InFin Series – Deductions under section 80C in specified modes of investments PART 1

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Section 80C provides for a deduction from the Gross Total Income, of savings in specified modes of investments. This deduction is available only to an Individual taxpayer and a Hindu Undivided Family (HUF) and the maximum permissible deduction under Section 80C is INR 150,000.

Gross Total Income means summation of income declared under all the five heads of income, namely, Income from Salaries, Income from House Property, Income from Capital Gains, Income from Business or Profession and Income from Other Sources.

To arrive at Taxable Income, one has to deduct from the Gross Total Income, the deductions allowable under Chapter VIA (i.e. under Section 80C to 80U). In other words, we can say that Taxable Income = Gross Total Income less Deductions under section 80C to 80U.

Following are the general rules which should be kept in mind before claiming these deductions under Section 80C to 80U:

  1. No deduction under Chapter VI-A (under section 80C to 80U) shall be allowed from the following income:
    1. Long Term Capital Gains
    2. Short Term Capital Gains covered under section 111A
    3. Winnings from lotteries, horse races, etc referred to in Section 115BB
    4. Incomes covered under section 115A, 115AB, 115AC, 115AD, 115BBA and 115D
  2. The aggregate amount of deduction under Section 80C to 80U cannot exceed Gross Total Income (i.e. Gross Total Incomes excluding incomes referred to above)

There are 24 such modes of investments which qualify for deductions under section 80C. Thus, I would be explaining the same in series starting with the major ones. The following are the investments/ contributions eligible for deduction:

  1. Premium paid on insurance on the life of the individual, spouse or child (minor or major) and in the case of a Hindu Undivided Family, any member thereof. This will include a life policy and an endowment policy.

Deduction under Section 80C is allowed to the person who is making the payment for insuring the life of person insured. Although a person can pay life insurance premium on behalf of any other person as well, he would be allowed a tax deduction for payment of life insurance premium only in case the premium paid is for insuring the lives of the following:

  • Premium paid by INDIVIDUAL: Tax deduction under Section 80C would be allowed for payment of life insurance premium for insuring the life of self, spouse and any child of the individual. In case of tax deduction for life insurance premium of child, the child may be dependent or independent, male or female, married or unmarried. If the female child is married, then also the deduction would be allowed. However, the life insurance premium paid for insuring the life of brother/sister or parents is not allowed to be claimed as a deduction under section 80C.
  • Premium paid by HUF: Tax deduction under Section 80C would be allowed for payment of life insurance premium of any member of the HUF.
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In respect of policies issued before 1st April 2012

However, when the annual premium on insurance policies, other than a contract for deferred annuity, issued on or before 31st March 2012, exceeds 20% of the actual capital sum assured, only the amount of premium as does not exceed 20% will qualify for rebate. For the purpose of calculating the actual capital sum assured under this clause,

  1. The value of any premiums agreed to be returned or
  2. The value of any benefit by way of bonus or otherwise, over and above the sum actually assured.

Shall not be taken into account.

In respect of policies issued on or after 1st April 2012

However, the deduction under Section 80C for premium or other payment made on insurance policy, other than a contract for a deferred annuity, shall be restricted to the 10% of the actual sum assured, in case the insurance policy is issued on or after 1st April 2012.

Also, in respect of life insurance policies to be issued on or after 1st April 2012, the actual capital sum assured shall mean the minimum amount assured under the policy on happening of the insured event at any time during the term of the policy, not taking onto account he following:

  1. The value of any premium agreed to be returned; or
  2. Any benefit by way of bonus or otherwise over and above the sum actually assured which is to be or may be received under the policy by any person

In effect, in case the insurance policy has varied sum assured during the term of policy then the minimum of the sum assured during the life time of the policy shall be taken into consideration for calculation of the “actual capital sum assured” for the purpose of section 80C, in respect of life insurance policies to be issued on or after 1st April, 2012.

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In respect of policies issued on or after 1.4.2013

  • Specified insurance policy:

Premium paid in respect of a life insurance policy issued on or after 1st April, 2013, where the insurance is on the life of any person, who is –

  1. a person with disability or person with severe disability as referred to in section 80U; or
  2. suffering from disease or ailment as specified in the rules made under section 80DDB,

would qualify for deduction to the extent of 15% of minimum capital sum assured.

  • Other insurance policy:

In respect of other policies, the deduction of premium paid would continue to be restricted to 10% of minimum capital sum assured.

The following is a tabular summary of the exemption available under section 10(10D) and deduction allowable under section 80C vis-à-vis the date of issue of such policies –

 Exemption under Section 10(10D)Deduction under Section 80C
In respect of policies issued between 1.4.2003 and 31.3.2012Any sum received under a Life Insurance Policy including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 20% of “actual capital sum assured”.Premium paid to the extent of 20% of “actual capital sum assured”.
In respect of policies issued on or after 1.4.2012 but before 1.4.2013Any sum received under a Life Insurance Policy including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 10% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy.Premium paid to the extent of 10% of “minimum capital sum assured”.
In respect of policies issued on or after 1.4.2013a. Where the insurance is on the life of a person with disability or severe disability as referred to in section 80U or a person suffering from disease or ailment as specified under section 80DDB.
Any sum received under a Life Insurance Policy including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 15% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy.Premium paid to the extent of 15% of “minimum capital sum
assured”
b. Where the insurance is on the life of any person, other than mentioned in (a) above
Any sum received under a Life Insurance Policy including the sum allocated by way of bonus is exempt. However, exemption would not be available if the premium payable for any of the years during the term of the policy exceeds 10% of “minimum capital sum assured” under the policy on the happening of the insured event at any time during the term of the policy.Premium paid to the extent of 10% of “minimum capital sum
assured”.
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Illustration:

For instance, Rajesh paid life insurance premium during the Financial Year 2016-17, the details of which are given below:

S. No.Date of issue of policyPerson insuredActual capital sum assured (INR)Insurance premium paid during FY 2016-17 (INR)
1.1st April 2011Self300,00040,000
2.1st May 2014Spouse150,00020,000
3.1st June 2015Handicapped Son (Section 80U disability)400,00080,000

The eligible deduction under Section 80C for AY 2017-18 in respect of life insurance premium paid is as follows:

S.No.Date of issue of policyPerson insuredActual capital sum assured (INR)Insurance premium paid during FY 2016-17 (INR)Deduction under section 80C for AY 2017-18Remark (restricted to % of sum assured)
1.1st April 2011Self 300,00040,00040,00020%
2.1st May 2014Spouse150,00020,00015,00010%
3.1st June 2015Handicapped Son (Section 80U disability)400,00080,00060,00015%

The total would be INR 115,000 .