An individual or a HUF can get deductions of up to Rs.1.5 lakh per financial year under the 80C section, and even the 80CCC and 80CCD. But, the bad news is, if you are a partnership, company, or a corporate body, you cannot. Every taxpayer loves Section 80C because of the deduction it can get. And the process is pretty simple too, while you just have to claim the deduction on your income tax return by the 31st of July each year, and if you cross that due date – oopsie…, that is a big no-no. If you are wondering whether this Section 80C is applicable on your PF, let us find out, but before that, I want to make you strong on the basics – if not for you, at least for the newbies.
What is Section 80C?
Section 80C is a popular and well-liked section among taxpayers because it allows them to lower their taxable income by making tax-saving investments or incurring qualified costs. It enables a maximum deduction of Rs 1.5 lakh from the taxpayer’s total income per year.
Individuals and HUFs, both profit from this deduction. This deduction is not available to corporations, partnership firms, or LLPs. Section 80C contains the subsections 80CCC, 80CCD (1), 80CCD (1b), and 80CCD (2b) (2).
What is PF?
The Employees’ Provident Fund and Miscellaneous Act of 1952 established the PF (Provident Fund) or PF scheme. The Employee Provident Fund Organisation establishes all rules and regulations. The Ministry of Labour and Employment oversees the EPFO’s operations.
The employer will collect an amount by subtracting it from your monthly salary during this process. When you start working for a company. Both you and the company contribute 12% of your basic salary to the EPF account. This compensation includes any company-provided dearness allowance. Based on the EPFO’s rules, you will get a fixed rate of interest on this amount.
Is Section 80C Applicable to your EPF?
A provident fund is a type of security fund in which employees contribute a portion of their wage and the employer additionally contributes on their behalf – this was said before. Sections 10(11) and 10(12) of the Income Tax Act define the exemption on the amount contributed to the provident fund. In addition, Section 80C of the Income Tax Act deals with the amount allowed as a deduction for contributions to a provident fund. The following are several types of provident funds.
Types of Provident Funds
- Recognized Provident Fund (RPF): As defined by the Commissioner of Income Tax under the EPF and Miscellaneous Provisions Act of 1952. It is applicable to businesses with at least 20 employees.
- Unrecognized PF: The Commissioner of Income Tax does not recognize unrecognized provident funds (UPF). These schemes are initiated by both employers and employees.
- Public Provident Fund: Another method of contributing to the provident fund is the Public Provident Fund (PPF), which is governed by the Public Provident Fund Act of 1968. This scheme is also open to self-employed individuals. There is a minimum contribution limit of Rs. 500 per year and a maximum contribution limit of Rs. 150000 per year.
- Statutory PF: The Statutory Provident Fund (SPF) is intended for government employees, university staff, and educational institutes linked with universities.
Taxation on PF
Well, you know that if you have an EPF and PF UAN number, then returns are exempt from tax. But still, you would have to declare PPF returns in your income tax returns every year. And this is good news, isn’t it?
There are schemes too that are eligible for Tax Benefits under Section 80C. Here is a glimpse of those schemes that you might like.
ELSS Mutual Funds: ELSS mutual funds have a three-year lock-in period and invest 80% of their capital in equities (stocks). ELSS returns over Rs 1 lakh are subject to a 10% long-term capital gains tax.
Life Insurance Premiums: For yourself or for members of your family, However, if the policy is a single premium policy, it cannot be canceled within two years of its inception. You must pay at least two years’ premiums if you have multiple premium insurance. Failure to do so will result in the deduction being reversed under this Section. Section 80C also allows for a deduction for unit-linked life insurance policies (ULIPs). The Tax on Returns are under Section 10(10)(D) of the Income Tax Act, returns on life insurance policies when the policy cover is at least ten times the annual premium are free from tax.
Tax Saving FD: Tax deductions are available for 5-year tax-saver fixed deposits at banks and post offices. Tax is interest on these fixed deposits is completely taxed.
National Pension System: Section 80CCD (1) and (2) allow for the NPS deduction. Contributions to the NPS by both employers and employees are tax-deductible under Section 80C. However, in order to qualify for this part, your employer’s contributions cannot exceed 10% of your basic pay + dearness allowance. Self-employed individuals can also claim this benefit for contributions up to 20% of their gross income. Furthermore, voluntary donations to the NPS up to Rs 50,000 are deductible in excess of the Rs 1.5 lakh allowed under Section 80 C. Section 80CCD applies to certain voluntary donations. NPS returns is tax-free till maturity. At the time of maturity, 40% of the accrued corpus is tax-free.
National Savings Certificate: National Savings Certificates are a 5-year government-backed savings vehicle. The interest on these certificates is likewise deductible under Section 80C. Returns on NSCs are also deductible under Section 80C.
Senior Citizen Saving Scheme: This is a government-guaranteed savings instrument having a 5-year term that can be extended for a further three years. SCSS returns are fully taxed at your slab rate.
Sukanya Samridhdi Yojana: This is a government-sponsored savings program for girls. It can be opened by the parents of a girl kid under the age of ten. The scheme is valid for 21 years, or until the girl child reaches the age of 18. Sukanya Samriddhi Scheme returns are tax-free.
Now you know that your provident fund is exempted from tax, and that is a good deal. There are a lot of other schemes though – those that fall under the section 80C tax exemption benefits that you can easily get access to.