Section 80C

Section 80C of the Income-tax Act permits a deduction of up to ₹1,50,000 per year from taxable income for investments and expenses in a defined list of tax-saving instruments, including life insurance premiums. The deduction is available only under the old tax regime; the new regime under Section 115BAC removed it as part of the simplified structure with lower slab rates. Inside the ₹1.

5 lakh umbrella, Section 80C jostles many other instruments — Public Provident Fund (PPF), Employees' Provident Fund (EPF), Equity-Linked Savings Scheme (ELSS) mutual funds, National Savings Certificate (NSC), tuition fees for up to two children, principal repayment on a home loan, and five-year tax-saver fixed deposits. The life-insurance premium slice is capped by a sub-rule: for policies issued on or after 1 April 2012, the premium qualifies for 80C only to the extent of 10% of the sum assured (20% for policies issued before April 2012). If the annual premium exceeds 10% of the sum assured, the excess is not deductible under 80C and the maturity proceeds may also lose the Section 10(10D) tax exemption.

Worked example: Rohit, 35, pays ₹1,20,000 EPF contribution (auto-deducted from salary), ₹30,000 PPF, ₹12,000 term insurance premium, and ₹40,000 ELSS SIP in a year. His total eligible amount is ₹2,02,000 but Section 80C caps the deduction at ₹1,50,000 — he effectively 'wastes' ₹52,000 of qualifying investment for tax purposes. He still benefits from the underlying investments, but the tax saving is capped.

Under the old regime at his 31. 2% slab, the ₹1. 5 lakh deduction saves him ₹46,800 in tax.

A common misconception is that every rupee of life insurance premium qualifies for 80C. For modern policies, the 10%-of-sum-assured sub-cap applies, which means a ₹5 lakh sum assured policy with a ₹60,000 annual premium (12% of sum assured) only gets ₹50,000 qualifying under 80C. This sub-cap was introduced in 2012 specifically to discourage the use of low-cover, high-premium savings-linked policies purely as tax shelters.

Another common misconception is that 80C benefits are automatic. They are not — you must file the return, claim the deduction, and keep supporting documents (premium receipts, PPF passbook, EPF statement) for at least six years in case the return is selected for scrutiny. Related: Section 80D, Section 10(10D), new tax regime.