual or HUF can also enjoy the benefit of reduction in taxable income.

But do you make rational decisions while investing, or do you rightly claim the amount invested or expended? Let’s figure it out.

To claim the deduction under Section 80C, the deadline to make investments is till the end of the financial year. Still, we wait until the eleventh hour to decide on investments, ending with spending irrationally in adhoc investment options. Though tax is saved presently, this finally results in creating a portfolio which is not rewarding for the long run. Hence, where to invest needs to be gradually taken care of from the year’s commencement. 

Additionally, the specified investment options are long-term in nature with a lock-in period; for example, a minimum lock-in period in ELSS is three years. LIC policy period is generally long term in nature, five years tax-saving fixed deposit scheme, etc. Hence, once the investment made cannot be rectified easily. The funds can be appropriately managed to fetch better returns. Also, do not mix investment and insurance. Where investment instruments can provide you with higher returns, insurance provides backup for uncertain future events.

Also Read: 3 Financial Mistakes to Avoid in 2021

Stamp duty and registration fees and other expenses directly related to house property transfer are also allowable under Section 80C. However, these expenditures on property purchased or constructed should not be other than a residential house. And it can be claimed only when the actual payment is made.

The tuition fees paid for the education of children is also allowed to claim deduction under Section 80C. Only the tuition fee component paid for two children can be claimed.

Equity-Linked Saving Scheme (ELSS) is one of the eligible instruments, and it provides a higher return than any other traditional savings scheme. The significant proportion in ELSS consists of equity shares; hence, it is beneficial if invested for the long term.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in