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Section 80C of the Income Tax Act

Context

After the changes announced in the Union Budgets of 2023 and 2024, the government has tried to encourage more people to shift to the new tax regime. The new tax regime offers lower tax rates but removes most deductions and exemptions, including Section 80C. This has led to a debate on whether investments under 80C are still relevant.

What is Section 80C?

Section 80C of the Income Tax Act is one of the most widely used sections for tax-saving in India.
It allows taxpayers to reduce their taxable income by up to one lakh fifty thousand rupees every financial year if they invest or spend in certain specified instruments.
Key 80C options
- Employee Provident Fund (EPF) and Public Provident Fund (PPF): EPF is compulsory for salaried employees in many cases and helps in retirement planning. PPF is a government-backed scheme with tax-free returns and is considered very safe. These options are still useful even without tax benefits because they promote saving and long-term planning.
- Equity Linked Saving Schemes (ELSS): ELSS is a type of mutual fund that invests in equities and has a three-year lock-in. Earlier, many people chose ELSS mainly for tax-saving. Now, with no tax benefit in the new regime, you can choose from a wide variety of equity mutual funds based on your goals.
- Life Insurance: A pure term insurance plan gives a large cover at a low cost. This is useful for people with dependents.
- Small Savings Schemes: These include options like Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme, and National Savings Certificate. These are safe and backed by the government.
- Tax-saving Fixed Deposits: These are five-year fixed deposits offered by banks that were earlier used mainly for tax-saving. They can still be considered if they offer better returns than normal FDs and you are comfortable locking in your money.
This deduction is available only under the old tax regime. It is not allowed under the new tax regime.

Old Tax Regime vs New Tax Regime

Old regime

New regime:

Higher tax rates
Deductions and exemptions like HRA, LTA, 80C, 80D are allowed
People who have large deductions may still benefit more under this system

Lower tax rates
No major deductions allowed, including 80C
Default option for all taxpayers from financial year 2023-24 onwards
Suitable for people who do not have many investments or deductions Because 80C is not allowed in the new tax regime, people who choose it do not get tax benefits from these investments anymore.

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Section 80C of the Income Tax Act

What is Section 80C?

Old Tax Regime vs New Tax Regime