How your tax-saving looks post Budget 2022: Section 80C & more for taxpayers

Feb 04, 2022, 04:05:01 PM IST

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What is the section 80C benefit?

The section 80C benefit is the go-to tax-saving route many taxpayers take. Deductions under it are available only to individuals and Hindu Undivided Families (HUFs). Since FY 2014-15, the 80C limit has stood at Rs 1.5 lakh per annum. However, in the last 7+ years and especially in the recent past, expenses have gone up, salaries have increased, inflation has risen etc. whereas the 80C limit has remained as is.

For this reason, it was on several taxpayers' wishlists that in Union Budget 2022, the government hike the section 80C limit to at least Rs 2.5 lakh per annum, for this would not only help the average taxpayer but also the government itself.

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What happened in Union Budget 2022?

Dashing the hopes of many, FM Nirmala Sitharaman let the 80C limit remain untouched in her Budget. This means that individuals opting for the old tax regime for FY 2022-23 will continue to claim maximum deduction of Rs 1.5 lakh in a financial year whereas those who opt for the new one will not be able to claim the section 80C tax deduction. An individual falling under the highest tax bracket of 30% can save tax of Rs 46,800 (inclusive of cess at 4%) by fully utilising the deduction under this section.

Also read: 10 tax-saving strategies that can improve your financial health too

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How to reduce income tax via 80C

To claim deductions under this section, an individual is required to invest in specified instruments. Further, select expenditures are also allowed as deductions under section 80C. The major tax saving options available for claiming deduction under section 80C are:

Life insurance premium paid
Contributions to Public Provident Fun
Contributions to Employees' Provident Fund and Voluntary Provident Fun
Repayment of housing loan principa
Stamp duty and registration charges paid for purchase of hous
Investments in ELSS or tax saving mutual fund
Investments in Sukanya Samriddhi Account schem
Tuition fees of childre
Investments in 5-year tax saving bank or postal fixed deposi
Investments in Senior Citizen Saving Scheme

Also read: How to use income tax rules for smart tax saving: 5 investment strategies

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Specific tax treatments

Investment avenues under section 80C have their own rate of return, liquidity and tax treatment on the returns earned. For instance, interest earned from 5-year tax saving bank FD is taxable in the hands of an individual at the income tax rates applicable to your income. On the other hand, interest earned on PPF investment is tax-exempt. In case of ELSS investments in mutual funds, income tax will be only once the investments are redeemed. The gains will be taxed as long-term capital gains at the rate of 10% without indexation, provided capital gains exceed Rs 1 lakh in a financial year. If the long-term capital gains from equity shares and/or equity mutual fund do not exceed Rs 1 lakh in the financial year, then such capital gains are tax-exempt too.

Also read: Best tax saving options

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Arriving at taxable income

The taxable income of an individual is arrived at after reducing the eligible section 80C deduction amount from his gross total income. One needs to take into account the amounts already eligible for deduction as above and can only make fresh investments for the balance deduction, if needed.

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